**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-K**







( 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, 2007




OR




o 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**









**MCF
      CORPORATION**


(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(b) of the Act:




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 o No x




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 o 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. Yes x No o




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. o




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




Large
                Accelerated Filer o
            Accelerated
                Filer x
            Non-accelerated
                Filer o




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 11,157,574 shares of common stock of the
      Registrant issued and outstanding as of June 30, 2007, the last business day
      of
      the registrant’s most recently completed second fiscal quarter, excluding
      976,446 shares
      of
      common stock held by affiliates of the Registrant was
      $56,011,021. This amount is based on the closing price of the common stock
      on
      the American Stock Exchange of $5.02 per share on June 30, 2007.




The
      number of shares of Registrant’s common stock outstanding as of February 11,
      2008 was 12,317,940.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Part
      III
      of this Form 10-K incorporates by reference certain portions of the Registrant’s
      proxy statement for its 2008 annual meeting of stockholders to be filed with
      the
      Commission not later than 120 days after the end of the fiscal year covered
      by
      this report.














**TABLE
      OF CONTENTS**




**PART I**Item 1.
            
            Business
            
            1Item 1A.
            
            Risk
                Factors
            
            10Item 1B.
            
            Unresolved
                Staff Comments
            
            21Item 2.
            
            Properties
            
            21Item 3.
            
            Legal
                Proceedings
            
            22Item 4.
            
            Submission
                of Matters to a Vote of Stockholders
            
            22**PART II**Item 5.
            
            Market
                for Registrant’s Common Stock and Related Stockholder
                Matters
            
            23Item 6.
            
            Selected
                Financial Data
            
            25Item 7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            26Item 7A.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            40Item 8.
            
            Financial
                Statements and Supplementary Data
            
            41Item 9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            72Item 9A.
            
            Controls
                and Procedures
            
            72Item 9B.
            
            Other
                Information
            
            72**PART III**Item
                10.
            
            Directors
                and Executive Officers of the Registrant
            
            74Item 11.
            
            Executive Compensation
            
            77Item 12.
            
            Security Ownership
                of Certain Beneficial Owners and Management
            
            77Item 13.
            
            Certain
                Relationships and Related Transactions
            
            77Item 14.
            
            Principal Accounting Fees And Services
            
            77**PART IV**Item 15.
            
            Exhibits
                and Financial Statement Schedules
            
            78




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,” “will,” “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.*




**PART
      I**




**Item
      1. Business**




**Overview**




We
      are a
      financial services holding company that provides investment research, capital
      markets services, corporate and venture services, investment banking, asset
      management and primary research through our operating subsidiaries, Merriman
      Curhan Ford & Co., MCF Asset Management, LLC and Panel Intelligence,
      LLC.




Merriman
      Curhan Ford & Co. 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 $2 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 gaining market share by originating differentiated research
      for
      our institutional investor clients and providing specialized and integrated
      services for our fast-growing corporate clients.




In
      April
      2007, we acquired MedPanel, Inc. (now Panel Intelligence, LLC) and began
      offering custom and published primary research to industry clients and
      investment professionals through online panel discussions, quantitative surveys
      and an extensive research library. Panel Intelligence is positioned to provide
      greater access, compliance, insights and productivity to clients in the
      healthcare, clean technology (“CleanTech”), technology, media and
      telecommunications (“TMT”) and financial industries.





MCF
      Asset
      Management, LLC manages absolute return investment products for institutional
      and high-net worth clients. During 2006, we introduced the MCF Navigator fund
      and MCF Voyager fund. Additionally, we are the sub-advisor for the MCF Focus
      fund. As of December 31, 2007, assets under management across our three fund
      products exceeded $56 million.




We
      are
      headquartered in San Francisco, with additional offices in New York, NY,
      Cambridge, MA, Newport Beach, CA and Portland, OR. As of December 31, 2007,
      we
      had 198 employees. Merriman Curhan Ford & Co. is registered with the
      Securities and Exchange Commission as a broker-dealer and is a member of
      Financial Industry Regulatory Authority (“FINRA”) and the Securities Investors
      Protection Corporation. MCF Asset Management, LLC is registered with the
      Securities and Exchange Commission.




**Principal
      Services**




We
      have
      three business segments: the investment bank / broker-dealer, primary research
      and asset management. Our investment bank / broker-dealer segment provides
      three
      service offerings: investment banking, brokerage and equity research. Our
      primary research segment offers custom, independent primary research services
      to
      health care and Clean Technology companies, as well as financial services firms
      that invest in these companies. Our asset management segment manages investment
      products for investors. We sold our wealth management subsidiary, Catalyst
      Financial Planning & Investment Management Corporation, or Catalyst, in
      January 2007. The results from this segment have been treated as discontinued
      operations.




1




***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. Over the last three years, we have focused on growing our
      investment banking business through the hiring of increasingly senior investment
      bankers and support professionals. As of December 31, 2007, we had 33
      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 that 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 more than
      590
      institutional accounts in the United States. We execute securities transactions
      for money managers, mutual funds, hedge funds, insurance companies, pension
      and
      profit-sharing plans. Institutional investors normally purchase and sell
      securities in large quantities, which require the distribution and trading
      expertise that we provide.




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 we believe 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 NASDAQ and other securities, trade listed securities 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, 2007,
      we
      were a market maker in over 1,200 securities.




2




The
      customer base of our brokerage business is primarily institutional, including
      mutual funds and hedge funds, as well as smaller, private investment firms
      and
      certain high net worth individuals. We believe this group of clients and
      potential clients to number over 4,000. We grew our business during 2007 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. We have generated attractive returns on
      our capital by deploying this strategy since the inception of our
      firm.




*Corporate
      and Venture Services* .
      We
      offer brokerage services to corporations including corporate cash management
      and
      stock repurchase programs through our Corporate and Venture Services group.
      We
      also serve the needs of venture capital investors and company executives with
      restricted stock transactions, cashless exercise of options, hedging and
      diversification strategies, and liquidity strategies. Additionally, the Venture
      Services team provides sales distribution for capital raises for private
      companies via the introduction to venture capital and private equity
      investors.




*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. As
      of
      December 31, 2007, ICD clients have invested over $18 billion in money market
      funds from which ICD earns brokerage fees. ICD
      is a
      division of Merriman Curhan Ford & Co.




*OTCQX
      Advisory* .
      During
      2007, Merriman Curhan Ford & Co. 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 a 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.
      Merriman Curhan Ford & Co. was the first U.S. investment bank to achieve DAD
      and PAL designations.




*Capital
      Access Group* .
      We
      raise capital for institutional hedge funds, venture capital and private equity
      clients for a fee through our Capital Access Group. We believe fee-based capital
      raising is an underserved area of the institutional brokerage
      industry.




***Equity
      Research***




A
      key
      part of our strategy is to originate specialized and in-depth research. Our
      analysts cover a universe of approximately 186 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 are not widely held
      and 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
      December 31, 2007, approximately 78% of the companies covered by our research
      professionals had market capitalizations of $1 billion or less.




3









Our
      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
      to
      our clients.




Our
      objective is to build long lasting relationships with our 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 research analysts are in a unique position to maintain close, ongoing
      communication with our institutional clients.




The
      industry sectors covered by our 15 equity research analysts
      include:





CleanTech/Next-Generation
      Energy SM




·
            Energy
                Storage and Efficiency


·
            Environmental
                Technologies


·
            Next-Generation
                Energy





Health
      Care




·
            Infectious
                Disease and Oncology


·
            Medical
                Technologies


·
            Pain
                & Lifestyle





Tech/Media/Telecom




·
            Communications
                Technology


·
            Internet
                Applications, Software and Services


·
            Semiconductors/Capital
                Equipment Enterprise/Data Center
                Connectivity


·
            Telecom
                and Data Services


·
            Wireless
                Communications





Consumer/Retail




·
            Branded
                Athletic Lifestyle and Specialty
                Retail


·
            Branded
                Consumer - Sin Redefined


·
            Consumer
                Health and Wellness


·
            Specialty
                Retail - Hardline




4









After
      initiating coverage on a company, our analysts seek to effectively communicate
      new developments to our institutional sales and trading professionals as well
      as
      our institutional investors. 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/research.




Our
      equity research group annually hosts several conferences targeting fast growing
      companies and investors, including our Investor Summit, Next-Generation Energy
      Conference and IP Video Conference. Additionally, we host one day Round Robin
      events in which 12-15 fast growing companies present to institutional investors
      in one-on-one meetings. We use these events to showcase innovative and fast
      growing companies to institutional investors focused on investing in these
      growth sectors.




***Asset
      Management***




MCF
      Asset
      Management, LLC creates investment products for both institutional and high-net
      worth clients. Through the corporate and professional resources of MCF
      Corporation, we have developed an institutional-standard investment management
      platform.




The
      1990’s were a decade of broad stock market appreciation. Investors were
      handsomely rewarded for buying exposure to the stock market by investing in
      long
      only mutual funds, market indices or individual stocks. So far this decade,
      equity returns have not been as strong or as consistent as throughout the
      1990’s. As a result, interest in alternative investment strategies, such as
      long/short equity, market neutral, convertible arbitrage, currency arbitrage
      and
      real estate, have grown in popularity. Investing in alternative investment
      strategies will ideally produce absolute returns that are not correlated with
      broad stock market indices and represent a diversification of risk for
      investors.




More
      importantly, we believe both institutions and wealthy individuals have reached
      that same conclusion and will continue to shift more of their investment dollars
      into alternative asset class strategies. It is our intent to help our clients
      in
      their investment process by offering access to alternative investment
      strategies, as well as certain niche based long-only strategies. We have
      established our own alternative investment products and evaluate opportunities
      to acquire and partner with managers of alternative asset investments. We
      currently have three active funds in the marketplace.




5




***Primary
      Research***




In
      April
      2007, we acquired MedPanel, Inc. and began offering primary research services
      through our new subsidiary, Panel Intelligence, LLC. Panel Intelligence offers
      an online primary research platform that provides healthcare, CleanTech and
      TMT
      industry clients and investment professionals with deeper insights and better
      efficiency for investment decisions, product development and marketing. By
      leveraging its proprietary methodology and vast network of healthcare, CleanTech
      and TMT experts, we believe we can quickly provide independent market data
      and
      information to clients.




Our
      primary research product and service offerings arise from the intelligent
      application of our core technology and research platform. Our staff guides
      clients in the development of highly targeted customized quantitative and/or
      qualitative research instruments designed to address business issues important
      to the client. In addition, we have developed proprietary research products
      which we market to multiple clients. These reports provide timely, consistent
      and cross-comparable data on a regular basis to subscribing
      clients.




We
      believe that primary research revenue growth from financial services clients,
      such as mutual fund managers and hedge fund mangers, will accelerate due to
      the
      ability of the combined company to market primary research through our existing
      institutional sales force. Part of MedPanel’s rationale for seeking a merger
      partner was to expand its financial services customer base through an
      established sales force as well as take advantage of the future growth potential
      of a larger, publicly-held company with a greater depth of technologies,
      marketing opportunities and financial and operating resources.




**Competition**




We
      are
      engaged in the highly competitive financial services and investment industries.
      We compete with Wall Street 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. 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. 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.




In
      addition to competing for customers and investments, we compete with other
      companies in the financial services and investment industries to attract and
      retain experienced and productive investment professionals.




Many
      competitors have greater personnel and financial resources than we do. Larger
      competitors are able to advertise their products and services on a national
      or
      regional basis and may have a greater number and variety of distribution outlets
      for their products, including retail distribution. Discount and Internet
      brokerage firms market their services through aggressive pricing and promotional
      efforts. In addition, 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.




Recent
      rapid advancements in computing and communications technology, particularly
      the
      Internet, are substantially changing the means by which financial services
      and
      information are delivered. These changes are providing consumers with more
      direct access to a wide variety of financial and investment services, including
      market information and on-line trading and account information. Advances in
      technology also create demand for more sophisticated levels of client services.
      We are committed to using technological advancements to provide a high level
      of
      client service to our target markets. Provision of these services may entail
      considerable cost without an offsetting source of revenue.




For
      a
      further discussion of the competitive factors affecting our business, see “Item
      1A. Risk Factors—The markets for securities brokerage and investment banking
      services are highly competitive.”




6




**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.




***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 the legal and regulatory
      requirements of our investment banking and asset management businesses 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.




*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.




7




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 as necessary policies, procedures and risk
                limits;




·
            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 assure 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.




As
      a
      broker-dealer registered with the Securities and Exchange Commission, or SEC,
      and as a member firm of Financial Industry Regulatory Authority, we are subject
      to the net capital requirements of the SEC and 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),
      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.




8




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 one of our subsidiaries 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.




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**




MCF
      Corporation is domiciled in the United States and all of our revenue is
      attributed to United States and Canadian customers. 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 Securities and Exchange Commission. 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, our industry and 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
      securities brokerage and investment banking 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;




·
            manage
                expanding operations; and




·
            attract
                and retain qualified personnel.




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 expectations, which makes our ability to successfully implement
      our
      business plan uncertain.




Because
      we are a developing company, 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 and any additional
      financing that may be needed for this purpose 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, or obtain the funds necessary to finance this development.
      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




**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 technology, healthcare, clean technology and
      consumer sectors, as the market for securities of these companies has
      experienced significant variations in the number and size of equity offerings.
      Recently, 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 Chief Executive Officer, 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
      encounter 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, any other member 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, protect our market
      share or retain assets under management, each of which, in turn, could
      materially adversely affect our business and results of operations.




If
      any of
      our professionals were to join an existing competitor or form a competing
      company, some of our clients could choose to use the services of that competitor
      instead of our services. The compensation arrangements, non-competition
      agreements and lock-up agreements we have entered into with certain of our
      professionals may not prove effective in preventing them from resigning to
      join
      our competitors and the non-competition agreements may not be upheld if we
      were
      to seek to enforce our rights under these agreements.




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.





11


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




We
      are
      able to recruit and retain investment banking, research and sales and trading
      professionals, in part because our business model provides that we pay our
      revenue producing employees a percentage of their earned revenue. Compensation
      and benefits is our largest expenditure and this variable compensation component
      represents a significant proportion of this expense. Compensation for our
      employees is derived as a percentage of our revenue regardless of our
      profitability. Therefore, we may continue to pay individual revenue producers
      a
      significant amount of cash compensation as the overall business experiences
      negative cash flows and/or net losses. We may not be able to recruit or retain
      revenue producing employees if we modify or eliminate the variable compensation
      component from our business model.




**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 our 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.




Changes
      in laws and regulations governing brokerage and research activities could also
      adversely affect our brokerage business.




In
      July
      2006, the SEC published interpretive guidance regarding the scope of permitted
      brokerage and research services in connection with “soft dollar” practices
      (i.e., arrangements under which an investment adviser directs client brokerage
      transactions to a broker in exchange for research products or services in
      addition to brokerage services) and solicited further public comment regarding
      soft dollar practices involving third party providers of research. The July
      2006
      SEC interpretive guidance may affect our brokerage business and laws or regulations may prompt brokerage customers to
      revisit or alter the manner in which they pay for research or brokerage
      services. We and firms that compete with us have or may put in place commission
      sharing arrangements under which an institutional client will execute trades
      with a limited number of brokers and instruct those brokers to allocate a
      portion of the commissions generated directly to other broker-dealers or to
      independent research providers in exchange for research and other permissible
      products and services. As such arrangements are entered into by our clients
      with
      us and/or other brokerage firms, it may further increase the competitive
      pressures within the brokerage business and/or reduce the value our clients
      place on high quality research.




In
      2005
      the SEC promulgated Regulation NMS, which made dramatic changes to the
      National Market System, and one of the most significant of those changes, the
      “Order Protection Rule” recently became effective. Under the Order Protection
      Rule, commonly known as the “trade-through rule,” broker-dealers that trade at a
      price higher than the inside offer (or lower than the inside bid) of a market
      center’s best quotation will be required to “take out”, or execute against, that
      market’s quotation. We cannot fully predict the effect that the implementation
      of the Order Protection Rule may have on our brokerage business.




12




**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 for us. 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. Also, difficult market conditions would likely decrease the value
      of assets under management in our asset management business, which would
      decrease the amount of asset-based fees we receive, and may also affect our
      ability to attract additional or retain existing assets under management within
      this business. 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
      company’s 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. 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.




**We
      face strong competition from larger firms.**




The
      brokerage, investment banking and asset management industries are intensely
      competitive and we expect them to remain so. 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. Competitive
      factors with respect to our asset management activities include the amount
      of
      firm capital we can invest in new products and our ability to increase assets
      under management, including our ability to attract capital for new investment
      funds. 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.




13




We
      are a
      relatively small investment bank with approximately 198 employees as of
      December 31, 2007 and revenue less than $90 million in 2007. Many of
      our competitors in the brokerage, investment banking and asset management
      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 brokerage and investment banking
      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 in the recent past and may incur losses in the
      future.**




We
      have
      incurred losses in the recent past. We recorded net losses of $8,220,000 for
      the
      year ended December 31, 2006 and $1,514,000 for the year ended
      December 31, 2005. We also recorded net losses in certain quarters within
      other past fiscal years. We may incur losses in any of our 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, we may incur significant expenses in connection with initiating new
      business activities or in connection with any expansion of our underwriting,
      brokerage, primary research or asset management businesses. We may also engage
      in strategic acquisitions and investments for which we may incur significant
      expenses. Accordingly, we will need to increase our revenue at a rate greater
      than our expenses to achieve and maintain profitability. If our revenue do
      not
      increase sufficiently, or even if our revenue increase but we are unable to
      manage our expenses, we will not achieve and maintain profitability in future
      periods.




**Our
      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 2007 we generated 27%
      of
      our brokerage revenue, or approximately 8% of our total revenue, from our ten
      largest brokerage clients. Similarly, in 2006 we generated 22% of our brokerage
      revenue, or approximately 13% 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.




**Poor
      investment performance, pricing pressure and other competitive factors may
      reduce our asset management revenue or result in losses.**




As
      part
      of our strategy, we are investing in the expansion of our asset management
      business. Our revenue from this business is primarily derived from management
      fees which are based on assets under management and incentive fees, which are
      earned if the return of our investment funds exceeds certain threshold returns.
      Our ability to maintain or increase assets under management is subject to a
      number of factors, including investors’ perception of our past performance,
      market or economic conditions, competition from other fund managers and our
      ability to negotiate terms with investors.




Investment
      performance is one of the most important factors in retaining existing clients
      and competing for new asset management business and our historical performance
      may not be indicative of future results. Poor investment performance and other
      competitive factors could reduce our revenue and impair our growth in many
      ways:




·
            existing
                clients may withdraw funds from our asset management business in
                favor of
                better performing products;




·
            our
                incentive fees could decline or be eliminated
                entirely;




·
            our
                capital investments in our investment funds may diminish in value
                or may
                be lost; and




·
            our
                key employees in the business may depart, whether to join a competitor
                or
                otherwise.




To
      the
      extent our future investment performance is perceived to be poor in either
      relative or absolute terms, our asset management revenue will likely be reduced
      and our ability to raise new funds will likely be impaired. Even when market
      conditions are generally favorable, our investment performance may be adversely
      affected by our investment style and the particular investments that we
      make.




**Limitations
      on our access to capital could impair our liquidity and our ability to conduct
      our businesses.**




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.




Merriman
      Curhan Ford & Co., 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, Merriman Curhan Ford & Co. is
      subject to laws that authorize regulatory bodies to block or reduce the flow
      of
      funds from it to MCF Corporation. As a holding company, MCF Corporation depends
      on distributions and other payments from its subsidiaries to fund all payments
      on its obligations, including debt obligations. As a result, regulatory actions
      could impede access to funds that MCF Corporation needs to make payments on
      obligations, including debt obligations.




15




**Our
      risk management policies and procedures may leave us exposed 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, trading activities
      or asset management 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 reputational 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 we are 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, New York, Cambridge, Newport Beach and Portland, work in
      close 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.




