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, 2008




OR




 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934




For the
transition period from _______ to
________




Commission
File Number 001-15831










MERRIMAN
CURHAN FORD GROUP, INC.


(Exact
Name of Registrant as Specified in its Charter)




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




600
California Street, 9th Floor


San
Francisco, CA 94108


(Address
of principal executive offices)(Zip Code)




(415)
248-5600


(Registrant’s
telephone number, including area code)








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


None




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




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









Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yesx   Noo




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, a non-accelerated filer or a “smaller reporting company”. See
definition of “accelerated filer, large accelerated filer and smaller reporting
company” in Rule 12b-2 of the Exchange Act.




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




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




The
aggregate market value of the 12,684,106 shares of common stock of the
Registrant issued and outstanding as of June 30, 2008, the last business day of
the registrant’s most recently completed second fiscal quarter, excluding
1,239,822 shares of common stock held by affiliates of the Registrant was
$14,534,241. This amount is based on the closing price of the common stock on
NASDAQ of $1.27 per share on June 30, 2008.




The
number of shares of Registrant’s common stock outstanding as of March 25, 2009
was 12,733,296




DOCUMENTS
INCORPORATED BY REFERENCE




Part III
of this Form 10-K incorporates by reference certain portions of the Registrant’s
proxy statement for its 2009 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 IItem 1.
                  Business
                  
                  1Item 1A.
                  Risk
      Factors
                  
                  10Item 1B.
                  Unresolved
      Staff Comments
                  
                  20Item 2.
                  Properties
                  
                  20Item 3.
                  Legal
      Proceedings
                  
                  21Item 4.
                  Submission
      of Matters to a Vote of Stockholders
                  
                  25PART IIItem 5.
                  Market
      for Registrant’s Common Stock and Related Stockholder
    Matters
                  
                  25Item 6.
                  Selected
      Financial Data
                  
                  27Item 7.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  28Item 7A.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  
                  43Item 8.
                  Financial
      Statements and Supplementary Data
                  
                  44Item 9.
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                  
                  78Item 9A.
                  Controls
      and Procedures
                  
                  78Item 9B.
                  Other
      Information
                  
                  78PART IIIItem
      10.
                  Directors
      and Executive Officers of the Registrant
                  
                  80Item 11.
                  Executive Compensation
                  
                  80Item 12.
                  Security Ownership
      of Certain Beneficial Owners and Management
                  
                  80Item 13.
                  Certain
      Relationships and Related Transactions
                  
                  80Item 14.
                  Principal Accounting Fees And Services
                  
                  80PART IVItem 15.
                  Exhibits
      and Financial Statement Schedules
                  
                  81




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 equity 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 attempting to gain market share by originating differentiated
research for our institutional investor clients and providing specialized and
integrated services for our fast-growing corporate clients.




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





MCF Asset
Management, LLC manages absolute return investment products for institutional
and high-net worth clients. We are the sub-advisor for the MCF Focus fund. In an
effort to refocus the holding company back to its core investment banking/
broker-dealers services, management has decided to begin the process of
liquidating the funds under management and returning investments to the
investors in the fourth quarter of 2008. As a result of such, we have eliminated
positions at MCF Asset Management, LLC, reducing our expenses beginning in
2008.  This has been included in the reductions in force disclosed
under Management Discussion and Analysis.  As of December 31, 2008,
assets under management across our three fund products had been partially
liquidated to $11 million from $56 million in 2007.




We are
headquartered in San Francisco, with additional offices in New York, NY and
Cambridge, MA. As of December 31, 2008, we had 128 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.




Going
Concern





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern for the foreseeable future and will
be able to realize its assets and discharge its liabilities in the normal course
of operations.




During
the year ended December 31, 2008, the Company incurred a net loss of $30,274,000
and used $24,945,000 in net cash from operating activities.  At
December 31, 2008, the Company had cash and cash equivalents of $6,358,000,
marketable securities of $4,623,000 and receivables from clearing broker of
$1,753,000.  The Company had liabilities of
$11,150,000.  The Company’s ability to generate profits is highly
dependent on stock market trading volumes and the general economic environment.
As a result, the ability of the Company to meet its forward obligations and the
ability to continue as a going concern may be in question.