16




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 and 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
      intend
      to 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 reputational 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.**




We
      have a
      limited operating history upon which to evaluate our business and prospects.
      As
      a relatively young enterprise, we are subject to the risks and uncertainties
      that face a company during its formative development. 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 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 be public 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 our business.




17




**Financial
      services firms have been subject to increased scrutiny over the last several
      years, increasing the risk of financial liability and reputational 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 reputational 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.




**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.




18




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 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 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 can not 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.




**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,
      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
      reputational or financial harm. It is not always possible to deter employee
      misconduct and the precautions we take to detect and prevent this activity
      may
      not be effective in all cases, and we may suffer significant reputational harm
      for any misconduct by our employees.




**Risks
      Related to Ownership of Our Common Stock**




**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 25% of our outstanding common stock including exercise
      of
      their options and 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 our organizational documents may discourage an acquisition of
      us.**




Our
      Articles of Incorporation authorize our Board of Directors to issue up to an
      additional 27,450,000 shares of preferred stock, without approval from our
      stockholders. 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.




19




**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;




·
            our
                announcements of significant contracts, milestones,
                acquisitions;




·
            our
                relationships with other companies;




·
            our
                ability to obtain needed capital
                commitments;




·
            additions
                or departures of key personnel;




·
            sales
                of common 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 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.




**Your
      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 2007,
      shares issuable upon the exercise of these options and warrants, at prices
      ranging currently from approximately $1.26 to $49.00 per share, represent
      approximately 7% of our total outstanding stock on a fully diluted basis using
      the treasury stock method.




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.




20





**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, 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 in the foreseeable
      future.**




We
      intend
      to retain any future earnings to fund the operation and expansion of our
      business and, therefore, we do not anticipate paying cash dividends in the
      foreseeable future. Accordingly, our 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.




**Item
      1b. Unresolved Staff Comments**




Not
      applicable.




**Item
      2. Properties**




As
      of
      December 31, 2007, all of our properties are leased. Our principal executive
      offices are located in San Francisco, California. We lease four additional
      offices to support our various business activities. These offices are located
      in
      New York, NY, Cambridge, MA, Newport Beach, CA and Portland, OR. We believe
      the
      facilities we are now using are adequate and suitable for business
      requirements.




21




**Item
      3. Legal Proceedings**




**Thomas
      O’Shea v. Merriman Curhan Ford & Co.**




In
      June
      2006, our broker-dealer subsidiary Merriman Curhan Ford & Co. was served
      with a claim in NASD Arbitration by Mr. O'Shea. Mr. O'Shea is a former at-will
      employee of Merriman Curhan Ford & Co. and worked in the investment banking
      department. Mr. O'Shea resigned from Merriman Curhan Ford & Co. in July
      2005. Mr. O'Shea alleges breach of an implied employment contract, quantum
      meruit, and unjust enrichment based on his allegations that he was to be paid
      more for his work. The matter is in the discovery stage and an arbitration
      hearing scheduled for June 2007 is being rescheduled between the parties and
      the
      Arbitration Panel. We believe that we have meritorious defenses and intend
      to
      contest these claims vigorously. However, in the event that we did 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.





**S3
      Investment Company, Inc. v. Merriman Curhan Ford & Co. and Qualico Capital,
      Inc.**





In
      September 2007, Merriman Curhan Ford & Co. was served with a complaint filed
      by a former client S3 Investment Company, Inc. (“S3i”).The matter is pending
      before the Superior Count in the City and County of San Francisco. The plaintiff
      alleges theories of breach of contract, fraud, negligent misrepresentation,
      intentional and negligent interference with prospective economic relations.
      We
      believe that we have meritorious defenses and intend to contest these claims
      vigorously. However, in the event that we did 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.




**Item
      4. Submission of Matters to a Vote of Stockholders**




No
      matters were submitted to a vote of stockholders during the fourth quarter
      of
      2007.




22


**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. The sales prices below have
      been
      adjusted retroactively to reflect the one-for-seven reverse stock split of
      our
      authorized and outstanding common stock affected on November 16,
      2006.




****
            
            **High**
            
            **Low****2007**
            
            ****
            
            ****Fourth
                Quarter
            
            $
            5.50
            
            $
            3.90Third
                Quarter
            
            
            5.45
            
            
            3.44Second
                Quarter
            
            
            6.15
            
            
            3.86First
                Quarter
            
            
            5.79
            
            
            3.95**2006**Fourth
                Quarter
            
            $
            4.97
            
            $
            3.64Third
                Quarter
            
            
            7.35
            
            
            4.06Second
                Quarter
            
            
            10.29
            
            
            7.00First
                Quarter
            
            
            10.36
            
            
            6.72




The
      closing sale price for our common stock on February 11, 2008 was $5.69. 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 698 stockholders of record as
      of
      December 31, 2007. 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.




23




**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, 2007.


**Plan Category**
              
              **Number of**
                **Securities to**
                **be Issued**
                **Upon**
                **Exercise of**
                **Outstanding**
                **Options and**
                **Warrants**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price of**
                **Outstanding**
                **Options and**
                **Warrants**
              
              **Number of**
                **Securities**
                **Remaining**
                **Available For**
                **Future**
                **Issuance**
                **Under Equity**
                **Compensation**
                **Plans**Equity
                  compensation plans approved by stockholders:1999
                  Stock Option Plan
              
              
              356,160
              
              $
              3.82
              
              
              28,2412000
                  Stock Option and Incentive Plan
              
              
              535,816
              
              $
              13.60
              
              
              4,5912001
                  Stock Option and Incentive Plan
              
              
              505,436
              
              $
              3.19
              
              
              14,1222003
                  Stock Option and Incentive Plan
              
              
              2,550,687
              
              $
              4.60
              
              
              34,5112006
                  Directors’ Stock Option and Incentive Plan
              
              
              —
              
              $
              —
              
              
              53,1722002
                  Employee Stock Purchase Plan
              
              
              —
              
              $
              —
              
              
              —Equity
                  compensation not approved by stockholders
              
              
              118,160
              
              $
              20.45
              
              
              135,413




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 MCF Corporation) 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 member so the Compensation Committee and that a
      press release is issued promptly disclosing the terms of the option
      grant.




**Recent
      Sale of Unregistered Securities**




None.




24




**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.




**2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****Statement
                of operations data:**Revenue
            
            $
            87,655,992
            
            $
            51,818,638
            
            $
            43,184,315
            
            $
            38,368,310
            
            $
            18,306,011Operating
                expenses
            
            
            76,194,659
            
            
            58,315,930
            
            
            44,912,772
            
            
            36,194,924
            
            
            16,832,676Operating
                income (loss)
            
            
            11,461,333
            
            
            (6,497,292
            )
            
            (1,728,457
            )
            
            2,173,386
            
            
            1,473,335Gain
                (loss) on retirement of convertible notes
              payable
                (1)
            
            
            —
            
            
            (1,348,805
            )
            
            —
            
            
            —
            
            
            3,088,230Interest
                income
            
            
            461,922
            
            
            484,909
            
            
            446,273
            
            
            120,431
            
            
            39,483Interest
                expense(2)
            
            
            (138,055
            )
            
            (535,014
            )
            
            (76,103
            )
            
            (169,787
            )
            
            (1,554,901
            )Income
                tax expense
            
            
            (2,462,165
            )
            
            —
            
            
            (142,425
            )
            
            (249,744
            )
            
            (74,884
            )Income
                (loss) from continuing operations
            
            
            9,323,035
            
            
            (7,896,202
            )
            
            (1,500,712
            )
            
            1,874,286
            
            
            2,971,263Loss
                from discontinued operations
            
            
            —
            
            
            (324,213
            )
            
            (13,731
            )
            
            —
            
            
            —Net
                income (loss)
            
            $
            9,323,035
            
            $
            (8,220,415
            )
            $
            (1,514,443
            )
            $
            1,874,286
            
            $
            2,971,263Diluted
                income (loss) from continuing operations
            
            $
            0.74
            
            $
            (0.79
            )
            $
            (0.16
            )
            $
            0.16
            
            $
            0.39**Statement
                of financial condition data:**Cash
                and cash equivalents
            
            $
            31,962,201
            
            $
            13,746,590
            
            $
            11,138,923
            
            $
            17,459,113
            
            $
            6,142,958Marketable
                securities owned
            
            
            14,115,022
            
            
            7,492,914
            
            
            8,627,543
            
            
            2,342,225
            
            
            608,665Total
                assets
            
            
            64,573,331
            
            
            30,498,213
            
            
            27,694,413
            
            
            25,007,824
            
            
            9,703,946Capital
                lease obligations
            
            
            890,272
            
            
            1,292,378
            
            
            883,993
            
            
            452,993
            
            
            24,401Notes
                payable, net
            
            
            238,989
            
            
            325,650
            
            
            408,513
            
            
            1,487,728
            
            
            1,927,982Stockholders’
                equity
            
            $
            34,806,048
            
            $
            16,215,020
            
            $
            18,403,001
            
            $
            16,733,850
            
            $
            5,261,210





(1)
            In
                April 2003, we exercised our right to cancel the convertible promissory
                note held by Forsythe McArthur & Associates with the principal sum of
                $5,949,042. The fair value of the consideration provided to Forsythe
                was
                less than the carrying amount of the convertible note payable. The
                difference between the fair value of the consideration provided to
                Forsythe and the carrying amount of the note payable, or $3,088,230,
                was
                recorded as a gain. In December 2006, MCF Corporation 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 267,857 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
                the unamortized debt issuance
                costs.




(2)
            Interest
                expense for 2003 included $1,291,000 in amortization of discounts
                and debt
                issuance costs, while the 2004 amount included $119,000 for amortization
                of discounts and debt issuance costs. The higher amortization expense
                in
                2003 was due to the accelerated amortization that occurred as the
                notes
                payable were retired or converted to equity instruments during 2003.
                The
                total amount of discounts that will be amortized in future periods
                was
                $3,000 as of December 31, 2007.




25




**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**




We
      are a
      financial services holding company that provides investment research, capital
      markets services, corporate and venture services, investment banking, asset
      management and primary research through our operating subsidiaries, Merriman
      Curhan Ford & Co., MCF Asset Management, LLC and Panel Intelligence,
      LLC.




Merriman
      Curhan Ford & Co. 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 $2 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 gaining market share by originating differentiated research
      for
      our institutional investor clients and providing specialized and integrated
      services for our fast-growing corporate clients.




In
      April
      2007, we acquired MedPanel, Inc. (now Panel Intelligence, LLC) and began
      offering custom and published primary research to industry clients and
      investment professionals through online panel discussions, quantitative surveys
      and an extensive research library. Panel Intelligence is positioned to provide
      greater access, compliance, insights and productivity to clients in the
      healthcare, CleanTech, TMT and financial industries.





MCF
      Asset
      Management, LLC manages absolute return investment products for institutional
      and high-net worth clients. During 2006, we introduced the MCF Navigator fund
      and MCF Voyager fund. Additionally, we are the sub-advisor for the MCF Focus
      fund. As of December 31, 2007, assets under management across our three fund
      products exceeded $56 million.




**Executive
      Summary**




Our
      revenue grew 69% during 2007 to $87,656,000, a record high, with healthy
      expansion across our business lines. Net income was $9,323,000, or $0.74 per
      diluted share during 2007 which represents a significant turnaround from our
      $8,220,000 net loss in 2006. We were profitable in each of the four quarters
      during 2007 and we have had consecutive year-over-year revenue growth since
      we
      launched Merriman Curhan Ford & Co. at the beginning of 2002. We earned
      $0.51 per diluted share during the fourth quarter which primarily resulted
      from
      strong investment banking revenue and significant gains in our proprietary
      trading activity. Our focus during 2007 was to grow our revenue per employee,
      generate meaningful operating cash flows, introduce primary research as a new
      service offering and closely manage our non-compensation related expenses.
      Our
      focus in 2008 will be to build on our recent success in our core businesses,
      further develop our new businesses, including primary research and OTCQX
      advisory, while continuing to lower our compensation expense as a percentage
      of
      revenue.




*Investment
      Banking -* The
      investment banking team had another strong year with 42% revenue growth in
      2007,
      which followed 43% revenue growth in 2006. We closed 40 corporate financing
      and
      strategic advisory transactions during the year with average transaction fees
      of
      $710,000. Most of the growth in 2007 was resulted from equity underwritten
      transaction revenue which nearly doubled over 2006. Our success in expanding
      of
      this business in 2007 can be attributed to the seasoning of our senior
      investment bankers and support professionals and our focus on fast growing
      companies in our target sectors such as Clean Technology and healthcare.
      Additionally, we were more selective in the investment banking assignments
      that
      we engaged in 2007 which resulted in a higher transaction closing rate.




26




*Principal
      Transactions -* Our
      principal transactions activity during 2007 was robust with significant gains
      in
      our proprietary trading activity, investment portfolio and profitable market
      making. We particularly benefited from the significant price appreciation in
      one
      equity security position, Points International, that we had filed a Statement
      of
      Beneficial Ownership on Schedule 13D with the SEC in 2006. We profitably exited
      approximately 3 million shares of the position in late 2007 and no longer are
      required to file our beneficial ownership with the SEC. 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. Over the past few years, we have generated
      attractive returns on our capital by deploying this strategy.




*Commissions
      -* Commissions revenue from brokering equity securities to institutional investors
      declined slightly in 2007. 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 -* Our
      Institutional Cash Distributors business continued to expand rapidly in 2007
      with average assets brokered nearly doubling over 2006. ICD revenue grew at
      a
      rate of 114% in 2006 and 70% in 2007. We expect that ICD revenue will continue
      to grow in 2008.





*Primary
      Research -* We
      closed the acquisition of MedPanel, Inc. in April 2007 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 September 2007, we launched independent primary research
      for the Clean Technology vertical, which encompasses technologies that reduce
      humans’ impact on the environment. We have positioned our firm to be an early
      provider of primary research to both our corporate clients as well as financial
      service clients who are using our product to facilitate their investment
      decisions.




*OTCQX
      Advisory.* During
      2007, Merriman Curhan Ford & Co. 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 a 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.
      Merriman Curhan Ford & Co. was the first U.S. investment bank to achieve DAD
      and PAL designations.




*Employees
      -* Our
      overall headcount increased by 19% to 198 during 2007, though most of this
      growth resulted from the MedPanel acquisition. During 2007, we emphasized
      finding the most qualified employee for each position to boost revenue per
      employee. We expect that we will continue to increase our employee headcount
      by
      10% to 15% during 2008, 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. These activities resulted in higher operating expenses
      in 2007.




While
      the
      subprime mortgage crisis has not had any direct impact on our firm, the current
      economic outlook for 2008 is obscured by credit anxieties, slowing growth,
      expensive commodities and the decreasing purchasing power of the U.S. dollar
      which may adversely impact our capital markets activities. However, the positive
      financial results from 2007 have strengthened our balance sheet and provided
      us
      with significantly more liquidity than we had at the start of fiscal 2007.




27




**Business
      Environment**




The
      equity and commodity markets were highly volatile during 2007 with major U.S.
      stock indexes ending the year mixed. After a brief sell-off in the first
      quarter, most U.S. stock indexes advanced in the second quarter and third
      quarter with many setting record highs. Stocks moved higher based on corporate
      earnings and later overcame short periods of increased volatility in July and
      August associated with investor’s concerns about soft retail sales, rising
      interest rates, inflation, the housing market and sub-prime mortgage woes.
      An
      active mergers-and-acquisitions market, fueled to a significant degree by buying
      from private equity funds, was one factor supporting the market. Investors
      also
      welcomed two 50 basis point cuts in the fed funds rate and discount rate in
      late
      summer. Stocks traded lower in the final quarter of 2007 as ongoing weakness
      in
      the housing market, concerns over sub-prime mortgages and crude oil prices
      that
      topped $100 per barrel all undermined investor confidence. The Fed reduced
      rates
      by another 50 basis points during the fourth quarter, however this action did
      little for the market.




The
      S&P 500 Index, a large-cap benchmark, gained 5.5% for the year while the
      technology-sensitive Nasdaq Composite Index rose 9.8% in 2007. U.S. small cap
      stocks performed especially poorly in 2007 with the Russell 2000 Index declining
      1.6% for all of 2007.




Our
      securities broker-dealer and investment banking activities are linked to the
      capital markets. In addition, our business activities are focused in the
      technology, telecommunications, next-generation energy, health care and consumer
      sectors. By their nature, our business activities are highly competitive and
      are
      not only subject to general market conditions, volatile trading markets and
      fluctuations in the volume of market activity, but also to the conditions
      affecting the companies and markets in our areas of focus.




Fluctuations
      in revenue also occur due to the overall level of market activity, which, among
      other things, affects the flow of investment dollars and the size, number and
      timing of investment banking transactions. In addition, a downturn in the level
      of market activity can lead to a decrease in brokerage commissions. Therefore,
      revenue in any particular period may vary significantly from year to
      year.




The
      financial services industry continues to be affected by an intensifying
      competitive environment. There has been an increase in the number and size
      of
      companies competing for a similar customer base; some of such competitors have
      greater capital resources and additional associated services with which to
      pursue these activities.




28




**Results
      of Operations**




The
      following table sets forth a summary of financial highlights for the three
      years
      ended December 31, 2007:




**2007**
            
            **2006**
            
            **2005**Revenue:Commissions
            
            $
            31,681,563
            
            $
            30,105,085
            
            $
            26,992,427Investment
                banking
            
            
            30,138,783
            
            
            21,190,786
            
            
            14,816,814Principal
                transactions
            
            
            20,116,392
            
            
            (171,055
            )
            
            1,366,938Primary
                research
            
            
            3,848,421
            
            
            —
            
            
            —Advisory
                and other fees
            
            
            1,870,833
            
            
            693,822
            
            
            8,136Total
                revenue
            
            
            87,655,992
            
            
            51,818,638
            
            
            43,184,315Operating
                expenses:Compensation
                and benefits
            
            
            56,101,887
            
            
            42,840,431
            
            
            31,659,488Brokerage
                and clearing fees
            
            
            2,635,328
            
            
            2,614,513
            
            
            2,312,616Cost
                of primary research
            
            
            1,595,502
            
            
            —
            
            
            —Professional
                services
            
            
            2,823,391
            
            
            2,441,417
            
            
            1,987,317Occupancy
                and equipment
            
            
            1,862,069
            
            
            1,665,410
            
            
            1,522,351Communications
                and technology
            
            
            3,483,752
            
            
            2,969,872
            
            
            1,918,693Depreciation
                and amortization
            
            
            740,445
            
            
            645,129
            
            
            490,165Amortization
                of intangible assets
            
            
            750,185
            
            
            —
            
            
            —Travel
                and business development
            
            
            2,607,042
            
            
            2,738,393
            
            
            1,723,290Other
            
            
            3,595,058
            
            
            2,400,765
            
            
            3,298,852Total
                operating expenses
            
            
            76,194,659
            
            
            58,315,930
            
            
            44,912,772Operating
                income (loss)
            
            
            11,461,333
            
            
            (6,497,292
            )
            
            (1,728,457
            )Loss
                on retirement of convertible note payable
            
            
            —
            
            
            (1,348,805
            )
            
            —Interest
                income
            
            
            461,922
            
            
            484,909
            
            
            446,273Interest
                expense
            
            
            (138,055
            )
            
            (535,014
            )
            
            (76,103
            )Income
                (loss) from continuing operations before income taxes
            
            
            11,785,200
            
            
            (7,896,202
            )
            
            (1,358,287
            )Income
                tax expense
            
            
            (2,462,165
            )
            
            —
            
            
            (142,425
            )Income
                (loss) from continuing operations
            
            
            9,323,035
            
            
            (7,896,202
            )
            
            (1,500,712
            )Loss
                on discontinued operations
            
            
            —
            
            
            (324,213
            )
            
            (13,731
            )Net
                income (loss)
            
            $
            9,323,035
            
            $
            (8,220,415
            )
            $
            (1,514,443
            )




Our
      revenue during 2007 increased by $35,837,000 or 69%, from 2006 reflecting growth
      across our businesses, with particular strength in principal transactions and
      solid growth in investment banking transactions. Net income for 2007 was
      $9,323,000 as compared to net loss of $8,220,000 during 2006.