The
Company is in the process of implementing a plan to increase its operating
flexibility and extend its cash reserves. The plan primarily consists of four
steps which are more fully described below:




1.      Reduce
operating costs


2.      Shed
non-essential operations


3.      Negotiate
a settlement of pending litigations


4.      Raise
additional capital





During
2008 and early 2009, the Company implemented significant expense control and
cost reduction programs focused on reducing cash losses and increasing
operational flexibility in which it has eliminated more than $10 million in
annual operating expenses. The primary contributor to these savings has been the
elimination of more than 50% of the Company’s workforce, as well as salary
reductions. The CEO, the Head of Institutional Securities and the Head of
Professional Services voluntarily eliminated their salaries.  They
will be remunerated based on month-to-month profitability.  The Board
of Directors has, as of early 2009, also voluntarily eliminated its
compensation.  The Company believes that it has been able to execute
these reductions with limited impact to its ability to generate and execute new
business in the current market environment. With these measures largely
complete, the company believes that it has increased its ability to meet its
obligations during 2009 and beyond.




As a part
of the four-step plan mentioned above, in January of 2009, the Company shed
non-essential operations or those requiring substantial cash
infusions.  First, the Company sold Panel Intelligence, LLC on January
30, 2009. This subsidiary required a cash injection of $1,131,000 during 2008
and was projected to reach breakeven only in late 2009. Also in January 2009,
the Company sold its operations known as Institutional Cash Distributors to a
group of its employees. While this business was profitable, management was able
to reach a deal that substantially increases the near-term flow of capital.
Finally, the Company is in the process of shutting down MCF Asset Management,
another subsidiary which had been costing the Company considerable capital
during 2008. The result of these actions has been to reduce operating loses and
increase available cash.


1


The
Company has entered into a process of mediation to reach a settlement with a
majority of the civil litigants resulting from the alleged fraud by its former
customer William Del Biaggio III and its terminated employee Scott
Cacchione.  The Company is focused on reducing its potential liability
in these legal proceedings and the resources required to fight the allegations.
In addition, it is also aiming to free up valuable management resources needed
to face challenging market and economic conditions.  At present, there
is no indication that these negotiations will be successful and whether it will
serve the Company’s aims and should a settlement result, it is not yet
estimable.




The
Company is assessing interest of potential investors in providing additional
capital to the business. While the Company does not have a definitive agreement
from any investor, preliminary discussions have yielded some interest subject to
the completion of the three steps outlined above.  There are no
assurances that the Company will be successful in completing its plans outlined
above and ultimately in raising additional capital.





The
Company’s ability to meet its going concern obligations is highly dependent on
market and economic conditions.  Even if it is successful in executing
its four-step plan, it will not be capable of sustaining losses such as those
incurred in 2008.  However, it is worth noting that 2008 was an
unprecedented year both in terms of stock market volatility and general economic
challenges. Furthermore, the large number of civil litigations and resulting SEC
investigation was a significant drain on corporate resources. The Company
believes that its reduced cost structure and shedding of non core business has
increased its operating runway. However, if operating conditions worsen in 2009
or if the company receives adverse judgments in its pending litigations, it may
not have the resources to meet its financial obligations as a going
concern.




These
financial statements do not reflect adjustments in the carrying values of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate.  These adjustments could be
material.




Principal
Services




We
currently have two business segments: the investment bank / broker-dealer and
asset management. Our investment bank / broker-dealer segment provides three
service offerings: investment banking, brokerage and equity research. Our asset
management segment manages investment products for investors. In January 2009
we sold the majority of the assets and liabilities of our primary research
subsidiary, Panel Intelligence, LLC, or Panel, which was our third business
segment. The results from this segment are presented as discontinued operations,
which was a third business segment.