Our
      net
      income (loss) during the three years ended December 31, 2007 included the
      following non-cash items:





**2007**
            
            **2006**
            
            **2005**Stock-based
                compensation
            
            $
            2,824,107
            
            $
            3,836,781
            
            $
            1,959,329Amortization
                of intangible assets
            
            
            750,185
            
            
            138,051
            
            
            34,366Depreciation
                and amortization
            
            
            740,445
            
            
            655,334
            
            
            493,672Provision
                for uncollectible accounts receivable
            
            
            368,272
            
            
            383,565
            
            
            556,493Issuance
                of common stock to consultant
            
            
            75,791
            
            
            —
            
            
            —Amortization
                of discounts on debt
            
            
            10,332
            
            
            146,776
            
            
            10,335Loss
                on retirement of convertible note payable
            
            
            —
            
            
            1,348,805
            
            
            —Amortization
                of debt issuance costs
            
            
            —
            
            
            35,757
            
            
            —Common
                stock received for services
            
            
            (400,875
            )
            
            —
            
            
            —Total
            
            $
            4,368,257
            
            $
            6,545,069
            
            $
            3,054,195




29




***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 three years ended December 31,
      2007:


**2007**
                
                **2006**
                
                **2005****Revenue:**Capital
                    raising
                
                $
                26,996,283
                
                $
                15,939,480
                
                $
                13,396,781Financial
                    advisory
                
                
                3,142,500
                
                
                5,251,306
                
                
                1,420,033Total
                    investment banking revenue
                
                $
                30,138,783
                
                $
                21,190,786
                
                $
                14,816,814**Transaction
                    Volumes:**Public
                    offerings:Capital
                    underwritten participations
                
                $
                234,596,000
                
                $
                156,500,000
                
                $
                71,238,000Number
                    of transactions
                
                
                13
                
                
                15
                
                
                8Private
                    placements:Capital
                    raised
                
                $
                331,480,000
                
                $
                173,101,000
                
                $
                253,939,000Number
                    of transactions
                
                
                26
                
                
                15
                
                
                14Financial
                    advisory:Transaction
                    amounts
                
                $
                129,161,000
                
                $
                169,423,000
                
                $
                21,321,000Number
                    of transactions
                
                
                1
                
                
                1
                
                
                1




Our
      investment banking revenue amounted to $30,138,783, or 34% of our revenue during
      2007, representing a 42% increase compared to $21,191,000 recognized in 2006.
      Revenue growth was driven by equity underwritten transactions which increased
      by
      95% in 2007 as compared to the prior year. Average fees per investment banking
      transaction grew to $710,000 in 2007 from $600,000 in 2006.




Our
      investment banking revenue amounted to $21,191,000, or 41% of our revenue during
      2006, representing a 43% increase compared to $14,817,000 recognized in 2005.
      We
      expanded our public underwriting and financial advisory transactions during
      2006
      which we believe is valuable to us building our long-term franchise. We
      participated in 15 equity underwriting transactions and lead our first initial
      public offering during 2006.




During
      each of the three years ended December 31, 2007, no single investment banking
      customer accounted for more than 10% of our 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.




30




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:




**2007**
            
            **2006**
            
            **2005****Revenue:**Commissions:Institutional
                equities
            
            $
            25,312,803
            
            $
            26,348,811
            
            $
            25,240,317Institutional
                Cash Distributors
            
            
            6,368,760
            
            
            3,756,274
            
            
            1,752,110Total
                commissions revenue
            
            $
            31,681,563
            
            $
            30,105,085
            
            $
            26,992,427Principal
                transactions:Customer
                principal transactions, proprietary trading and market
                making
            
            $
            18,380,237
            
            $
            (207,779
            )
            $
            308,764Investment
                portfolio
            
            
            1,736,155
            
            
            36,724
            
            
            1,058,174Total
                principal transactions revenue
            
            $
            20,116,392
            
            $
            (171,055
            )
            $
            1,366,938**Equity
                research:**Publishing
                analysts
            
            
            15
            
            
            14
            
            
            14Companies
                covered
            
            
            186
            
            
            194
            
            
            136**Transaction
                Volumes:**Number
                of shares traded
            
            
            1,160,782,000
            
            
            937,005,000
            
            
            983,755,000Number
                of active clients
            
            
            597
            
            
            564
            
            
            614




Commissions
      amounted to $31,682,000, or 36%, of our revenue during 2007, representing a
      5%
      increase over $30,105,000 recognized during 2006. The growth in commissions
      revenue was attributed to higher assets brokered by our Institutional Cash
      Distributors group during 2007. Commissions revenue from our institutional
      equities trading business was down slightly during 2007 due to a decrease in
      average commissions per share, partially offset by higher average daily trading
      volume.




Commissions
      amounted to $30,105,000, or 58%, of our revenue during 2006, representing an
      11%
      increase over $26,992,000 recognized during 2005. The higher commissions can
      be
      attributed to the increase in the number of companies in our selected growth
      sectors that are covered by our research analysts from 136 at December 31,
      2005
      to 194 at December 31, 2006. The increase in revenue during 2006 was also due
      to
      an increase in average commissions per share, partially offset by a slight
      decrease in our average daily trading volume in equity securities. Finally,
      assets brokered by our Institutional Cash Distributors group have more than
      doubled during 2006.




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.




Principal
      transactions amounted to $20,116,000, or 23%, of our revenue during 2007, while
      principal transactions decreased revenue by $171,000 during 2006. Of the 2007
      revenue, $14,164,000 resulted from our concentrated position in Points
      International Ltd (PTSEF.OB). Merriman Curhan Ford & Co. had accumulated a
      5,000,000 share position in this security during 2006. During 2007, the price
      of
      this security appreciated significantly resulting in a large gain for our firm.
      We sold approximately 3,000,000 shares of Points during the fourth quarter
      of
      2007. This significant principal transactions gain in 2007 may not be recurring
      in future periods as we cannot predict overall market conditions. Other
      components of principal transactions revenue during 2007 included principal
      trades for customers, realized and unrealized gains from our investment
      portfolio and trading gains from making markets in equity
      securities.




During
      2006, we incurred $2,255,000 in losses resulting primarily from an unrealized
      loss from our position in Points International Ltd. This loss was partially
      offset by revenue from principal trades for customers.




During
      the three years ended December 31, 2007, no single brokerage customer accounted
      for more than 10% of our revenue.





***Primary
      Research Revenue***




Primary
      research revenue represents the operating results of Panel Intelligence from
      the
      date of the MedPanel acquisition, April 17, 2007, through December 31,
      2007.  We are now offering independent market data and information to
      clients in the biotechnology, pharmaceutical, medical device, clean tech and
      financial industries.




31




***Compensation
      and Benefits Expenses***




Compensation
      and benefits expense represents the majority of our operating expenses and
      includes incentive compensation paid to sales, trading, research and investment
      banking professionals, as well as discretionary bonuses, salaries and wages,
      and
      stock-based compensation. Incentive compensation varies primarily based on
      revenue production. Discretionary bonuses paid to research analysts also vary
      with commissions revenue production but includes other qualitative factors
      as
      well. Salaries, payroll taxes and employee benefits tend to vary based on
      overall headcount.




The
      following table sets forth the major components of our compensation and benefits
      for the three years ended December 31, 2007:




**2007**
            
            **2006**
            
            **2005**Incentive
                compensation and discretionary bonuses
            
            $
            34,681,099
            
            $
            26,563,425
            
            $
            17,990,288Salaries
                and wages
            
            
            14,627,800
            
            
            9,076,815
            
            
            8,995,642Stock-based
                compensation
            
            
            2,824,107
            
            
            3,836,781
            
            
            1,959,329Payroll
                taxes, benefits and other
            
            
            3,968,881
            
            
            3,363,410
            
            
            2,714,229Total
                compensation and benefits
            
            $
            56,101,887
            
            $
            42,840,431
            
            $
            31,659,488Total
                compensation and benefits as a percentage of revenue
            
            
            64
            %
            
            83
            %
            
            73
            %Cash
                compensation and benefits as a percentage of revenue
            
            
            61
            %
            
            75
            %
            
            69
            %




The
      increase in compensation and benefits expense of $13,261,000, or 31%, from
      2006
      to 2007 was due primarily to higher incentive compensation which is directly
      correlated to revenue production. Cash compensation is equal to total
      compensation and benefits expense excluding stock-based compensation, which
      is a
      non-cash expense. Cash compensation and benefits expense as a percentage of
      revenue decreased to 61% during 2007 as compared to 75% during 2006. This
      improvement in 2007 was largely attributed to our overall revenue growth which
      was 69% higher than 2006 and our extraordinary principal transactions revenue
      as
      this activity has a low compensation expense ratio.




The
      increase in compensation and benefits expense of $11,181,000 or 35%, from 2005
      to 2006 was due primarily to higher incentive compensation which is directly
      correlated to revenue production. Additionally, our stock-based compensation
      expenses increased by $1,877,000 during 2006 as a result of adopting SFAS No.
      123(R). Cash compensation and benefits expense as a percentage of revenue
      increased to 75% during 2006 as compared to 69% in 2005. The proprietary trading
      losses of $2,255,000 during 2006 added 3% to cash compensation as a percentage
      of revenue as the losses reduced revenue but did not impact compensation
      expense. The balance of this variance was caused by our increasing certain
      incentive payouts during the current year.




Stock-based
      compensation increased by $1,877,000 in 2006 as compared to 2005. We adopted
      SFAS 123(R), “Share-Based Payment,” on January 1, 2006 which requires that we
      recognize compensation expense for all share-based awards made to employees
      and
      directors based on estimated fair values. We used the modified prospective
      application transition method and, accordingly, have not restated financial
      statements for prior periods to include the impact of SFAS 123(R). To determine
      the valuation of share-based awards under SFAS 123(R), we continue to use the
      Black-Scholes option pricing model that we utilized to determine our pro forma
      share-based compensation in prior periods. Additional information regarding
      our
      adoption of SFAS 123(R) during 2006 is set forth in the notes to the
      consolidated financial statements and in “Critical Accounting Policies and
      Estimates”.




Our
      headcount has increased from 155 at December 31, 2005 to 166 as of December
      31,
      2006 to 198 at December 31, 2007. No single sales professional accounted for
      more than 10% of our revenue in 2007 and 2006. One sales professional accounted
      for 12% of our revenue during 2005.




32




***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. Merriman Curhan Ford & Co. 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 Merriman Curhan Ford & Co. 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 slight increase in brokerage and clearing fees of $21,000,
      or
      1% from 2006 to 2007 reflected increased market making activity during the
      latest year. The increase in brokerage and clearing fees of $302,000, or 13%
      from 2005 to 2006 was inline with our growth in the brokerage commission
      activities. We anticipate brokerage and clearing fees for 2008 will increase
      sequentially over 2007 as we are forecasting a higher level of commissions
      revenue for 2008.




Costs
      of
      primary research revenue principally consist of panelist honorarium and
      recruitment costs. Medical experts receive cash honoraria for participating
      in
      qualitative panels and quantitative surveys. We pay the honoraria to the
      panelists when the panel or survey has been completed and record this expense
      as
      incurred. We closed the acquisition of MedPanel on April 17, 2007 and began
      recognizing primary research revenue and related expenses since that
      date.




Professional
      services expense includes legal fees, accounting fees, expenses related to
      investment banking transactions and various consulting fees. Many of these
      expenses, such as legal and accounting fees, are to a large extent fixed in
      nature. The increase of $382,000, or 16%, from 2006 to 2007 reflected higher
      legal fees for litigation defense and corporate matters, as well as higher
      accounting and consulting fees mostly in connection with the integration of
      the
      MedPanel acquisition. The increase of $454,000 or 23%, from 2005 to 2006
      included higher legal fees in connection with investment banking transactions,
      costs involved with introducing our new investment products and litigation
      related costs. We anticipate professional services expense for 2008 will
      increase slightly as compared to 2007.




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
      as
      we hire additional employees. The increase of $197,000, or 12%, from 2006 to
      2007 and the increase of $143,000, or 9%, from 2005 to 2006 resulted mostly
      from
      expansion of our offices as well as computer equipment purchases resulting
      from
      the hiring of additional investment banking, research, sales and trading
      professionals. During 2007, we added the office lease in Cambridge, MA as a
      result of our MedPanel acquisition. During 2006, we leased additional space
      in
      San Francisco. We anticipate occupancy and equipment expense in 2008 will
      increase by approximately $1 million over 2007 as our office lease in New York
      expires in March 2008 and current office rents are substantially higher than
      our
      existing lease.




Communications
      and technology expense includes market data and quote services, voice, data
      and
      Internet service fees, and data processing costs. Historically, these costs
      have
      increased as we hire additional employees. The increase of $514,000, or 17%,
      from 2006 to 2007 and the increase of $1,051,000, or 55%, from 2005 to 2006
      was
      primarily due to upgrading our trading order management system in June 2006,
      as
      well as the increase in market data and quote services as we continue to expand
      our market maker activities. We anticipate communications and technology expense
      for 2008 will increase by approximately 10% sequentially over 2007.




Depreciation
      and amortization expense primarily relate to the depreciation of our computer
      equipment and leasehold improvements. Depreciation and amortization is mostly
      fixed in nature. The increase of $95,000, or 15%, from 2006 to 2007 mostly
      resulted from the depreciation of assets acquired with MedPanel. The increase
      of
      $155,000, or 32%, from 2005 to 2006 was due to increased capital expenditures,
      including additional leasehold improvements to our San Francisco office during
      2006. We anticipate depreciation and amortization expense for 2008 will be
      slightly higher as compared to 2007.




33




Identifiable
      intangible assets capitalized in connection with the acquisition of MedPanel
      included customer relationships, customer backlog, technology platform and
      the
      database of registered panelists. The estimated fair market value of these
      amortizable intangible assets amounting to $1,990,000 will be amortized over
      periods ranging from 8 months to 56 months. Amortization of intangible assets
      expense for 2007 was $750,000. We anticipate amortization of intangible assets
      expense for 2008 will be approximately $500,000




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 $131,000, or 5%, from 2006 to 2007 resulted from fewer
      uncompleted investment banking transaction in 2007 as compared to 2006. The
      increase of $1,015,000, or 59%, from 2005 to 2006, was due a greater level
      of
      uncompleted investment banking transactions and to our continued effort to
      extend our penetration with our active clients and seeking new business
      opportunities with potential clients. 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. We anticipate travel and entertainment expense for
      2008 will likely be higher than 2007.




The
      following expenses are included in other operating expenses for the three years
      ended December 31, 2007:





**2007**
            
            **2006**
            
            **2005**Investor
                conferences
            
            $
            920,186
            
            $
            947,793
            
            $
            831,652Recruiting
            
            
            548,051
            
            
            316,021
            
            
            452,139Public
                and investor relations
            
            
            512,589
            
            
            294,664
            
            
            242,543Provision
                for uncollectible accounts receivable
            
            
            368,271
            
            
            (116,435
            )
            
            556,493Insurance
            
            
            315,286
            
            
            271,725
            
            
            273,845Supplies
            
            
            311,523
            
            
            300,598
            
            
            221,729Dues
                and subscriptions
            
            
            218,113
            
            
            162,064
            
            
            152,961Other
            
            
            401,039
            
            
            224,335
            
            
            567,490Total
                other operating expenses
            
            $
            3,595,058
            
            $
            2,400,765
            
            $
            3,298,852




The
      increase of $1,194,000, or 50%, was due primarily to one-time events in 2006
      that reduced other expense by approximately $600,000. The increase also
      reflected higher public and investor relations as well as recruiting fees.
      The
      decrease of $898,000 or 27%, from 2005 to 2006 was primarily due to the reversal
      of $500,000 of bad debt expense from 2005 related to the note receivable from
      Ascend Services Ltd. We collected the full balance of the Ascend note receivable
      in 2006. The decrease in 2006 also reflects the receipt of a favorable legal
      judgment to the firm related to a brokerage activity claim, as well as decrease
      in recruiting expense. The 2005 expense also includes the write-off of the
      $500,000 note receivable from Ascend. We anticipate other operating expense
      for
      2008 will increase sequentially over 2007.




***Loss
      on Retirement of Convertible Note Payable***




In
      March
      2006, we raised $7.5 million in a private placement of a five year convertible
      debenture with a detachable stock warrant. We raised the capital so that we
      could invest the proceeds as general partner in the MCF Navigator fund. In
      December 2006, we repaid the $7.5 million secured convertible note. The proceeds
      to repay the $7.5 million convertible note were provided by redemption from
      the
      MCF Navigator fund. The investor, Midsummer Investment, Ltd., 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 the unamortized debt issuance
      costs. Midsummer reinvested the $7.5 million directly into the MCF Voyager
      fund
      and MCF Navigator fund as limited partner.




34




***Interest
      Income***




Interest
      income represents interest earned on our cash balances maintained at financial
      institutions. The decrease of $23,000, or 5%, from 2006 to 2007 and the increase
      of approximately $39,000, or 9%, from 2005 to 2006 were due to changes in
      average interest earning assets and average interest rates during these
      periods.




***Interest
      Expense***




Interest
      expense for 2007 included $128,000 for interest expense and $10,000 for
      amortization of discounts while 2006 included $352,000 for interest expense
      and
      $183,000 for amortization of discounts and debt issuance costs. The 2006 expense
      included interest and amortization expenses from the note payable to Midsummer
      Investments, Ltd.




***Income
      Tax Expense***




Income
      tax expense was $2,462,000 in 2007 resulting in an effective tax rate of 21%.
      We
      did not record income tax expense in 2006. 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.




We
        adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
        Taxes -
        an Interpretation of FASB Statement 109 (“FIN 48”) on January 1, 2007. As a
        result of the implementation of FIN 48, we recognized no adjustment in the
        liability for unrecognized income tax benefits and no corresponding change
        in
        retained earnings. We do not have any material accrued interest or penalties
        associated with any unrecognized tax benefits. We do not believe it is
        reasonably possible that our unrecognized tax benefits will significantly
        change
        within the next twelve months. There were no unrecognized tax benefits as
        of
        December 31, 2007. We are subject to taxation in the US and various state
        and
        foreign jurisdictions. The tax years 2002-2006 remain open in several
        jurisdictions, none of which have individual significance.


**Critical
      Accounting Policies and Estimates**




The
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States, 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.




35




***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 reduces 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.




***Valuation
      of Securities Owned***




“Securities
      owned” and “Securities sold, but not yet purchased” in our consolidated
      statements of financial condition consist of financial instruments carried
      at
      fair value or amounts that approximate fair value, with related unrealized
      gains
      or losses recognized in our results of operations. The use of fair value to
      measure these financial instruments, with related unrealized gains and losses
      recognized immediately in our results of operations, is fundamental to our
      financial statements and is one of our most critical accounting policies. The
      fair value of a financial instrument is the amount at which the instrument
      could
      be exchanged in a current transaction between willing parties, other than in
      a
      forced or liquidation sale.




Fair
      values of our financial instruments are generally obtained from quoted market
      prices in active markets, broker or dealer price quotations, or alternative
      pricing sources with reasonable levels of price transparency. To the extent
      certain financial instruments trade infrequently or are non-marketable
      securities and, therefore, have little or no price transparency, we value these
      instruments based on management's estimates. The fair value of these securities
      is subject to a high degree of volatility and may be susceptible to significant
      fluctuation in the near term. Securities that contain restrictions are stated
      at
      a discount to the value of readily marketable securities. Stock warrants are
      carried at a discount to fair value as determined by using the Black-Scholes
      Option Pricing model.




36




***Stock-Based
      Compensation***




On
      January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment,” which requires
      the measurement and recognition of compensation expense, based on estimated
      fair
      values, for all share-based awards, made to employees and directors, including
      stock options, non-vested 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, 2007 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 estimated
      in
      accordance with the provisions of SFAS 123, and (ii) subsequent to December
      31,
      2005, based on the grant date fair value estimated in accordance with the
      provisions of SFAS 123(R).




We
      estimate the fair value of stock options granted using the Black-Scholes option
      pricing method. This option pricing 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. The Company calculated the expected term using the lattice 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.




Because
      share-based compensation expense is based on awards that are ultimately expected
      to vest, it has been reduced to account for estimated forfeitures. SFAS 123(R)
      requires forfeitures to be estimated at the time of grant and revised, if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Changes in these inputs and assumptions can materially affect the
      measure of estimated fair value of our share-based compensation.




***Deferred
      Tax Valuation Allowance***




We
      account for income taxes in accordance with the provision of SFAS No. 109,
      Accounting for Income Taxes, which requires the recognition of deferred tax
      assets and liabilities at tax rates expected to be in effect when these balances
      reverse. Future tax benefits attributable to temporary differences are
      recognized to the extent that the realization of such benefits is more likely
      than not. We have concluded that it is more likely than not that our deferred
      tax assets as of December 31, 2007 and 2006 will not be realized based on the
      scheduling of deferred tax liabilities and projected taxable income. The amount
      of the deferred tax assets actually realized, however, could vary if there
      are
      differences in the timing or amount of future reversals of existing deferred
      tax
      liabilities or changes in the actual amounts of future taxable income. Should
      we
      determine that we will be able to realize all or part of the deferred tax asset
      in the future, an adjustment to the deferred tax asset will be recorded in
      the
      period such determination is made.




***Goodwill***




Goodwill
      is related to the acquisitions of MedPanel, Inc. Goodwill, totaling $3,130,000,
      was allocated to the Primary Research segment pursuant to SFAS No. 142,
“Goodwill and Other Intangible Assets”. Goodwill represents the excess cost of a
      business acquisition over the fair value of the net assets acquired. In
      accordance with this pronouncement, 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. As of December 31, 2007, we noted no indicators
      of impairment of goodwill. However, changes in current circumstances or business
      conditions could result in an impairment of goodwill. As required, we will
      perform impairment testing on an annual basis or when an event occurs or
      circumstances change that would more likely than not reduce the fair value
      of a
      reporting unit below its carrying amount.




37




**Liquidity
      and Capital Resources**




Historically,
      we have satisfied our liquidity and regulatory capital needs through the
      issuance of equity and debt securities. As of December 31, 2007, liquid assets
      consisted primarily of cash and cash equivalents of $31,962,000 and marketable
      securities of $14,115,000, for a total of $46,077,000, which is $24,837,000
      higher than $21,240,000 in liquid assets as of December 31, 2006.




Cash
      and
      cash equivalents increased by $18,216,000 during 2007. Cash provided by our
      operating activities for 2007 was $18,216,000 which consists of our net income
      of $9,323,000 adjusted for non-cash expenses including stock-based compensation
      of $2,824,000, net unrealized gain on securities owned of $6,764,000
      depreciation and amortization of $740,000, provision for doubtful accounts
      of
      $368,000, amortization of intangible assets of $750,000, partially offset by
      the
      increase in commissions and bonus payable of $9,618,000. Cash used in investing
      activities amounted to $32,000 during 2007 which included (i) net proceeds
      in
      connection with our sales of Catalyst and (ii) our purchase of equipment and
      fixtures. Cash used in our financing activities was $324,000. Our financing
      activities included proceeds from the issuance of common stock in connection
      with our employee stock purchase plan, partially offset by debt service
      payments.




Merriman
      Curhan Ford & Co., 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, 2007,
      Merriman Curhan Ford & Co. had regulatory net capital of $17,848,000, which
      exceeded the required amount by $16,419,000.




We
      believe that our existing cash balances and investments will be sufficient
      to
      meet our liquidity and capital spending requirements, both for the next twelve
      months as well as for the long-term. However, we may require additional capital
      investment to fund our working capital if we incur future operating losses.
      We
      cannot be certain that additional debt or equity financing will be available
      when required or, if available, that we can secure it on terms satisfactory
      to
      us.




The
      following is a table summarizing our significant commitments as of December
      31,
      2007, consisting of debt payments related to convertible and non-convertible
      notes payable and capital leases and future minimum lease payments under all
      non-cancelable operating leases with initial or remaining terms in excess of
      one
      year.




**Notes**
              **Payable**
            
            **Operating**
              **Leases**
            
            **Capital**
              **Leases**2008
            
            $
            243,573
            
            $
            2,628,402
            
            $
            563,5262009
            
            
            —
            
            
            2,444,011
            
            
            341,6742010
            
            
            —
            
            
            2,019,930
            
            
            50,8802011
            
            
            —
            
            
            1,923,516
            
            
            —2012
            
            
            —
            
            
            1,174,323
            
            
            —Thereafter
            
            
            —
            
            
            572,000
            
            
            —Total
                commitments
            
            $
            243,573
            
            $
            10,762,182
            
            $
            956,080




**Off-Balance
      Sheet Arrangements**




We
      were
      not a party to any off-balance sheet arrangements during the three years ended
      December 31, 2007. In particular, we do not have any interest in so-called
      limited purpose entities, which include special purpose entities and structured
      finance entities.




38




**Newly
      Issued Accounting Standards**




In
      September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
      157,
“Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework
      for measuring fair value under generally accepted accounting principles, and
      expands disclosures about fair value measurements. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. On February 6, 2008, the FASB
      deferred the effective date of Statement 157 for one year for all nonfinancial
      assets and nonfinancial liabilities, except for those items that are recognized
      or disclosed at fair value in the financial statements on a recurring basis
      (at
      least annually). The adoption of SFAS 157 did not have a material impact on
      our
      consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial
      Assets and Financial Liabilities”, which permits entities to choose to measure
      many financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value and establishes presentation
      and
      disclosure requirements designed to facilitate comparisons between entities
      that
      choose different measurement attributes for similar types of assets and
      liabilities. SFAS No. 159 is effective for fiscal years beginning after November
      15, 2007. We did not adopt SFAS 159 on any individual instrument as of January
      1, 2008.




In
      May
      2007, the FASB issued FSP FIN No. 46R-7, "Application of FASB Interpretation
      No.
      46(R) to Investment Companies." FSP FIN No. 46R-7 amends the scope of the
      exception to FIN 46R to state that investments accounted for at fair value
      in
      accordance with the specialized accounting guidance in the American Institute
      of
      Certified Public Accountants ("AICPA") Audit and Accounting Guide, Investment
      Companies, are not subject to consolidation under FIN 46R. This interpretation
      is effective for fiscal years beginning on or after December 15, 2007. We do
      not
      expect the adoption of FSP FIN No. 46R-7 will have a material impact on our
      consolidated financial statements.




39




**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.




Our
      long
      term debt obligations bear interest at a fixed rate. Accordingly, an immediate
      10% increase or decrease in current interest rates would not have an impact
      on
      our interest expense or cash flows. The fair market value of our long term
      fixed
      interest rate debt is subject to interest rate risk. Generally, the fair market
      value of fixed interest rate debt will increase as interest rates fall and
      decrease as interest rates rise. We would not expect an immediate 10% increase
      or decrease in current interest rates to have a material impact on the fair
      market value of our long term debt obligations.




***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.


40


**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.





41






**Report
      of Independent Registered Public Accounting Firm**




The
      Board
      of Directors and Stockholders of


MCF
      Corporation and subsidiaries




We
      have
      audited the accompanying consolidated statements of financial condition of
      MCF
      Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2006,
      and the related consolidated statements of operations, stockholders’ equity, and
      cash flows for each of the three years in the period ended December 31, 2007.
      These financial statements are the responsibility of the Company’s management.
      Our responsibility is to express an opinion on these financial statements based
      on our audits.




We
      conducted our audits in accordance with 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 audits 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 condition of MCF Corporation
      and
      subsidiaries at December 31, 2007 and 2006, and the consolidated results of
      their operations and their cash flows for each of the three years in the period
      ended December 31, 2007, in conformity with U.S. generally accepted accounting
      principles.




As
      discussed in Note 2 to the consolidated financial statements, in 2007 the
      Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109.” As discussed in Note 2 to the consolidated financial
      statements, in 2006
      the Company adopted Statement of Financial Accounting Standards  No. 123 (revised
      2004),
      "Share-Based Payment."




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, 2007, based on criteria established in Internal
      Control-Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission and our report dated February 11, 2008, expressed
      an
      unqualified opinion thereon.




/s/
                Ernst & Young LLPSan
                Francisco, California
              February
                11, 2008




42




**MCF
      CORPORATION**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Revenue:Commissions
            
            $
            31,681,563
            
            $
            30,105,085
            
            $
            26,992,427Principal
                transactions
            
            
            20,116,392
            
            
            (171,055
            )
            
            1,366,938Investment
                banking
            
            
            30,138,783
            
            
            21,190,786
            
            
            14,816,814Primary
                research
            
            
            3,848,421
            
            
            —
            
            
            —Advisory
                and other fees
            
            
            1,870,833
            
            
            693,822
            
            
            8,136Total
                revenue
            
            
            87,655,992
            
            
            51,818,638
            
            
            43,184,315Operating
                expenses:Compensation
                and benefits
            
            
            56,101,887
            
            
            42,840,431
            
            
            31,659,488Brokerage
                and clearing fees
            
            
            2,635,328
            
            
            2,614,513
            
            
            2,312,616Cost
                of primary research services
            
            
            1,595,502
            
            
            —
            
            
            —Professional
                services
            
            
            2,823,391
            
            
            2,441,417
            
            
            1,987,317Occupancy
                and equipment
            
            
            1,862,069
            
            
            1,665,410
            
            
            1,522,351Communications
                and technology
            
            
            3,483,752
            
            
            2,969,872
            
            
            1,918,693Depreciation
                and amortization
            
            
            740,445
            
            
            645,129
            
            
            490,165Amortization
                of intangible assets
            
            
            750,185
            
            
            —
            
            
            —Travel
                and business development
            
            
            2,607,042
            
            
            2,738,393
            
            
            1,723,290Other
            
            
            3,595,058
            
            
            2,400,765
            
            
            3,298,852Total
                operating expenses
            
            
            76,194,659
            
            
            58,315,930
            
            
            44,912,772Operating
                income (loss)
            
            
            11,461,333
            
            
            (6,497,292
            )
            
            (1,728,457
            )Loss
                on retirement of convertible note payable
            
            
            —
            
            
            (1,348,805
            )
            
            —Interest
                income
            
            
            461,922
            
            
            484,909
            
            
            446,273Interest
                expense
            
            
            (138,055
            )
            
            (535,014
            )
            
            (76,103
            )Income
                (loss) from continuing operations before income taxes
            
            
            11,785,200
            
            
            (7,896,202
            )
            
            (1,358,287
            )Income
                tax expense
            
            
            (2,462,165
            )
            
            —
            
            
            (142,425
            )Income
                (loss) from continuing operations
            
            
            9,323,035
            
            
            (7,896,202
            )
            
            (1,500,712
            )Loss
                from discontinued operations
            
            
            —
            
            
            (324,213
            )
            
            (13,731
            )Net
                income (loss)
            
            $
            9,323,035
            
            $
            (8,220,415
            )
            $
            (1,514,443
            )Basic
                net income (loss) per share:Income
                (loss) from continuing operations
            
            $
            0.81
            
            $
            (0.79
            )
            $
            (0.16
            )Loss
                from discontinued operations
            
            $
            —
            
            $
            (0.03
            )
            $
            —Net
                income (loss)
            
            $
            0.81
            
            $
            (0.82
            )
            $
            (0.16
            )Diluted
                net income (loss) per share:Income
                (loss) from continuing operations
            
            $
            0.74
            
            $
            (0.79
            )
            $
            (0.16
            )Loss
                from discontinued operations
            
            $
            —
            
            $
            (0.03
            )
            $
            —Net
                income (loss)
            
            $
            0.74
            
            $
            (0.82
            )
            $
            (0.16
            )Weighted
                average number of common shares:Basic
            
            
            11,528,187
            
            
            9,989,265
            
            
            9,500,748Diluted
            
            
            12,643,524
            
            
            9,989,265
            
            
            9,500,748




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




43




**MCF
      CORPORATION**




**CONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION**




**December 31,****2007**
            
            **2006****ASSETS**Cash
                and cash equivalents
            
            $
            31,962,201
            
            $
            13,746,590Securities
                owned:Marketable,
                at fair value
            
            
            14,115,022
            
            
            7,492,914Not
                readily marketable, at estimated fair value
            
            
            4,504,788
            
            
            1,489,142Restricted
                cash
            
            
            689,157
            
            
            629,427Due
                from clearing broker
            
            
            1,251,446
            
            
            551,831Accounts
                receivable, net
            
            
            4,008,729
            
            
            2,715,271Prepaid
                expenses and other assets
            
            
            1,716,814
            
            
            1,971,445Equipment
                and fixtures, net
            
            
            1,245,692
            
            
            1,586,630Intangible
                assets
            
            
            1,949,815
            
            
            314,963Goodwill
            
            
            3,129,667
            
            
            —Total
                assets
            
            $
            64,573,331
            
            $
            30,498,213**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Accounts
                payable
            
            $
            957,969
            
            $
            1,121,623Commissions
                and bonus payable
            
            
            17,517,032
            
            
            7,711,805Accrued
                expenses
            
            
            6,351,598
            
            
            2,285,670Due
                to clearing and other brokers
            
            
            6,865
            
            
            11,114Securities
                sold, not yet purchased
            
            
            3,804,558
            
            
            1,534,953Capital
                lease obligation
            
            
            890,272
            
            
            1,292,378Convertible
                notes payable, net
            
            
            197,416
            
            
            187,079Notes
                payable
            
            
            41,573
            
            
            138,571Total
                liabilities
            
            
            29,767,283
            
            
            14,283,193Commitments
                and contingenciesStockholders’
                equity:Convertible
                Preferred stock, Series A—$0.0001 par value; 2,000,000 sharesauthorized;
                0 shares issued and outstanding as of December 31, 2007 and2006,
                respectively; aggregate liquidation preference of $0
            
            
            —
            
            
            —Convertible
                Preferred stock, Series B—$0.0001 par value; 12,500,000 sharesauthorized;
                1,250,000 shares issued and 0 shares outstanding as ofDecember 31,
                2007 and 2006; aggregate liquidation preference of $0
            
            
            —
            
            
            —Convertible
                Preferred stock, Series C—$0.0001 par value; 14,200,000 sharesauthorized;
                1,685,714 shares issued and 0 shares outstanding as ofDecember 31,
                2007 and 2006; aggregate liquidation preference of $0
            
            
            —
            
            
            —Common
                stock, $0.0001 par value; 300,000,000 shares authorized; 12,310,886and
                10,602,720 shares issued and 12,284,448 and 10,602,720 shares outstanding
                as of December 31, 2007 and 2006, respectively
            
            
            1,232
            
            
            1,061Additional
                paid-in capital
            
            
            124,010,283
            
            
            114,616,848Treasury
                stock
            
            
            (125,613
            )
            
            —Accumulated
                deficit
            
            
            (89,079,854
            )
            
            (98,402,889
            )Total
                stockholders’ equity
            
            
            34,806,048
            
            
            16,215,020Total
                liabilities and stockholders’ equity
            
            $
            64,573,331
            
            $
            30,498,213





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




44


**MCF
      CORPORATION**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**Preferred Stock**
              
              **Common Stock**
              
              **Treasury Stock**
              
              **Additional**
                **Paid-in**
                **Capital**
              
              **Deferred**
                **Compensation**
              
              **Accumulated**
                **Deficit****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              
              
              
              **Total**Balance
                  at December 31, 2004
              
              
              —
              
              $
              —
              
              
              9,806,946
              
              $
              981
              
              
              —
              
              $
              —
              
              $
              108,564,776
              
              $
              (3,163,876
              )
              $
              (88,668,031
              )
              $
              16,733,850Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,514,443
              )
              
              (1,514,443
              )Issuance
                  of common stock
              
              
              —
              
              
              —
              
              
              220,899
              
              
              22
              
              
              —
              
              
              —
              
              
              1,217,846
              
              
              —
              
              
              —
              
              
              1,217,846Issuance
                  of restricted common stock
              
              
              —
              
              
              —
              
              
              181,743
              
              
              18
              
              
              —
              
              
              —
              
              
              1,954,274
              
              
              (1,954,292
              )
              
              —
              
              
              —Options
                  with intrinsic value to employees
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (12,000
              )
              
              12,000
              
              
              —
              
              
              —Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,959,329
              
              
              —
              
              
              1,959,329Tax
                  benefits from employee stock option plans
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              6,397
              
              
              —
              
              
              —
              
              
              6,397Balance
                  at December 31, 2005
              
              
              —
              
              $
              —
              
              
              10,209,588
              
              $
              1,021
              
              
              —
              
              $
              —
              
              $
              111,731,293
              
              $
              (3,146,839
              )
              $
              (90,182,474
              )
              $
              18,403,001Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (8,220,415
              )
              
              (8,220,415
              )Issuance
                  of common stock
              
              
              —
              
              
              —
              
              
              247,808
              
              
              25
              
              
              —
              
              
              —
              
              
              713,062
              
              
              —
              
              
              —
              
              
              713,087Issuance
                  of restricted common stock
              
              
              —
              
              
              —
              
              
              52,465
              
              
              6
              
              
              —
              
              
              —
              
              
              (6
              )
              
              —
              
              
              —
              
              
              —Exercise of
                  stock warrants
              
              
              —
              
              
              —
              
              
              92,859
              
              
              9
              
              
              —
              
              
              —
              
              
              191,991
              
              
              —
              
              
              —
              
              
              192,000Removal
                  of opening deferred stock compensation balance upon adoption of
                  SFAS
                  123(R)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,146,839
              )
              
              3,146,839
              
              
              
              
              
              —Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              3,836,781
              
              
              —
              
              
              —
              
              
              3,836,781Issuance
                  of stock warrants
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,290,566
              
              
              —
              
              
              —
              
              
              1,290,566Balance
                  at December 31, 2006
              
              
              —
              
              $
              —
              
              
              10,602,720
              
              $
              1,061
              
              
              —
              
              $
              —
              
              $
              114,616,848
              
              $
              —
              
              $
              (98,402,889
              )
              $
              16,215,020Net
                  income
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              9,323,035
              
              
              9,323,035Issuance
                  of common stock for MedPanel acquisition
              
              
              —
              
              
              —
              
              
              1,500,120
              
              
              150
              
              
              —
              
              
              —
              
              
              6,090,337
              
              
              —
              
              
              —
              
              
              6,090,487Issuance of
                  common stock
              
              
              —
              
              
              —
              
              
              56,857
              
              
              5
              
              
              —
              
              
              —
              
              
              235,076
              
              
              —
              
              
              —
              
              
              235,081Issuance
                  of restricted common stock
              
              
              —
              
              
              —
              
              
              120,126
              
              
              12
              
              
              —
              
              
              —
              
              
              25,739
              
              
              —
              
              
              —
              
              
              25,751Exercise of
                  stock warrants
              
              
              —
              
              
              —
              
              
              83,939
              
              
              9
              
              
              —
              
              
              —
              
              
              172,987
              
              
              —
              
              
              —
              
              
              172,996Common
                  stock returned from Catalyst Shareholder
              
              
              —
              
              
              —
              
              
              (52,876
              )
              
              (5
              )
              
              (26,438
              )
              
              (125,613
              )
              
              5
              
              
              —
              
              
              —
              
              
              (125,613
              )Tax
                  benefits from employee stock option plans
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              45,184
              
              
              —
              
              
              —
              
              
              45,184Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,824,107
              
              
              —
              
              
              —
              
              
              2,824,107Balance
                  at December 31, 2007
              
              
              —
              
              $
              —
              
              
              12,310,886
              
              $
              1,232
              
              
              (26,438
              )
              $
              (125,613
              )
              $
              124,010,283
              
              $
              —
              
              $
              (89,079,854
              )
              $
              34,806,048