Investment
Banking




Our
investment bankers provide a full range of corporate finance and strategic
advisory services. Our corporate finance practice is comprised of industry
coverage investment bankers that are focused on raising capital for fast-growing
companies in selected industry sectors. Our strategic advisory practice tailors
solutions to meet the specific needs of our clients at various points in their
growth cycle.  As of December 31, 2008, we had 16 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 490
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 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 securities traded on NASDAQ, stock exchanges and ECNs, and
service the trading desks of institutions in the United States. Our trading
professionals have direct access to the major stock exchanges, including the New
York Stock Exchange and the American Stock Exchange. As of December 31, 2008, we
were a market maker in 148 securities.




2




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




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




Corporate&Executive Services. We offer
brokerage services to corporations including corporate cash management and stock
repurchase programs through our Corporate & Executive Services group. We
also serve the needs of company executives with restricted stock transactions,
cashless exercise of options, hedging and diversification strategies, and
liquidity strategies.





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





OTCQX Advisory. Merriman
Curhan Ford & Co. began offering services to sponsor companies on the
International and Domestic OTCQX markets in 2007. In 2008, we solidified our
position as the leading investment bank sponsor in this market. We enable
non-U.S. and domestic companies to obtain greater exposure to U.S. institutional
investors without the expense and regulatory burdens of listing on traditional
U.S. exchanges. The International and Domestic OTCQX market tiers do not require
full SEC registration and are not subject to the 2002 Sarbanes Oxley Act of
2002. Listing on the market requires the sponsorship of a qualified investment
bank called a Principal American Liaison (PAL) for non-U.S. companies or a
Designated Advisor for Disclosure (DAD) for domestic companies. Merriman Curhan
Ford & Co. was the first investment bank to achieve DAD and PAL designations
and currently is the sponsor of 12 out of 52 issuers listed on
OTCQX.





Institutional Marketing
Services (IMS) is a new program launched in late 2008 by Merriman Curhan
Ford & Co. to help companies develop better liquidity in their stock
and expand their institutional ownership. Designed as a customized suite of
services for a select group of high-quality, high-growth companies with small
market capitalizations, IMS applies a full range of Merriman’s institutional
capabilities to help clients achieve their objectives in the capital
markets.





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.





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, 2008, ICD clients have invested over $42
billion in money market funds from which ICD earns brokerage fees. ICD is a
division of Merriman Curhan Ford & Co.  In January, 2009, we sold
the primary assets related to the ICD operations to a group of investors which
included some of our employees. However, until the new company is able to form
its own broker-dealer which is anticipated to be in 2009, the business will
continue operating under Merriman Curhan Ford & Co.




Equity
Research




A key
part of our strategy is to originate specialized and in-depth research. Our
analysts cover a universe of approximately 100 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 February 27, 2009,
approximately 90% 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 7 equity research analysts include:





CleanTech





·   Energy
Storage and Efficiency





·   Next-Generation
Energy





·   Smart-Grid
Technologies





Health
Care





·   Biotechnology/Life
Sciences





·   Oncology
and Inflammatory Diseases





Tech/Telecom





·   Emerging
Data Center & Enterprise Technologies





Consumer /Internet/Media





·    Branded
Consumer





·    China
Consumer





·    Internet
Applications, Software and Services





·   
Media & Entertainment





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.





Our
equity research group annually hosts several conferences targeting fast-growing
companies and investors, including our Investor Summit and various industry
sector conferences. 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 Merriman
Curhan Ford Group, Inc., we had developed an institutional-standard investment
management platform.





The year
2008 was highly unfavorable for equity investments. The Dow Jones Industrial
Average declined from about 14,000 in October 2007 to near 7,000 at the end of
February 2009. The resulting market volatility and negative investor sentiment
has made it very challenging to attract new assets to our funds. It is much less
cost-effective to manage small amounts of funds while competing with larger
firms in the current environment. Consequently, in order to reduce our cost
structure, management decided to liquidate the funds under management by MCF
Asset Management in late 2008. We expect to exit this business in
2009.




5





Primary
Research





Panel
offers an online primary research platform that provided health care and
CleanTech 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 health care and
CleanTech 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.