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




45


**MCF
      CORPORATION**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Cash
                flows from operating activities:Net
                income (loss)
            
            $
            9,323,035
            
            $
            (8,220,415
            )
            $
            (1,514,443
            )Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating activities:Depreciation
                and amortization
            
            
            740,445
            
            
            655,334
            
            
            493,672Stock-based
                compensation
            
            
            2,824,107
            
            
            3,836,781
            
            
            1,959,329Issuance
                of common stock to consultant
            
            
            75,791
            
            
            —
            
            
            —Tax
                benefits from employee stock option plans
            
            
            45,184
            
            
            —
            
            
            6,397Amortization
                of discounts on convertible notes payable
            
            
            10,332
            
            
            146,776
            
            
            10,335Amortization
                of debt issuance costs
            
            
            —
            
            
            35,757
            
            
            —Amortization
                of intangible asset
            
            
            750,185
            
            
            138,051
            
            
            34,366Loss
                on retirement of convertible note payable
            
            
            —
            
            
            1,348,805
            
            
            —Bad
                debt expense related to Ascend
            
            
            —
            
            
            —
            
            
            556,493Loss
                on disposal of equipment and fixtures
            
            
            5,553
            
            
            14,196
            
            
            —Provision
                for uncollectible accounts receivable
            
            
            368,272
            
            
            383,565
            
            
            —Common
                stock received for services
            
            
            (400,875
            )
            
            —
            
            
            —Unrealized
                (gain) loss on securities owned
            
            
            (6,763,635
            )
            
            2,172,407
            
            
            (1,491,688
            )Changes
                in operating assets and liabilities:Marketable
                and non-marketable securities owned
            
            
            (203,639
            )
            
            (203,536
            )
            
            (5,558,454
            )Restricted
                cash
            
            
            (59,730
            )
            
            (1,821
            )
            
            (2,606
            )Due
                from clearing broker
            
            
            (699,615
            )
            
            421,307
            
            
            (185,276
            )Accounts
                receivable
            
            
            (649,560
            )
            
            (789,908
            )
            
            (550,295
            )Prepaid
                expenses and other assets
            
            
            404,769
            
            
            (786,306
            )
            
            (474,907
            )Accounts
                payable
            
            
            (740,825
            )
            
            220,485
            
            
            468,387Commissions
                and bonus payable
            
            
            9,617,504
            
            
            2,975,913
            
            
            78,657Accrued
                liabilities
            
            
            3,928,196
            
            
            84,171
            
            
            956,932Due
                to clearing and other brokers
            
            
            (4,249
            )
            
            (107,684
            )
            
            19,593Net
                cash provided by (used in) operating activities
            
            
            18,571,245
            
            
            2,323,878
            
            
            (5,193,508
            )Cash
                flows from investing activities:Purchase
                of equipment and fixtures
            
            
            (170,541
            )
            
            (78,216
            )
            
            (203,665
            )Acquisition
                of Catalyst
            
            
            —
            
            
            (58,558
            )
            
            (353,882
            )Proceeds
                from sale of Catalyst
            
            
            163,219
            
            
            —
            
            
            —Investment
                in MCF Navigator fund
            
            
            —
            
            
            (7,500,000
            )
            
            —Redemption
                from MCF Navigator fund
            
            
            —
            
            
            7,500,000
            
            
            —Acquisition
                of MedPanel
            
            
            670,027
            
            
            —
            
            
            —Increase
                in intangible assets
            
            
            (694,612
            )
            
            —
            
            
            —Net
                cash used in investing activities
            
            
            (31,907
            )
            
            (136,774
            )
            
            (557,547
            )Cash
                flows from financing activities:Proceeds
                from the issuance of common stock
            
            
            185,041
            
            
            603,070
            
            
            591,648Proceeds
                from the exercise of stock options and warrants
            
            
            172,996
            
            
            302,017
            
            
            126,220Proceeds
                from convertible debenture and stock warrant
            
            
            —
            
            
            7,500,000
            
            
            —Repayment
                of convertible debenture
            
            
            —
            
            
            (7,500,000
            )
            
            —Debt
                service principal payments
            
            
            (681,764
            )
            
            (484,524
            )
            
            (1,287,003
            )Net
                cash provided by (used in) financing activities
            
            
            (323,727
            )
            
            420,563
            
            
            (569,135
            )Increase
                (decrease) in cash and cash equivalents
            
            
            18,215,611
            
            
            2,607,667
            
            
            (6,320,190
            )Cash
                and cash equivalents at beginning of year
            
            
            13,746,590
            
            
            11,138,923
            
            
            17,459,113Cash
                and cash equivalents at end of year
            
            $
            31,962,201
            
            $
            13,746,590
            
            $
            11,138,923




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


46




**MCF
      CORPORATION**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS — (Continued)**




**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Supplementary
                disclosure of cash flow information:Cash
                paid during the year:Interest
            
            $
            121,331
            
            $
            323,345
            
            $
            99,442Income
                taxes
            
            $
            120,400
            
            $
            18,800
            
            $
            179,147Non-cash
                investing and financing activities:Issuance
                of restricted stock
            
            $
            —
            
            $
            —
            
            $
            1,954,292Issuance
                / cancellation of stock options with intrinsic value
            
            $
            —
            
            $
            —
            
            $
            12,000Purchase
                of equipment and fixtures with capital lease
            
            $
            182,665
            
            $
            799,709
            
            $
            625,445Acquisition
                of Catalyst
            
            $
            —
            
            $
            —
            
            $
            74,940




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


47


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**1.
      Description of Business**




MCF
      Corporation is a financial services holding company that provides investment
      banking, capital markets services, corporate and venture services, investment
      banking, asset management and primary research through its operating
      subsidiaries, Merriman Curhan Ford & Co., MCF Asset Management, LLC and
      Panel Intelligence, LLC. Merriman Curhan Ford & Co. is an investment bank
      and securities broker-dealer focused on fast growing companies and institutional
      investors. MCF Asset Management, LLC manages absolute return investment products
      for institutional and high-net worth clients. Panel Intelligence offers primary
      research services to biotechnology, pharmaceutical, medical device, clean
      technology and financial services companies. Merriman Curhan Ford & Co. 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.




MCF
      Corporation, also referred to as the Company, formerly Ratexchange Corporation,
      NetAmerica.com Corporation and Venture World, Ltd., is a Delaware corporation
      organized 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.




Prior
      to
      2002, the Company was 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, the Company acquired Instream Securities, Inc. and later changed
      the name of the entity to RTX Securities Corporation, then to Merriman Curhan
      Ford & Co. The Company formed MCF Asset Management, LLC in January 2004, MCF
      Wealth Management, LLC in January 2005, and Panel Intelligance, LLC in April
      2007 as wholly owned subsidiaries. MCF Wealth Management, LLC is accounted
      for
      as discontinued operations in these consolidated financial
      statements.




**2.
      Summary of Significant Accounting Policies**




**Principles
      of Consolidation**




As
      of
      December 31, 2007, MCF Corporation wholly owned three U.S. subsidiaries that
      have been consolidated in the accompanying financial statements. The
      subsidiaries are Merriman Curhan Ford & Co., MCF Asset Management, LLC and
      Panel Intelligence, LLC. All significant inter-company accounts and transactions
      have been eliminated.




**Reverse
      Stock Split**




In
      November 2006, the Company effected a one-for-seven reverse stock split of
      the
      Company's common stock. All references to share and per share data for all
      periods presented have been retroactively adjusted to give effect to the
      one-for-seven reverse stock split.




**Cash
      and Cash Equivalents**




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




48




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.
      Summary of Significant Accounting Policies - (continued)**




**Restricted
      Cash**




Restricted
      cash includes cash deposited with our clearing broker and cash collateral for
      a
      stand-by letter of credit with a commercial bank.




**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 or amounts that approximate fair value, with related unrealized
      gains
      or losses recognized in the results of operations. The fair value of a financial
      instrument is the amount at which the instrument could be exchanged in a current
      transaction between willing parties, other than in a forced or liquidation
      sale.




Fair
      values of the financial instruments are generally obtained from quoted market
      prices in active markets, broker or dealer price quotations, or alternative
      pricing sources with reasonable levels of price transparency. To the extent
      certain financial instruments trade infrequently or are non-marketable
      securities and, therefore, have little or no price transparency, the Company
      values these instruments based on management's estimates. The fair value of
      these securities is subject to a high degree of volatility and may be
      susceptible to significant fluctuation in the near term. Securities that contain
      resale restrictions are stated at a discount to the value of readily marketable
      securities. Stock warrants are carried at a discount to fair value as determined
      by using the Black-Scholes Option Pricing model due to illiquidity.




**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 payment. The collectibility
        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.




**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.




**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 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 income (loss) from discontinued operations
      in the consolidated statements of operations. Additionally, segment information
      does not include the results of businesses classified as discontinued
      operations.




49




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.
      Summary of Significant Accounting Policies - (continued)**




**Goodwill
      and Intangible Assets**




Goodwill
      is related to the acquisition of MedPanel, Inc. Goodwill, totaling $3,130,000,
      was allocated to the Primary Research segment pursuant to SFAS No. 142,
“Goodwill and Other Intangible Assets”. Goodwill represents the excess cost of a
      business acquisition over the fair value of the net assets acquired. In
      accordance with this pronouncement, 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, the Company uses recent, comparable transactions 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, the Company uses discounted cash flow scenarios to
      estimate the fair value of the reporting units. As of December 31,
      2007, the Company noted no indicators of impairment of goodwill. However,
      changes in current circumstances or business conditions could result in an
      impairment of goodwill. As required, the Company will perform impairment testing
      on an annual basis or when an event occurs or circumstances change that would
      more likely than not reduce the fair value of a reporting unit below its
      carrying amount.




**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 reduces 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.




50




**MCF
      CORPORATION**




**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.




**Primary
      Research Revenue**




Revenue
      from primary research services is recognized on a proportional performance
      basis
      as services are provided.




**Cost
      of Primary Research Services**




Direct
      costs associated with generating primary research revenue principally consist
      of
      panelist honorarium and recruitment costs. Medical experts receive cash
      honoraria for participating in qualitative panels and quantitative surveys.
      The
      Company pays the honoraria to the panelists when the panel or survey has been
      completed and records this expense as incurred.




**Share-Based
      Compensation Expense**




On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      (SFAS) 123 (Revised 2004), “Share-Based Payment,” or SFAS 123(R),which requires
      the measurement and recognition of compensation expense, based on estimated
      fair
      values, for all share-based awards, made to employees and directors, including
      stock options, non-vested stock, and participation in the Company’s employee
      stock purchase plan. In March 2005, the Securities and Exchange Commission
      issued Staff Accounting Bulletin (SAB) No. 107 relating to SFAS 123(R). The
      Company has applied the provisions of SAB 107 in its adoption of SFAS
      123(R).




The
      Company adopted SFAS 123(R) using the modified prospective application
      transition method, as of January 1, 2006, the first day of the Company’s fiscal
      year 2006. The Company’s consolidated financial statements as of and for the
      year ended December 31, 2006 reflect the impact of SFAS 123(R). In accordance
      with the modified prospective application transition method, the Company’s
      consolidated financial statements for prior periods have not been restated
      to
      reflect, and do not include, the impact of SFAS 123(R).




Prior
      to
      the adoption of SFAS 123(R), the Company accounted for share-based awards to
      employees and directors using the intrinsic value method in accordance with
      Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued
      to Employees,” as allowed under SFAS 123, “Accounting for Stock-Based
      Compensation.” Share-based compensation expense for the year ended December 31,
      2005 was solely related to non-vested stock awards and stock options granted
      with intrinsic value that the Company had been recognizing in its consolidated
      statements of operations in accordance with the provisions set forth above.
      In
      accordance with the intrinsic value method, no share-based compensation expense
      was otherwise recognized in the Company’s consolidated statements of operations
      because the exercise price of nearly all of the Company’s stock options granted
      to employees and directors equaled the fair market value of the underlying
      stock
      at the grant date.




51


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.
      Summary of Significant Accounting Policies - (continued)**




SFAS
      123(R) requires companies to estimate the fair value of share-based awards
      on
      the date of grant using an 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. Share-based compensation expense recognized in the Company’s
      consolidated statement of operations for the years ended December 31, 2007
      and
      December 31, 2006 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 estimated in accordance with the provisions of SFAS 123, and
      (ii) subsequent to December 31, 2005, based on the grant date fair value
      estimated in accordance with the provisions of SFAS 123(R). Compensation expense
      for all share-based awards subsequent to December 31, 2005 is recognized using
      the straight-line single-option method. Because share-based compensation expense
      is based on awards that are ultimately expected to vest, share-based
      compensation expense has been reduced to account for estimated forfeitures.
      SFAS
      123(R) requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. In the Company’s pro forma information required under SFAS 123 for
      periods prior to fiscal 2006, the Company accounted for forfeitures as they
      occurred.




To
      calculate option-based compensation under SFAS 123(R), the Company used the
      Black-Scholes option pricing model, which it had previously used for valuation
      of option-based awards for its pro forma information required under SFAS 123
      for
      periods prior to fiscal 2006. The Company’s determination of fair value of
      option-based awards on the date of grant using the Black-Scholes model 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 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. **** MCF
      Corporation adopted FIN No. 48 on January 1, 2007.




**Earnings
      (Loss) Per Share**





Basic
      earnings (loss) per share is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding. Diluted earnings per
      share
      is calculated for the year ended December 31, 2007 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, 2006 and 2005, because the addition of common shares that
      would be issued assuming exercise or conversion would be
      anti-dilutive.




52


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.
      Summary of Significant Accounting Policies - (continued)**




**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, 2007, the Company owned 1,743,900 shares of Points International
      in
      its proprietary trading account with a fair market value of $7,264,000. The stock price of Points International is volatile and
      has declined since December 31, 2007.




During
      2007 and 2006, no sales professional accounted for more than 10% of revenue,
      while one sales professional accounted for 12% of revenue in 2005. During the
      three years ended December 31, 2007, no single customer accounted for more
      than
      10% of revenue.




**Fair
      Value of Financial Instruments**




The
      carrying amounts of the Company’s financial instruments, which include
      securities owned, cash deposited with the Company’s clearing organization,
      receivables, accounts payable, and other accrued expenses, approximate their
      fair values.




**Segment
      Reporting**




The
      Company organizes its operations into three operating segments for the purpose
      of making operating decisions and assessing performance. These operating
      segments are organized along operating subsidiaries, Merriman Curhan Ford &
Co., MCF Asset Management, LLC and Panel Intelligence, LLC. Accordingly, the
      Company operated in three reportable operating segments in the United States
      during 2007. In January 2007, the Company sold its wealth management business
      and has presented its results of operations as discontinued
      operations.




**Use
      of Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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.




**Newly
      Issued Accounting Standards**




In
      September 2006, the Financial Accounting Standards Board issued SFAS No. 157,
      “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a
      framework for measuring fair value under generally accepted accounting
      principles, and expands disclosures about fair value measurements. SFAS No.
      157
      is effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. On February
      6,
      2008, the FASB deferred the effective date of SFAS No. 157 for one year for
      all
      nonfinancial assets and nonfinancial liabilities, except for those items that
      are recognized or disclosed at fair value in the financial statements on a
      recurring basis (at least annually). The adoption of SFAS No. 157 did not have
      a
      material impact on the Company's consolidated financial statements.




53




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**2.
      Summary of Significant Accounting Policies - (continued)**




In
      February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial
      Assets and Financial Liabilities”, which permits entities to choose to measure
      many financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value and establishes presentation
      and
      disclosure requirements designed to facilitate comparisons between entities
      that
      choose different measurement attributes for similar types of assets and
      liabilities. SFAS No. 159 is effective for fiscal years beginning after November
      15, 2007. The Company did not adopt SFAS No. 159 on any individual instrument
      as
      of January 1, 2008.




In
      May
      2007, the FASB issued FSP FIN No. 46R-7, "Application of FASB Interpretation
      No.
      46(R) to Investment Companies." FSP FIN No. 46R-7 amends the scope of the
      exception to FIN No. 46R to state that investments accounted for at fair value
      in accordance with the specialized accounting guidance in the American Institute
      of Certified Public Accountants Audit and Accounting Guide, Investment
      Companies, are not subject to consolidation under FIN No. 46R. This
      interpretation is effective for fiscal years beginning on or after December
      15,
      2007. The Company does not expect the adoption of FSP FIN No. 46R-7 will have
      a
      material impact on its consolidated financial statements




**3.
      Securities Owned**




The
      Company trades equity and debt securities for clients in a broker or dealer
      capacity. While trading activities are primarily generated by client order
      flow,
      the Company also takes selective proprietary positions based on expectations
      of
      future market movements and conditions. As of December 31, 2007 and 2006, fair
      value of marketable equity securities owned by the Company was approximately
      $14,115,000 and $7,493,000, respectively.




Securities
      owned that are not readily marketable consisted of notes receivable, convertible
      notes receivable, unregistered common stock and stock warrants. As of December
      31, 2007 and 2006, the discounted fair value of the securities owned that are
      not readily marketable was approximately $4,505,000 and $1,489,000,
      respectively, based on management estimates.




**4.
      Equipment and Fixtures**




Equipment
      and fixtures consisted of the following:




**December 31,****2007**
            
            **2006******Computer
                equipment
            
            $
            831,190
            
            $
            723,751Furniture
                and equipment
            
            
            1,236,606
            
            
            1,051,994Software
            
            
            219,367
            
            
            151,821Leasehold
                improvements
            
            
            1,018,203
            
            
            1,023,7293,305,366
            
            
            2,951,295Less
                accumulated depreciation
            
            
            (2,059,674
            )
            
            (1,364,665
            )$
            1,245,692
            
            $
            1,586,630




Equipment
      and fixtures purchased with capital lease financing during 2007 and 2006 were
      $183,000 and $800,000, respectively.




54


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**5.
      Notes Payable, Convertible Notes Payable and Lines of
      Credit**




Notes
      payable and convertible notes payable outstanding at December 31, 2007 and
      2006
      consisted of the following amounts, presented net of certain
      discounts:




**December 31,****2007**
            
            **2006**Convertible
                notes payable issued in 2003
            
            $
            197,416
            
            $
            187,079Note
                payable issued to Donald Sledge
            
            $
            41,573
            
            $
            138,571




Interest
      payable in connection with the notes described below is included with accrued
      liabilities balance in the statements of financial condition. As of December
      31,
      2007 and 2006, interest payable amounted to $1,500 and $29,000,
      respectively.




**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 bear interest at 3% per annum payable quarterly on January
      1,
      April 1, July 1 and October 1 beginning July 1, 2003. The notes can be converted
      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 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 is 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. The remaining unamortized discount as of December 31,
      2007 was $3,000.




**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.




**Convertible
      Note Payable Issued in 2006**




In
      March
      2006, the Company completed a $7.5 million private placement of a variable
      rate
      secured convertible debenture with a detachable stock warrant. The issue was
      placed with Midsummer Investment, Ltd (“Midsummer”). The Company invested the
      proceeds in one of the proprietary funds managed by MCF Asset Management, LLC,
      a
      wholly owned subsidiary. The debenture bears interest at a variable rate based
      on the annual investment performance of the investment in the proprietary funds
      managed by MCF Asset Management, LLC. The maturity date of the note was December
      31, 2010.




55


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**5.
      Notes Payable, Convertible Notes Payable and Lines of Credit -
      (continued)**




The
      debenture was convertible into the Company’s common stock at a conversion price
      of $9.87 per share, subject to certain anti-dilutive adjustments. The Company
      could have redeemed all or part of the debenture after three years at 110%
      of
      the principal amount being redeemed. The Company could have elected to force
      conversion of the debenture into common stock if the Company’s common stock
      trades above $34.58 for 20 consecutive trading days. The debenture contained
      covenants that could have precluded the Company from issuing additional debt
      over a specified limit, entering into certain new liens on company assets,
      repurchasing stock or paying dividends when the debenture remains outstanding
      with balance of at least $2 million. Stock warrants to purchase 267,858 shares
      of common stock at $9.87 per share were also issued to the investor. The stock
      warrants have a six year term.




The
      $7,500,000 raised in the transaction described above was accounted for under
      generally accepted accounting principles, primarily APB 14, “Accounting for
      Convertible Debt and Debt Issued with Stock Purchase Warrants”, SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities”, EITF Issue 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios”, and EITF Issue 00-19, “Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock”. The Company accounted for this transaction as the issuance
      of convertible debt, an embedded derivative referred to as a participation
      interest obligation, and a detachable stock warrant. The $7,500,000 was
      allocated to the derivative using its fair value with the balance allocated
      to
      the debt and the stock warrant based on their relative fair value as determined
      by management. During the third quarter of 2006, the Company obtained an
      appraisal from a third party to support the fair market values used to allocate
      the proceeds. Management’s initial estimates were adjusted to the appraisal
      amounts.




The
      fair
      value of the stock warrant of $1,291,000 was recorded as a discount to the
      convertible debenture and an increase to additional paid-in capital. The fair
      value of the participation interest obligation of $2,276,000 was also treated
      as
      a discount to the convertible debenture and was based on a forecast of future
      cash flows to be paid to the lender discounted at a risk adjusted yield. The
      discount to the convertible debenture of $3,567,000 was amortized to interest
      expense using the level yield method over the term of the
      debenture.




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 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 the unamortized debt issuance
      costs.




**Line
      of Credit**




The
      Company has a line of credit with a commercial bank that provides borrowing
      availability up to $3,000,000. The line of credit is secured by the assets
      of
      the Company and is due upon demand. The interest rate on amounts borrowed is
      payable monthly at the prime interest rate. As of December 31, 2007 and 2006,
      there was no borrowing under this line of credit.




56


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**6.
      Stockholders’ Equity**




**Reverse
      Stock Split**




On
      August
      4, 2006, the Company’s Board of Directors approved a one-for-seven reverse stock
      split of the Company’s common stock. The reverse stock split became effective at
      11:59 pm, Eastern Time, on November 15, 2006. Pursuant to the reverse stock
      split, each seven shares of authorized and outstanding common stock was
      reclassified and combined into one share of new common stock. The reverse stock
      split did not change the number of authorized shares or the par value per share
      of common stock or preferred stock designated by the Company’s Certificate of
      Incorporation. Currently, the Company has authorized 300,000,000 shares of
      common stock and 27,450,000 shares of preferred stock. All references to share
      and per share data for all periods presented have been retroactively adjusted
      to
      give effect to the one-for-seven reverse stock split.




**Common
      Stock**




On
      January 2, 2007, the Company completed the sale of Catalyst Financial Planning
      & Investment Management Company back to the founder of Catalyst (see Note
      No. 9). As part of the sale agreement, the Company received 26,438 shares of
      MCF
      Corporation common stock previously issued to the founder of Catalyst in
      February 2006. These shares were returned to the Company’s treasury and
      classified as treasury stock with a value of $126,000 as of December 31,
      2007.




In
      May
      2005, the Company issued 51,369 shares of common stock in exchange for a
      promissory note with a face value of $500,000. In December 2005, the Company
      learned that the counter-party would not have the financial resources to repay
      the Company’s $500,000 note receivable at maturity. As a result, the Company
      recorded a charge to other operating expense in 2005 to write-off the $500,000
      note receivable balance. In April 2006, the Company entered into a settlement
      agreement with the counter-party. As a result, the Company reversed the $500,000
      charge to write-off the note receivable balance upon the receipt of $500,000
      in
      April 2006.





**7.
      Acquisition of MedPanel, Inc.**




On
      April
      17, 2007, MCF Corporation acquired 100 percent of the outstanding common shares
      of MedPanel, Inc. The results of MedPanel's operations have been included in
      the
      consolidated financial statements since that date. 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 MedPanel's proprietary methodology and vast network
      of
      medical experts.





The
      Company paid $6.1 million in common stock for MedPanel. The value of the
      1,547,743 shares of common shares issued was determined based on the average
      market price of MCF Corporation'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 may also be entitled to additional consideration on
      the
      third anniversary from the closing which is based upon MedPanel achieving
      specific revenue and profitability milestones. The payment of the incentive
      consideration will be 50% in cash and 50% in the Company's common stock and
      may
      not exceed $11,455,000. The Company registered 1,548,119 shares of common stock
      with the Securities and Exchange Commission on Form S-4, file number 333-138870,
      originally filed November 21, 2006, as amended.





57




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**7.
      Acquisition of MedPanel, Inc. - (continued)**





The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of acquisition. The allocation of the purchase
      price is subject to refinement.




**As
                of**
              **April
                17, 2007**Cash
                and cash equivalents
            
            $
            670,028Accounts
                receivable
            
            
            1,023,325Equipment
                and fixtures
            
            
            86,088Prepaid
                expenses and other assets
            
            
            174,162Intangible
                assets not subject to amortization:Registered
                trademarks
            
            
            710,000Intangible
                assets subject to amortization:Customer
                relationships (56 month weighted-average useful life)
            
            
            990,000Customer
                backlog (8 month weighted-average useful life)
            
            
            420,000Technology
                platform (30 month weighted-average useful life)
            
            
            360,000Database
                of registered panelists (24 weighted-average useful life)
            
            
            220,000Goodwill
            
            
            3,129,667Total
                assets acquired
            
            
            7,783,270Accounts
                payable
            
            
            (577,171
            )Accrued
                expenses
            
            
            (420,999
            )Total
                liabilities assumed
            
            
            (998,170
            )Net
                assets acquired
            
            $
            6,785,100





The
      $3,130,000 of goodwill was assigned to our Primary Research segment.
      Amortization expense for intangible assets amounted to $750,000 for the year
      ended December 31, 2007. The estimated aggregate amortization expense for the
      years ended December 31, 2008, 2009, 2010 and 2011 are $466,000, $358,000,
      $221,000 and $203,000, respectively.





The
      following unaudited pro forma results of our operations for the years ended
      December 31, 2007 and 2006 assume the MedPanel acquisition occurred as of
      January 1, 2006. The pro forma results give effect to certain adjustments,
      including depreciation, amortization of intangible assets and related income
      tax
      effects. The pro forma results have been prepared for comparative purposes
      only
      and do not purport to indicate the results of operations which would actually
      have occurred had the combinations been in effect on the dates indicated or
      which may occur in the future.





**2007**
            
            **2006**Total
                revenue
            
            $
            89,784,394
            
            $
            56,829,345Total
                operating expenses
            
            
            78,731,991
            
            
            64,694,049Operating
                income (loss)
            
            
            11,052,403
            
            
            (7,864,704
            )Net
                income (loss)
            
            $
            8,916,254
            
            $
            (9,603,798
            )Basic
                net income (loss) per share
            
            $
            0.75
            
            $
            (0.84
            )Diluted
                net income (loss) per share
            
            $
            0.68
            
            $
            (0.84
            )Weighted
                average common shares outstanding:Basic
            
            
            11,963,838
            
            
            11,489,385Diluted
            
            
            13,103,163
            
            
            11,489,385




58


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**8.
      Goodwill**




The
      Company has $3,130,000 of goodwill recorded on the Consolidated Statements
      of
      Financial Condition that relates to the Company’s acquisition of MedPanel, Inc.
      (now Panel Intelligence) in April 2007. Goodwill is reviewed for possible
      impairment at least annually, consistent with valuation methodologies pursuant
      to FAS 142.




A
      two-step test is used to determine whether goodwill is impaired. The first
      step
      is to compare the carrying value of Panel Intelligence with the fair value
      of
      Panel Intelligence. If the carrying value exceeds the fair value, the second
      step is applied. The second step is to compare the carrying amount of the
      goodwill with the implied fair value of the goodwill as determined in accordance
      with FAS 142. Goodwill impairment is recognized if its carrying value exceeds
      its implied fair value. The determination of fair value includes considerations
      of projected cash flows and revenue multiples of comparable exchange listed
      corporations. As of December 31, 2007, the Company noted no indicators of
      impairment of goodwill.




**9.
      Discontinued Operations**




In
      February 2005, the Company acquired Catalyst Financial Planning & Investment
      Management, Inc., or Catalyst, a registered investment advisor. The Company
      paid
      to the founder of Catalyst, or Catalyst Shareholder, $330,000 as initial
      consideration at the closing and placed into escrow 79,314 shares of common
      stock to be issued over the three year period following the closing date. The
      issuance of these shares was conditioned upon the Catalyst Shareholder being
      a
      full-time employee at the anniversary dates. The Catalyst Shareholder was
      entitled to additional consideration that would be payable in either cash or
      common stock at the Catalyst Shareholder’s option. The additional consideration
      would be based on a multiple of revenue growth at the end of the first three
      anniversary dates from the closing.




With
      the
      adoption of SFAS 123(R) in January 2006, the Company treated the 79,314 common
      shares as a non-vested stock grant that vests over three years, subject to
      performance conditions. The Company initially determined that the issuance
      of
      the common stock over the service period was probable and recorded an expense
      of
      $23,000 per month over the three year service period. At the first anniversary
      date in February 2006, the Company issued 26,438 shares of common stock from
      escrow and paid $59,000 to the Catalyst Shareholder for additional consideration
      that resulted from growth in the Catalyst revenue. The additional consideration
      was recorded as an increase in the intangible assets acquired.




In
      December 2006, the Company decided to sell Catalyst to an entity controlled
      by
      the Catalyst Shareholder. In January 2007, the Company sold Catalyst to the
      Mallory Acquisition Corp. for $282,000 and 79,314 shares of MCF Corporation
      common stock. An impairment loss was recognized in 2006 in the amount of
      $92,000, which is presented as “Other expenses” in the table below to reduce the
      carrying value of this business to its estimated fair value less costs to sell.
      During 2006, the Company recorded approximately $47,000 as stock-based
      compensation expense resulting from the 26,438 shares issued from escrow in
      February 2006.




As
      of
      December 31, 2006, Catalyst is being accounted for as held for sale in
      accordance with SFAS 144. As a result, the revenue and expenses of Catalyst
      and
      MCF Wealth Management, LLC for 2006 and 2005 have been reclassified and included
      in discontinued operations in the consolidated statements of
      operations.




59


**MCF
      CORPORATION**




**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, 2006 and 2005:




****
            
            **2006**
            
            **2005******
            
            ****Revenue
            
            $
            865,808
            
            $
            654,405Operating
                expenses:Compensation
                and benefits
            
            
            736,536
            
            
            462,720Professional
                services
            
            
            34,834
            
            
            10,722Occupancy
                and equipment
            
            
            121,794
            
            
            63,781Communications
                and technology
            
            
            15,410
            
            
            11,094Depreciation
                and amortization
            
            
            56,137
            
            
            37,873Travel
                and entertainment
            
            
            72,260
            
            
            35,104Other
                expenses
            
            
            156,563
            
            
            48,1661,193,534
            
            
            669,460Operating
                loss
            
            
            (327,726
            )
            
            (15,055
            )Interest
                income, net
            
            
            3,513
            
            
            1,324Net
                loss
            
            $
            (324,213
            )
            $
            (13,731
            )




The
      following assets and liabilities of operations held for sale have been included
      in the consolidated statements of financial condition as of December 31, 2006
      and 2005:




**December 31,****2006**
            
            **2005**Assets:Cash
                and cash equivalents
            
            $
            68,503
            
            $
            164,118Accounts
                receivable
            
            
            11,155
            
            
            374Furniture
                and equipment
            
            
            34,234
            
            
            8,710Intangible
                assets, net of accumulated amortization of $172,417
            
            
            314,963
            
            
            394,456Prepaid
                expenses and other assets
            
            
            24,024
            
            
            27,128$
            452,879
            
            $
            594,786Liabilities:Accounts
                payable
            
            
            —
            
            
            9,874Commissions
                and bonus payable
            
            
            8,368
            
            
            11,652Accrued
                liabilities
            
            
            87,176
            
            
            180,953Capital
                leases
            
            
            —
            
            
            1,273$
            95,544
            
            $
            203,752




**10.
      Share-Based Compensation Expense**




**Stock
      Options**




The
      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 non-vested stock options, and
      therefore as of December 31, 2007 and 2006 there were no shares subject to
      repurchase.




As
      of
      December 31, 2007, there were 5,5591,430 shares authorized for issuance under
      the Option Plans, and 612,858 shares authorized for issuance outside of the
      Option Plans. As of December 31, 2007, 270,050 shares were available for future
      option grants under the Option Plans. There were no shares available for future
      option grants outside of the Options Plans. Compensation expense for stock
      options during the three years ended December 31, 2007 was $1,373,000,
      $1,336,000, and $75,000, respectively.




60




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**10.
      Share-Based Compensation Expense - (continued)**




The
      following table is a summary of the Company’s stock option activity for the
      three years ended December 31, 2007:




**2007**
            
            **2006**
            
            **2005****Shares**
            
            **Wtd-Avg**
              **Exercise**
              **Price**
            
            **Shares**
            
            **Wtd-Avg**
              **Exercise**
              **Price**
            
            **Shares**
            
            **Wtd-Avg**
              **Exercise**
              **Price**Outstanding
                at beginning of year
            
            
            3,570,370
            
            $
            6.19
            
            
            3,324,358
            
            $
            6.24
            
            
            3,078,001
            
            $
            6.25Granted
            
            
            736,640
            
            
            4.82
            
            
            398,538
            
            
            6.27
            
            
            460,538
            
            
            8.77Exercised
            
            
            (83,939
            )
            
            (2.06
            )
            
            (52,819
            )
            
            (2.08
            )
            
            (33,938
            )
            
            (2.77
            )Canceled
            
            
            (156,812
            )
            
            (6.76
            )
            
            (99,707
            )
            
            (10.38
            )
            
            (180,243
            )
            
            (13.55
            )Outstanding
                at end of year
            
            
            4,066,259
            
            $
            6.00
            
            
            3,570,370
            
            $
            6.19
            
            
            3,324,358
            
            $
            6.24Exercisable
                at end of year
            
            
            3,084,852
            
            $
            6.16
            
            
            2,934,029
            
            $
            6.00
            
            
            2,677,958
            
            $
            6.02




The
      total
      intrinsic value of options exercised during the year ended December 31, 2007
      was
      $190,000.




The
      following table summarizes information with respect to stock options outstanding
      at December 31, 2007, based on the Company’s closing stock price on December 31,
      2007 of $5.32 per share:




**Options
                Outstanding at December 31,
                2007**
            
            **Vested
                Options at December 31, 2007****Range
                of**
              **Exercise
                Price**
            
            **Number**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life
                Years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**
            
            **Number**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**$
            1.26
                - $ 3.50
            
            
            1,986,325
            
            
            5.05
            
            $
            2.99
            
            $
            4,632,309
            
            
            1,986,325
            
            $
            2.99
            
            $
            4,632,309$
            3.51
                - $ 7.00
            
            
            1,191,228
            
            
            8.20
            
            $
            4.69
            
            
            746,781
            
            
            386,064
            
            
            4.27
            
            
            405,367$
            7.01
                - $14.00
            
            
            593,038
            
            
            7.06
            
            $
            8.94
            
            
            —
            
            
            416,795
            
            
            9.20
            
            
            —$
            14.01
                - $28.00
            
            
            256,381
            
            
            2.85
            
            $
            22.04
            
            
            —
            
            
            256,381
            
            
            22.04
            
            
            —$
            28.01
                - $49.00
            
            
            39,287
            
            
            2.15
            
            $
            49.00
            
            
            —
            
            
            39,287
            
            
            49.00
            
            
            —4,066,259
            
            
            6.10
            
            $
            6.00
            
            $
            5,379,090
            
            
            3,084,852
            
            $
            6.16
            
            $
            5,037,676




As
      of
      December 31, 2007, total unrecognized compensation expense related to unvested
      stock options was $3,049,000. This amount is expected to be recognized as
      expense over a weighted-average period of 1.4 years.




**Non-Vested
      Stock**




At
      the
      date of grant, the recipients of non-vested stock have most of the rights of
      a
      stockholder other than voting rights, subject to certain restrictions on
      transferability and a risk of forfeiture. Non-vested shares typically vest
      over
      a two to four year period beginning on the date of grant. The fair value of
      non-vested stock is equal to the market value of the shares on the date of
      grant. The Company recognizes the compensation expense for non-vested stock
      on a
      straight-line basis over the requisite service period. Compensation expense
      for
      non-vested stock during the three years ended December 31, 2007 was $1,262,000,
      $1,915,000 and $1,885,000, respectively.




61


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**10.
      Share-Based Compensation Expense - (continued)**




The
      following table is a summary of the Company’s non-vested stock activity, based
      on the Company’s closing stock price on December 31, 2007 of $5.32 per
      share:




**Non-Vested**
              **Stock**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Grant
                Date**
              **Fair
                Value**
            
            **Aggregate**
              **Intrinsic**
              **Value**Balance
                as of December 31, 2004
            
            
            490,893
            
            $
            7.38Granted
            
            
            324,561
            
            
            10.38Vested
            
            
            (91,240
            )
            
            (5.74
            )Canceled
            
            
            (142,802
            )
            
            (9.91
            )Balance
                as of December 31, 2005
            
            
            581,412
            
            $
            7.84
            
            $
            4,558,000Granted
            
            
            90,003
            
            
            7.16Vested
            
            
            (327,900
            )
            
            (4.19
            )Canceled
            
            
            (37,506
            )
            
            (10.78
            )Balance
                as of December 31, 2006
            
            
            306,009
            
            $
            10.04
            
            $
            3,072,000Granted
            
            
            153,828
            
            
            4.48Vested
            
            
            (257,515
            )
            
            (7.18
            )Canceled
            
            
            (21,702
            )
            
            (9.49
            )Balance
                as of December 31, 2007
            
            
            180,620
            
            $
            7.51
            
            $
            1,356,000




The
      total
      intrinsic value of non-vested stock which vested during the year ended December
      31, 2007 was $1,849,000.




As
      of
      December 31, 2007, total unrecognized compensation expense related to non-vested
      stock was $916,000. This expense is expected to be recognized over a
      weighted-average period of 1.00 year.




**Employee
      Stock Purchase Plan**




The
      Company offers an Employee Stock Purchase Plan, or ESPP, to its employees.
      As of
      December 31, 2007, there are no shares available under the ESPP and the Company
      has no plan to request additional shares from the stockholders for this program.
      Compensation expense for ESPP during the three years ended December 31, 2007
      was
      $189,000, $539,000 and $0, respectively. As of December 31, 2007, unrecognized
      compensation expense related to the ESPP was $0.




Under
      the
      ESPP, eligible employees may enroll in a 24-month offer period during certain
      open enrollment periods. New offer periods begin February 15 and August 15
      of
      each year. Each offer period consists of four, six-month purchase periods during
      which employee payroll deductions are accumulated. These deduction amounts,
      which are subject to certain limitations, are accumulated, and, at the end
      of
      each purchase period, are used to purchase shares of common stock. The purchase
      price of the shares is 15% less than the fair market value on either the first
      day of an offer period or the last day of a purchase period, whichever is lower.
      If the fair market value on the purchase date is less than the fair market
      value
      on the first day of an offer period, then participants automatically commence
      a
      new 24-month offer period. The ESPP has a ten-year term.




**Share-Based
      Compensation under SFAS 123(R) for 2007 and 2006 and APB 25 for
      2005**




On
      January 1, 2006, the Company adopted SFAS 123(R), which requires the measurement
      and recognition of compensation expense, based on estimated fair values, for
      all
      share-based payments awards made to the Company’s employees and directors
      including stock options, non-vested stock, and stock purchased under the
      Company’s ESPP.




62


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**10.
      Share-Based Compensation Expense - (continued)**




Prior
      to
      the adoption of SFAS 123(R), the Company accounted for share-based awards to
      employees and directors using the intrinsic value method in accordance with
      APB
      25, as allowed under SFAS 123, “Accounting for Stock-Based Compensation.”
Share-based compensation expense of $1,959,000 for the year ended December
      31,
      2005 was solely related to share-based awards resulting from non-vested stock
      awards and stock options granted with intrinsic value that the Company had
      been
      recognizing in its consolidated statements of operations in accordance with
      the
      provisions set forth above. In accordance with the intrinsic value method,
      no
      share-based compensation expense was otherwise recognized in the Company’s
      consolidated statements of operations because the exercise price of nearly
      all
      of the Company’s stock options granted to employees and directors equaled the
      fair market value of the underlying stock at the grant date.




**Pro
      Forma Share-Based Compensation under SFAS 123 for Fiscal
      2005**




If
      the
      Company had recognized compensation expense over the relevant service period
      under the fair value method consistent with the provisions of SFAS 123,
“Accounting for Stock Based Compensation” as amended by SFAS 148, “Accounting
      for Stock Based Compensation-Transition and Disclosure,” with respect to stock
      options granted for the year ended December 31, 2005, net loss would have
      changed, resulting in pro forma net loss and pro forma net loss per share as
      presented below:




**2005**Net
                loss, as reported
            
            $
            (1,514,443
            )Add:
                Stock-based employee compensation expense included in the reported
                net
                loss
            
            
            74,812Less:
                Stock-based employee compensation expense determined under fair value
                method for all awards
            
            
            (1,897,647
            )Pro
                forma net loss
            
            $
            (3,337,278
            )Net
                loss per share, as reported:Basic
            
            $
            (0.16
            )Diluted
            
            $
            (0.16
            )Net
                loss per share, pro forma:Basic
            
            $
            (0.35
            )Diluted
            
            $
            (0.35
            )




The
      above
      pro forma disclosures are not necessarily representative of the effects on
      reported net income or loss for future years.




**Fair
      Value and Assumptions Used to Calculate Fair Value under SFAS 123(R) and SFAS
      123**




The
      weighted average fair value of each stock option granted for 2007, 2006 and
      2005
      was $2.54, $3.59 and $5.55, 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 2007, 2006 and 2005:




**2007**
            
            **2006**
            
            **2005******
            
            ****
            
            ****Volatility
            
            
            63
            %
            
            81
            %
            
            94
            %Average
                expected term (years)
            
            
            4.2
            
            
            4.4
            
            
            3.7Risk-free
                interest rate
            
            
            4.55
            %
            
            4.75
            %
            
            3.85
            %Dividend
                yield
            
            
            —
            
            
            —
            
            
            —




63


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**10.
      Share-Based Compensation Expense - (continued)**




***Assumptions
      for Option-Based Awards under SFAS 123(R)***




Consistent
      with SFAS 123(R) and SAB 107, 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 lattice 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 do not plan to declare
      dividends on our common stock.




As
      share-based compensation expense recognized in the consolidated statement of
      operations for the years ended December 31, 2007 and December 31, 2006 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 Option-Based Awards under SFAS 123***




Prior
      to
      the first quarter of fiscal 2006, the Company considered the historical
      volatility of its stock price in determining its expected volatility. The
      risk-free interest rate was based upon assumption of interest rates appropriate
      for the term of the Company’s employee stock options. The dividend yield
      assumption was based on the Company’s history and expectation of dividend
      payouts. Forfeitures prior to the first quarter of fiscal 2006 were accounted
      for as they occurred in accordance with APB No. 25.




***Assumptions
      for Non-Vested Stock Awards under SFAS 123(R) and SFAS
      123***




The
      fair
      value of each non-vested stock award is estimated on the date of grant using
      the
      intrinsic value method. The weighted average fair value of the non-vested stock
      granted under the Company’s stock option plans for 2007, 2006 and 2005 was
      $4.48, $7.16 and $10.38 per share, respectively.




***Assumptions
      for Employee Stock Purchase Plan Awards under SFAS
      123(R)***




The
      fair
      value is determined as of the grant date, using the graded vesting approach.
      Under the graded vesting approach, the 24-month ESPP offer period, which
      consists of four, six-month purchase periods, is treated for valuation purposes
      as four separate option tranches with individual lives of six, 12, 18 and 24
      months, each commencing on the initial grant date. Each tranche is expensed
      straight-line over its individual life.




**11.
      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 three years ended December 31,
      2007.




64


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**12.
      Income Taxes**




Income
      tax expense consisted of the following for the three years ended December 31,
      2007:




****
            
            **2007**
            
            **2006**
            
            **2005**Current:Federal
            
            $
            1,857,783
            
            $
            —
            
            $
            —State
            
            
            604,832
            
            
            —
            
            
            142,425Total
            
            $
            2,462,165
            
            $
            —
            
            $
            142,425




The
      following table reconciles the federal statutory rate to the effective tax
      rate
      of the provision for income taxes for the three years ended December 31,
      2007:




**2007**
            
            **2006**
            
            **2005******
            
            ****
            
            ****Federal
                statutory income tax rate (benefit)
            
            
            34%
            
            
            (34%)
            
            
            (34%)State
                income taxes
            
            
            8
            
            
            (5)
            
            
            3Loss
                on retirement of convertible note payable
            
            
            —
            
            
            5
            
            
            —Permanent
                differences
            
            
            9
            
            
            13
            
            
            10Losses
                for which no benefit has been recognized
            
            
            —
            
            
            21
            
            
            31Valuation
                allowance
            
            
            (30%)
            
            
            —
            
            
            —Effective
                tax rate
            
            
            21%
            
            
            —%
            
            
            10%




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, 2007 and 2006 are presented as
      follows:




**December 31,****2007**
            
            **2006****Deferred
                tax assets:**Net
                operating loss carryforwards
            
            $
            16,016,822
            
            $
            20,834,803Stock
                options and warrants for services
            
            
            12,411,225
            
            
            12,771,213Other
            
            
            (154,566
            )
            
            26,370Total
                deferred tax assets
            
            
            28,273,481
            
            
            33,632,386Valuation
                allowance
            
            
            (28,273,481
            )
            
            (33,632,386
            )Net
                deferred tax assets
            
            $
            —
            
            $
            —




The
      net
      change in the valuation allowance for the year ended December 31, 2007 was
      a
      decrease of $5,359,000. 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, 2007, the Company had federal and state operating loss
      carryforwards of approximately $42,141,000 and $21,475,000, respectively. If
      not
      earlier utilized, the federal net operating loss carryforward will expire
      between 2021 and 2027 and the state loss carryforward will expire between 2011
      and 2016.Utilization of the net operating loss carry-forwards and credits is
      subject to an annual limitation due to the ownership change limitations provided
      by the Internal Revenue Code of 1986, as amended, and similar state provisions.
      The annual limitation will result in the expiration of a portion of net
      operating loss carryforwards before utilization.




65




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**12.
      Income Taxes - (continued)**




The
      Company adopted the provisions of FASB Interpretation 48, “Accounting for
      Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN
      48”), on January 1, 2008. Prior to adoption, the Company’s policy was to
      establish reserves that reflected the probable outcome of known tax
      contingencies. The effects of final resolution, if any, were recognized as
      changes to the effective income tax rate in the period of resolution. FIN 48
      requires application of a more likely than not threshold to the recognition
      and
      derecognition of uncertain tax positions. FIN 48 permits the Company to
      recognize the amount of tax benefit that has a greater than 50 percent
      likelihood of being ultimately realized upon settlement. It further requires
      that a change in judgment related to the expected ultimate resolution of
      uncertain tax positions be recognized in earnings in the quarter of such change.




Upon
        adoption of FIN 48 on January 1, 2007, the Company recognized no adjustment
        in
        the liability for unrecognized income tax benefits and no corresponding change
        in retained earnings. The Company does not have any material accrued interest
        or
        penalties associated with any unrecognized tax benefits. The Company's policy
        is
        to account for interest, if any, as interest expense and penalties as income
        tax
        expense.




The
      following is a rollforward of our total gross unrecognized tax benefit
      liabilities for the year ended December 31, 2007:







Balance
                as of December 31, 2006
            
            $
            -Tax
                positions related to current year:Additions
            
            
            1,838,743Reductions
            
            
            -Tax
                positions related to prior year:Additions
            
            
            -Reductions
            
            
            -Settlements
            
            
            -Lapses
                in statues of limitations
            
            
            -Balance
                as of December 31, 2007
            
            $
            1,838,743




The
        unrecognized benefit arising from current year is due to timing of recognition
        of principal transaction revenue in 2007. The addition to the above liability
        affects the Company’s effective tax rate in the respective period of change.
  The
        Company’s tax years 2004-2006 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 2002-2006 will remain open for three
        to four years for examination by state tax authorities from the date the
        state
        corporation tax returns were filed. Net operatng 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.




66





**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.
      Earnings (Loss) per Share**




The
      following is a reconciliation of the basic and diluted net income (loss)
      available to common stockholders and the number of shares used in the basic
      and
      diluted net income (loss) per common share computations for the periods
      presented:




**2007**
            
            **2006**
            
            **2005**Net
                income (loss) available to common stockholders — basic
            
            $
            9,323,035
            
            $
            (8,220,415
            )
            $
            (1,514,443
            )Interest
                on convertible note payable
            
            
            16,336
            
            
            —
            
            
            —Net
                income (loss) available to common stockholders — diluted
            
            
            9,339,371
            
            
            (8,220,415
            )
            
            (1,514,443
            )Weighted-average
                number of common shares — basic
            
            
            11,528,187
            
            
            9,989,265
            
            
            9,500,748Assumed
                exercise or conversion of all potentially dilutive common shares
                outstanding
            
            
            1,115,337
            
            
            —
            
            
            —Weighted-average
                number of common shares — diluted
            
            
            12,643,524
            
            
            9,989,265
            
            
            9,500,748Basic
                net income (loss) per share:Income
                (loss) from continuing operations
            
            $
            0.81
            
            $
            (0.79
            )
            $
            (0.16
            )Loss
                from discontinued operations
            
            
            —
            
            
            (0.03
            )
            
            —Net
                income (loss)
            
            $
            0.81
            
            $
            (0.82
            )
            $
            (0.16
            )Diluted net
                income (loss) per share:Income
                (loss) from continuing operations
            
            $
            0.74
            
            $
            (0.79
            )
            $
            (0.16
            )Loss
                from discontinued operations
            
            
            —
            
            
            (0.03
            )
            
            —Net
                income (loss)
            
            $
            0.74
            
            $
            (0.82
            )
            $
            (0.16
            )




Basic
      earnings (loss) per share is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding, excluding unvested
      restricted stock. Diluted earnings per share is calculated for 2007 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, including unvested restricted stock. Diluted loss per share is
      unchanged from basic loss per share for 2006 and 2005 because the addition
      of
      common shares that would be issued assuming exercise or conversion would be
      anti-dilutive.




Shares
      used in the diluted net income (loss) per share computation in the above table
      include the dilutive impact of the Company’s stock options and warrants. The
      impact of the Company’s stock options and warrants on shares used for the
      diluted earnings per share computation is calculated based on the average share
      price of the Company’s common stock for each period using the treasury stock
      method. Under the treasury stock method, the tax-effected proceeds that would
      be
      hypothetically received from the exercise of all stock options and warrants
      with
      exercise prices below the average share price of the Company’s common stock are
      assumed to be used to repurchase shares of the Company’s common stock. The
      dilutive impact of the Company’s stock options was calculated using an average
      price of the Company’s common stock of $4.56, $6.41 and $8.68 per share for
      2007, 2006 and 2005, respectively.




67


**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**13.
      Earnings (Loss) per Share - (continued)**




The
      Company excludes all potentially dilutive securities from its diluted net income
      (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:




**2007**
            
            **2006**
            
            **2005**Stock
                options and warrants excluded due to the exercise price exceeding
                the
                average fair value of the Company’s common stock during the
                period
            
            
            1,799,523
            
            
            1,397,022
            
            
            1,150,239Weighted
                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
            
            
            —
            
            
            1,833,389
            
            
            2,450,587Weighted
                average shares issuable upon conversion of the convertible notes
                payable
            
            
            —
            
            
            704,960
            
            
            142,858Weighted
                average shares contingently issuable
            
            
            —
            
            
            73,402
            
            
            136,376Total
                common stock equivalents excluded from diluted net income (loss)
                per
                share
            
            
            1,799,523
            
            
            4,008,773
            
            
            3,880,060




**14.
      Business Segments**




The
      Company’s business results are categorized into the following three segments:
      investment bank / broker-dealer, primary research and asset management. The
      investment bank / broker-dealer segment includes a broad range of services,
      such
      as capital raising and financial advisory services for corporate clients, and
      brokerage and equity research services for our institutional investor clients.
      Our primary research segment offers custom, independent primary research
      services to health care and clean technology companies, as well as financial
      services firms that invest in these companies. Our asset management segment
      manages investment products for investors. We sold our wealth management
      subsidiary in January 2007. The results from this segment have been treated
      as
      discontinued operations.




The
      accounting policies of the segments are consistent with those described in
      the
      Significant Accounting Policies in Note 2.




Revenue
      generating activities between segments are eliminated from the segments results
      for reporting purposes. These activities include fees paid by the Asset
      Management segment to the Primary Research segment for the management of its
      investment portfolio.




The
      Company’s segment information for the three years ended December 31, 2007 is
      prepared using the following methodology:




**·**
            Revenue
                and expenses directly associated with each segment are included in
                determining income.




**·**
            Each
                segment’s operating expenses include compensation and benefits expenses
                and other operating expenses that are incurred directly in support
                of the
                segments. These other operating expenses, include brokerage and clearing
                fees, cost of primary research services, professional services, occupancy
                and equipment, communications and technology, depreciation and
                amortization, amortization of intangible assets, travel and business
                development and other operating
                expenses.




**·**
            Corporate
                operating expenses include compensation and benefits for corporate
                support
                employees as well as operating expenses that are not incurred directly
                in
                support of our three segments.




The
      Company evaluates segment results based on revenue and segment
      income.




68




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**14.
      Business Segments - (continued)**




Management
      believes that the following information provides a reasonable representation
      of
      each segment’s contribution to revenue, income and assets:




**2007**
            
            **2006**
            
            **2005**Broker-Dealer
            
            
            Revenue
            
            $
            83,089,485
            
            $
            51,436,697
            
            $
            43,184,315Operating
                expenses
            
            
            60,251,106
            
            
            49,720,757
            
            
            35,566,525Segment
                operating income
            
            $
            22,838,379
            
            $
            1,715,940
            
            $
            7,617,790Segment
                assets
            
            $
            53,653,805
            
            $
            27,501,531
            
            $
            25,743,423Primary
                Research
            
            
            Revenue
            
            $
            3,848,421
            
            $
            —
            
            $
            —Operating
                expenses
            
            
            5,492,759
            
            
            —
            
            
            —Segment
                operating loss
            
            $
            (1,644,338
            )
            $
            —
            
            $
            —Segment
                assets
            
            $
            6,771,371
            
            $
            —
            
            $
            —Asset
                Management
            
            
            Revenue
            
            $
            718,086
            
            $
            381,941
            
            $
            —Operating
                expenses
            
            
            1,186,479
            
            
            761,805
            
            
            250,695Segment
                operating loss
            
            $
            (468,393
            )
            $
            (379,864
            )
            $
            (250,695
            )Segment
                assets
            
            $
            3,363,019
            
            $
            1,231,842
            
            $
            340,838Corporate
                Support
            
            
            Operating
                loss
            
            $
            9,264,315
            
            $
            7,833,368
            
            $
            9,095,552Consolidated
                Entity
            
            
            Revenue
            
            $
            87,655,992
            
            $
            51,818,638
            
            $
            43,184,315Operating
                expenses
            
            
            76,194,659
            
            
            58,315,930
            
            
            44,912,772Operating
                income (loss)
            
            $
            11,461,333
            
            $
            (6,497,292
            )
            $
            (1,728,457
            )Total
                assets
            
            $
            64,573,331
            
            $
            30,498,213
            
            $
            27,694,413




**15.
      Commitments and Contingencies**




The
      following is a table summarizing significant commitments as of December 31,
      2007, consisting of debt service payments related to convertible and
      non-convertible notes payable and future minimum lease payments under all
      non-cancelable operating leases and capital leases with initial or remaining
      terms in excess of one year.




**Notes**
              **Payable**
            
            **Operating**
              **Leases**
            
            **Capital**
              **Leases******2008
            
            $
            243,573
            
            
            2,628,402
            
            
            563,5262009
            
            
            —
            
            
            2,444,011
            
            
            341,6742010
            
            
            —
            
            
            2,019,930
            
            
            50,8802011
            
            
            —
            
            
            1,923,516
            
            
            —2012
            
            
            —
            
            
            1,174,323
            
            
            —Thereafter
            
            
            —
            
            
            572,000
            
            
            —Total
                commitments
            
            $
            243,573
            
            $
            10,762,182
            
            $
            956,080




The
      Company leases its San Francisco corporate office under a noncancelable
      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 $1,106,000, $1,043,000 and $1,006,000
      in
      2007, 2006 and 2005, respectively.




69




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**15.
      Commitments and Contingencies - (continued)**




**Legal
      Proceedings**




**Thomas
      O’Shea v. Merriman Curhan Ford & Co.**




In
      June
      2006, our broker-dealer subsidiary Merriman Curhan Ford & Co. was served
      with a claim in NASD Arbitration by Mr. O'Shea. Mr. O'Shea is a former at-will
      employee of Merriman Curhan Ford & Co. and worked in the investment banking
      department. Mr. O'Shea resigned from Merriman Curhan Ford & Co. in July
      2005. Mr. O'Shea alleges breach of an implied employment contract, quantum
      meruit, and unjust enrichment based on his allegations that he was to be paid
      more for his work. The matter is in the discovery stage and an arbitration
      hearing scheduled for June 2007 is being rescheduled between the parties and
      the
      Arbitration Panel. We believe that we have meritorious defenses and intend
      to
      contest these claims vigorously. However, in the event that we did 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.





**S3
      Investment Company, Inc. v. Merriman Curhan Ford & Co. and Qualico Capital,
      Inc.**





In
      September 2007, Merriman Curhan Ford & Co. was served with a complaint filed
      by a former client S3 Investment Company, Inc. (“S3i”).The matter is pending
      before the Superior Count in the City and County of San Francisco. The plaintiff
      alleges theories of breach of contract, fraud, negligent misrepresentation,
      intentional and negligent interference with prospective economic relations.
      We
      believe that we have meritorious defenses and intend to contest these claims
      vigorously. However, in the event that we did 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.




**Other
      Matters**




Additionally,
      from time to time, the Company is involved in ordinary routine litigation
      incidental to its business.




**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, 2007 and 2006, 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). Securities sold, not yet purchased
      represent obligations of the Company to deliver the specified security at the
      contracted price and thereby create a liability to purchase the security in
      the
      market at prevailing prices. These transactions result in off-balance sheet
      risk
      as the Company’s ultimate obligation to purchase such securities may exceed the
      amount recognized in the consolidated statements of financial
      condition.




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.




70




**MCF
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**16.
      Financial Instruments, Off-Balance Sheet Arrangements and Credit Risk -
      (continued)**




**Off-Balance
      Sheet Arrangements**




The
      Company was not a party to any off-balance sheet arrangements during the three
      years ended December 31, 2007. 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.




**17.
      Regulatory Requirements**




Merriman
      Curhan Ford & Co. is a broker-dealer subject to Rule 15c3-1 of the
      Securities and Exchange Commission, which specifies uniform minimum net capital
      requirements, as defined, for their registrants. As of December 31, 2007,
      Merriman Curhan Ford & Co. had regulatory net capital, as defined, of
      $17,848,000, which exceeded the amount required by $16,419,000. Merriman Curhan
      Ford & Co. 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.




**18.
      Related Party Transactions**




As
      described in Note 5, the Company issued a $400,000 convertible note payable
      during 2001 to the former Chairman and CEO of the Company in connection with
      severance terms included in his employment agreement. In May 2003, the Company
      and Mr. Sledge agreed to convert the principal and interest due at maturity
      into a five year fully amortizing note payable. As of December 31, 2007, the
      remaining principal amount of the note payable was $42,000. Mr. Sledge
      served as a member of the Company’s Board of Directors until March
      2007.




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.




19. 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
        period ended December 31, 2007. 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.
  **2007****1st**
              
              **2nd**
              
              **3rd**
              
              **4th**Revenue
              
              $
              14,323,144
              
              $
              20,372,349
              
              $
              17,660,194
              
              $
              35,300,305Operating
                  expenses
              
              
              14,322,037
              
              
              18,077,573
              
              
              17,588,823
              
              
              26,206,226Operating
                  income
              
              
              1,107
              
              
              2,294,776
              
              
              71,371
              
              
              9,094,079Net
                  income
              
              
              69,256
              
              
              2,320,373
              
              
              188,460
              
              
              6,744,946Basic
                  net income per common share
              
              $
              0.01
              
              $
              0.20
              
              $
              0.02
              
              $
              0.56Diluted
                  net income per common share
              
              $
              0.01
              
              $
              0.18
              
              $
              0.01
              
              $
              0.51
 
 **2006****1st**
              
              **2nd**
              
              **3rd**
              
              **4th**Revenue
              
              $
              11,560,302
              
              **$**
              14,864,866
              
              **$**
              7,426,490
              
              $
              17,966,980Operating
                  expenses
              
              
              12,897,544
              
              
              15,535,834
              
              
              12,717,715
              
              
              17,164,837Operating
                  income (loss)
              
              
              (1,337,242
              )
              
              (670,968
              )
              
              (5,291,225
              )
              
              802,143Net
                  income (loss)
              
              
              (1,349,608
              )
              
              (1,059,935
              )
              
              (5,109,051
              )
              
              (701,821
              )Basic
                  net income (loss) per common share
              
              $
              (0.14
              )
              **$**
              (0.11
              )
              **$**
              (0.51
              )
              $
              (0.07
              )Diluted
                  net income (loss) per common share
              
              $
              (0.14
              )
              **$**
              (0.11
              )
              **$**
              (0.51
              )
              $
              (0.07
              )




71




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




The
      financial statements included in this report have been audited by Ernst &
Young LLP, independent auditors, as stated in their audit report appearing
      herein.




During
      the year ended December 31, 2007 and through the date of this Annual Report
      on
      Form 10-K, there were no disagreements with Ernst & Young LLP on any matter
      of accounting principle or practice, financial statement disclosure, or auditing
      scope or procedure which, if not resolved to Ernst & Young LLP’s
      satisfaction, would have caused them to make reference to the subject matter
      in
      connection with their report on our 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, 2007, 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 in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on our evaluation under the framework in *Internal
      Control—Integrated Framework* ,
      our
      management concluded that our internal control over financial reporting was
      effective as of December 31, 2007.




*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, 2007, that materially affected, or is reasonably likely
      to
      materially affect, the Company’s internal control over financial
      reporting.




**Item
      9b. Other Information**




Not
      applicable.





72




**Report
      of Independent Registered Public Accounting Firm**




The
      Board
      of Directors and Stockholders of


MCF
      Corporation and subsidiaries




We
      have
      audited MCF Corporation and subsidiaries (the “Company”)’s internal control over
      financial reporting as of December 31, 2007, based on criteria established
      in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (the COSO criteria). The Company’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. 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 included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, testing
      and evaluating the design and operating effectiveness of internal control based
      on the assessed risk, and 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, the Company maintained, in all material respects, effective internal
      control over financial reporting as of December 31, 2007, based on the COSO
      criteria.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated statements of financial
      condition of the Company as of December 31, 2007 and 2006, and the related
      consolidated statements of operations, stockholders’ equity, and cash flows for
      each of the three years in the period ended December 31, 2007 of the Company
      and
      our report dated February 11, 2008 expressed an unqualified opinion
      thereon.




/s/
                Ernst & Young LLPSan
                Francisco, California
              February
                11, 2008




73




**PART
      III**




**Item
      10. Directors and Executive Officers of the Registrant**




The
      table
      below sets forth certain information concerning each of the Directors and
      executive officers of MCF Corporation:




**Name**
            ****
            **Age**
            ****
            **Position******D.
                Jonathan Merriman
            
            47
            
            Chief
                Executive OfficerGregory
                S. Curhan
            
            46
            
            Executive
                Vice PresidentRobert
                E. Ford
            
            47
            
            President
                and Chief Operating OfficerJohn
                D. Hiestand
            
            39
            
            Chief
                Financial OfficerChristopher
                L. Aguilar
            
            46
            
            General
                CounselPatrick
                H. Arbor
            
            71
            
            DirectorWilliam
                J. Febbo
            
            39
            
            DirectorRaymond
                J. Minehan
            
            66
            
            DirectorScott
                Potter
            
            39
            
            DirectorDennis
                G. Schmal
            
            60
            
            DirectorRonald
                E. Spears
            
            59
            
            DirectorJohn
                M. Thompson
            
            69
            
            Chairman
                of the Board of DirectorsSteven
                W. Town
            
            47
            
            Director




***D.
      Jonathan Merriman*** has
      served as our Chief Executive Officer from February 2001 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 MCF Corporation.
      Mr. Merriman and his team engineered the transition of Ratexchange, a
      software trading platform company, into a full-service institutional investment
      bank, MCF Corporation. 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 for-profit and non-profit organizations and currently holds
      seats on the Board of Directors of MCF Corporation and Leading Brands,
      Inc.




***Gregory
      S. Curhan*** has
      served as our Executive Vice President from January 2002 to present and served
      as Chief Financial Officer from January 2002 to January 2004. Previously, he
      served as Chief Financial Officer of WorldRes.com from May 1999 through June
      2001. Prior to joining WorldRes.com, Mr. Curhan served as Director of
      Global Technology Research Marketing and Managing Director Specialty Technology
      Institutional Equity Sales at Merrill Lynch & Co. from May 1998 to May 1999.
      Prior to joining Merrill Lynch, Mr. Curhan was a partner in the investment
      banking firm of Volpe Brown Whelan & Co., serving in various capacities
      including Internet research analyst and Director of Equities from May 1993
      to
      May 1998. Mr. Curhan was a founder and principal of the investment advisor
      Curhan, Merriman Capital Management from July 1988 through December 1992. Prior
      to founding Curhan, Merriman, Mr. Curhan was a Vice President institutional
      equity sales for Montgomery Securities from June 1985 through June 1988. From
      August 1983 to May 1985, Mr. Curhan was a financial analyst in the
      investment banking group at Merrill Lynch. Mr. Curhan earned his Bachelor
      of Arts degree from Dartmouth College.




***Robert
      E. Ford*** had
      served as President and Chief Operating Officer for MCF Corporation since
      February 2001. He brings 20 years of executive and operations experience to
      the
      Company. Prior to joining MCF Corporation 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.




74




***John
      D. Hiestand*** joined
      MCF Corporation as the Controller in January 2002 and became Chief Financial
      Officer in January 2004. From December 2000 to November 2001, he served as
      the
      Controller of the Metro-Switching Division at CIENA Corporation.
      Mr. Hiestand had come to CIENA through the merger with Cyras Systems, Inc.,
      where he served as the Controller from March 2000 to December 2000. Prior to
      joining Cyras Systems, Inc., Mr. Hiestand served as a Senior Manager in the
      audit practice at KPMG LLP in San Francisco. Mr. Hiestand received a
      Bachelor of Arts in Business from California Polytechnic State University at
      San
      Luis Obispo in 1991, and holds the Certified Public Accountant (CPA) and
      Chartered Financial Analyst (CFA) designations.




***Christopher
      L. Aguilar*** has
      served as General Counsel of MCF Corporation from March 2000 to present and
      serves as General Counsel and Chief Compliance Officer of Merriman Curhan Ford
      & Co. He brings 15 years of legal and regulatory experience to the Company.
      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 is presently an adjunct professor at
      University of California, Hastings College of the Law.




***Patrick
      H. Arbor*** has
      served as a member of our Board of Director since February 2001 and has served
      as a member of the audit committee since April 2001. Mr. Arbor is currently
      Chairman of United Financial Holdings Inc., a bank holding company.
      Mr. Arbor has been a principal of the trading firm of Shatkin-Arbor &
Co. from 1997 to the present time. He is a longtime member of the Chicago Board
      of Trade (CBOT), the world’s oldest derivatives exchange, serving as the
      organization’s Chairman from 1993 to 1999. During that period, Mr. Arbor
      also served on the Board of Directors of the National Futures Association.
      Prior
      to that, he served as Vice Chairman of the CBOT for three years and ten years
      as
      a Director. Mr. Arbor’s other exchange memberships include the Chicago
      Board Options Exchange, the Mid-America Commodity Exchange and the Chicago
      Stock
      Exchange. Mr. Arbor received his undergraduate degree in business and
      economics from Loyola University.




***William
      J. Febbo*** 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 continues his responsibilities. 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.




***Raymond
      J. Minehan*** has
      served as a member of our Board of Directors and as a member of our audit
      committee and compensation committee since August 2003. Since May 2005,
      Mr. Minehan has served as Chief Financial Officer for the Conservation and
      Liquidation Office of the State of California. From February 2002 to May 2005,
      Mr. Minehan was retired. From February 2001 to February 2002,
      Mr. Minehan served as the Chief Financial Officer at Memestreams, Inc., a
      startup company that was developing information management software. From
      January 1997 to August 2000, he served as the Chief Administrative Officer
      at
      Sutro & Co. where he was responsible for all administrative functions
      including finance, management information systems, telecommunications,
      operations, human resources and facilities. From 1989 to 1997, he served as
      chief financial officer at Hambrecht & Quist, Inc. From 1972 to 1989,
      Mr. Minehan served as a partner with Arthur Andersen LLP. Mr. Minehan
      served in the United States Air Force as a navigator assigned to the Strategic
      Air Command as B-52 navigator/electronic warfare officer. He attained the rank
      of Captain. Mr. Minehan received his Bachelor of Arts degree in Finance
      from Golden Gate University.




75




***Scott
      Potter*** became a
      Director of MCF Corporation in August 2004 and has served as a member of our
      nominations committee since November 2005. From February 2005 until the present,
      he has served as a Managing General Partner of San Francisco Equity Partners
      (SFEP), a private equity firm focused on expansion stage companies within the
      information technology, media, consumer, and service industries. Prior to
      founding SFEP in February 2005, Mr. Potter served as Director of LMS
      Capital, the venture capital arm of London Merchant Securities plc (LON:LMSO)
      from January 2003 to February 2005, where Mr. Potter oversaw LMS’ North
      American Private Equity portfolio. Prior to joining LMS, Mr. Potter held
      the position of Senior Vice President, Field Operations at Inktomi Corporation
      from August 2002 to January 2003 where he had responsibility for Inktomi’s sales
      force, business development, consulting services, and field offices. From
      January 2000 to August 2002, Mr. Potter served as President and CEO of
      Quiver, Inc., an enterprise software company funded by some of the world’s
      leading Venture Capital firms. Under Mr. Potter’s leadership, Quiver became
      a leading company in the Information Management space, and ultimately was
      acquired by Inktomi in August of 2002. Prior to his tenure at Quiver,
      Mr. Potter was Executive Vice President in charge of business development
      and corporate development at Worldres, Inc., an online travel technology
      company. Mr. Potter’s career began as an attorney for one of Silicon
      Valley’s leading law firms, Venture Law Group. A frequent speaker at technology
      industry conferences and investor forums, Mr. Potter holds a BA in
      Industrial Psychology from the University of California at Berkeley and a JD
      Degree from UC Berkeley’s Boalt Hall School of Law. Mr. Potter currently
      serves as Chairman of The Guild, Inc. and serves on the board of directors
      of
      Method Products, Modviz, Penguin Computing, and Rave Motion
      Pictures.




***Dennis
      G. Schmal*** 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. From February 1972 to April 1999,
      Mr. Schmal served as a partner in the audit practice at Arthur Andersen
      LLP. Mr. Schmal now performs a variety of consulting services for a number
      of companies. 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. Mr. Schmal attended California State
      University, Fresno where he received a Bachelor of Science in Business
      Administration- Finance and Accounting Option.




***Ronald
      E. Spears*** has
      served as a member of our Board of Directors from March 2000 to present and
      served as a member of the Audit Committee from April 2001 to August 2003. Since
      March 2002, Mr. Spears has served as President of AT&T’s Signature
      Client Group, the sales organization that serves AT&T’s largest 325 Global
      accounts. From October 1990 until joining AT&T in 2002, Mr. Spears
      served in a number of early stage ventures primarily involved in the development
      and sale of technology solutions to large corporate enterprises . During this
      time, he served as Chief Operating Officer of e.Spire Communications, an East
      Coast CLEC; Chief Executive Officer of CMGI Solutions, an Internet Professional
      Services firm; and Chief Executive Officer of Vaultus, a wireless software
      company. In these roles, he led several successful equity and debt offerings
      for
      these ventures. Mr. Spears also served in various capacities at MCI
      Communications from 1979 to 1990; his last position was President of MCI’s
      Midwest Division from 1984 to 1990. A pioneer of the competitive long distance
      industry, Mr. Spears began his career in telecommunications as a manager at
      AT&T Long Lines in 1978, following eight years as an officer in the United
      States Army. He is a graduate of the United States Military Academy at West
      Point, and also holds a Master’s Degree in Public Service from Western Kentucky
      University.




***John
      M. Thompson*** 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. (now Panel Intelligence, LLC,
      a
      wholly owned subsidiary), and served on others. 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). 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.




***Steven
      W. Town*** has
      served as a member of our Board of Directors from October 2000 to present and
      has served as a member of the compensation committee since April 2001.
      Mr. Town has served as Co-Chief Executive Officer of the Amerex Natural
      Gas, Amerex Power and Amerex Bandwidth, Ltd. Mr. Town began his commodities
      career in 1987 in the retail futures industry prior to joining the Amerex Group
      of Companies. He began the Amerex futures and forwards brokerage group in
      natural gas in 1990, in Washington D.C., and moved this unit of Amerex to
      Houston in 1992. During Mr. Town’s tenure as Co-Chief Executive Officer,
      the Amerex companies have become the leading brokerage organizations in their
      respective industries. Amerex currently provides energy, power and bandwidth
      brokerage services to many of the major energy companies. Mr. Town is a
      graduate of Oklahoma State University.




76




The
      Company has a standing audit committee whose members are Dennis G. Schmal,
      Raymond J. Minehan and Patrick H. Arbor.




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.




The
      information set forth under the caption “Section 16(a) Beneficial Ownership
      Reporting Compliance” is incorporated by reference to the Company’s definitive
      2008 Proxy Statement.




**Audit
      Committee Financial Expert**




The
      board
      of directors has determined that Dennis G. Schmal and Raymond J. Minehan are
      “audit committee financial experts” and “independent” as defined under
      applicable SEC and American Stock Exchange 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. The board’s affirmative determination for Raymond J. Minehan was
      based, among other things, upon his extensive experience as chief administrative
      officer of Sutro & Co. and, prior to that, as chief financial officer of
      Hambrecht & Quist, Inc. and, prior to that, as audit partner of Arthur
      Andersen LLP.




**Financial
      Code of Ethics**




The
      Company has adopted its “Finance Code of Professional Conduct”, a code of ethics
      that applies to our Chief Executive Officer, Chief Financial Officer and other
      finance organization employees. 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.




**Item
      11. Executive Compensation**




The
      information is incorporated by reference to the Company’s definitive 2008 Proxy
      Statement.




**Item
      12. Security Ownership of Certain Beneficial Owners and
      Management**




The
      information is incorporated by reference to the Company’s definitive 2008 Proxy
      Statement.




**Item
      13. Certain Relationships and Related Transactions**




The
      information is incorporated by reference to the Company’s definitive 2008 Proxy
      Statement.




**Item
      14. Principal Accounting Fees and Services**




The
      information is incorporated by reference to the Company’s definitive 2008 Proxy
      Statement.


77


**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 index to exhibits are filed or incorporated
      by reference as part of this Annual Report on Form 10-K.




78


**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.


**MCF
                Corporation**February
              12, 2008
            By:
            /s/
                D. Jonathan MerrimanD.
                Jonathan Merriman,
              Chief
                Executive Officer




Pursuant
      to the requirements of the Securities and 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
            
            February 12,
                2008D.
                Jonathan Merriman/s/
                John D. Hiestand
            
            Chief
                Financial Officer and
              Principal
                Accounting Officer
            
            February 12,
                2008John
                D. Hiestand/s/
                John M. Thompson
            
            Chairman
                of the Board of Director
            
            February 12,
                2008John
                M. Thompson/s/
                Patrick H. Arbor
            
            Director
            
            February 12,
                2008Patrick
                H. Arbor/s/
                William J. Febbo
            
            Director
            
            February 12,
                2008William
                J. Febbo/s/
                Raymond J. Minehan
            
            Director
            
            February 12,
                2008Raymond
                J. Minehan/s/
                Scott Potter
            
            Director
            
            February 12,
                2008Scott
                Potter/s/
                Dennis G. Schmal
            
            Director
            
            February 12,
                2008Dennis
                G. Schmal/s/
                Ronald E. Spears
            
            Director
            
            February 12,
                2008Ronald
                E. Spears/s/
                Steven W. Town
            
            Director
            
            February 12,
                2008Steven
                W. Town





79


**EXHIBIT
      INDEX**




**Exhibit No.**
            
            **Description******3.1
            
            Certificate
                of Incorporation, as amended (incorporated herein by reference to
                Exhibit
                3.1 to MCF’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 MCF’s Registration Statement on Form S-1 (Reg. No.
                333-53316)).4.1
            
            Form
                of Convertible Subordinated Note related to MCF private financing,
                dated
                November 26, 2001 (incorporated by reference to Exhibit 4.1 to MCF’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 MCF related
                to
                MCF Corporation private financing, dated November 26, 2001 (incorporated
                by reference to Exhibit 4.2 to MCF’s Form 10-K for the year ended December
                31, 2001) (Reg.
                No. 001-15831).10.13+
            
            Employment
                Agreement between MCF and D. Jonathan Merriman dated October 5, 2000
                (incorporated herein by reference to Exhibit 10.15 to MCF’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
                MCF’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 MCF 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 MCF’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 MCF’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 MCF’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 MCF’s Registration Statement on Form S-1 (Reg. No.
                333-37004)).10.29
            
            Agreement
                between MCF and BL Partners related to RMG Partners Corporation,
                dated
                April 8, 2001 (incorporated by reference to Exhibit 10.1 to MCF’s Form
                10-Q for the quarter ended June 30, 2001)(Reg.
                No. 001-15831).10.30+
            
            Offer
                of Employment Agreement between MCF Corporation 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 MCF’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 MCF’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 MCF’s Form 10-K
                for the year ended December 31, 2001) (Reg.
                No. 001-15831).10.34+
            
            Employment
                Agreement between MCF and Gregory S. Curhan, dated January 9, 2002
                (incorporated by reference to Exhibit 10.34 to MCF’s Form 10-K for the
                year ended December 31, 2001) (Reg.
                No. 001-15831).10.35+
            
            Employment
                Agreement between MCF Corporation and Robert E. Ford, dated January
                1,
                2002 (incorporated by reference to Exhibit 10.35 to MCF’s Form 10-K for
                the year ended December 31, 2001) (Reg.
                No. 001-15831).10.37
            
            Stock
                Purchase Agreement by and among MCF 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 MCF’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 MCF’s Form 10-K for the year ended December 31, 2001) (Reg.
                No. 001-15831).10.39
            
            Securities
                Exchange Agreement in connection with MCF Corporation dated June
                22, 2003
                (incorporated by reference to Exhibit 99.1 to MCF’s Form 8-K filed on July
                3, 2003) (Reg.
                No. 001-15831).




80




**Exhibit No.**
            
            **Description**10.43
            
            Stock
                Purchase Agreement by and between MCF Corporation 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 MCF Corporation 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 MCF Corporation 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 MCF.23.1
            
            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.




81