In
January 2009 we sold the majority of the assets and liabilities of our primary
research subsidiary, Panel Intelligence, LLC to a group of investors which
included key management of Panel. This separation will help lower our
expenses.





Competition





Merriman
Curhan Ford is engaged in the highly competitive financial services and
investment industries. We compete with other 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. Long term developments in the brokerage industry, including
decimalization and the growth of electronic communications networks, or ECNs,
have reduced commission rates and profitability in the brokerage industry. Many
large investment banks have responded to lower margins within their equity
brokerage divisions by reducing research coverage, particularly for smaller
companies, consolidating sales and trading services, and reducing headcount of
more experienced sales and trading professionals.





This
trend by competitors to reduce services creates an opportunity for us as many
highly qualified individuals have lost their jobs, expanding the pool of
experienced employees to hire. However, the economic environment in 2008 has
also exacerbated the negative secular trends in the traditional investment
banking/brokerage business. Many of our buy-side clients have merged, gone out
of business or have sharply reduced their commission flow. The reduction in
these clients also has also lowered the number of potential buyers for our
investment banking product.





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





For a
further discussion of the competitive factors affecting our business, see “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. Despite the challenges that we are
experiencing, we are implementing such enhancements.





Compliance,
Legal, Risk Management and Internal Audit





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





Risk
Management





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





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





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





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





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





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





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





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





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




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





·     Establishing
and revising 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.”





7




Regulation





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





As a
broker-dealer registered with the Securities and Exchange Commission, or SEC,
and as a member firm of Financial Industry Regulatory Authority, or FINRA, 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





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





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





Available
Information





Our
website address is www.merrimanco.com. You may obtain free electronic copies of
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports on the “Investor Relations”
portion of our website, under the heading “SEC Filings.” These reports are
available on our website as soon as reasonably practicable after we
electronically file them with the 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
investment banking and securities brokerage business, and we may be unable to
maintain profitability if we fails 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





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





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





The
actions of a former customer, William Del Biaggio III, and a former employee,
Scott Cacchione, have given rise to many legal actions against us as described
in the Legal Proceedings section below. If we are found to be liable for the
claims asserted in any or all of these legal actions, our cash position may
suffer such that we are unable to continue our operations. Even if we ultimately
prevail in all of these lawsuits, we may incur significant legal fees and
diversion of management’s time and attention from our core businesses, and our
business and financial condition may be adversely affected. We are attempting to
negotiate a settlement with some of the litigants, but there is no assurance of
any favorable outcome.





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





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





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





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





In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation often has been instituted against
that company. Such litigation is expensive and diverts management’s attention
and resources. We 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.





We
may not be able to continue operating our business as a going
concern





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




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




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





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 Merriman Curhan Ford Group, Inc. As a holding company, Merriman
Curhan Ford Group, Inc. depends on distributions and other payments from its
subsidiaries to fund all payments on its obligations. As a result, regulatory
actions could impede access to funds that Merriman Curhan Ford Group, Inc. needs
to make payments on obligations, including debt obligations.





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





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





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


11


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
encounters intense competition for qualified employees from other companies in
the investment banking industry as well as from businesses outside the
investment banking industry, such as investment advisory firms, hedge funds,
private equity funds and venture capital funds. From time to time, we have
experienced losses of investment banking, brokerage, research and other
professionals and losses of our key personnel may occur in the future. The
departure or other loss of Mr. Merriman, other 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 leave. The compensation plans and
other incentive plans we have entered into with certain of our professionals may
not prove effective in preventing them from resigning to join our competitors.
If we are unable to retain our professionals or recruit additional
professionals, our reputation, business, results of operations and financial
condition may be materially adversely affected.




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





Historically
the industry has been able to attract and retain investment banking, research
and sales and trading professionals, in part because the business models have
provided for lucrative compensation packages. Compensation and benefits is our
largest expenditure and the variable compensation component or bonus has
represented a significant proportion of this expense. The company’s bonus
compensation is discretionary. For 2008, the potential pool was determined by a
number of components including revenue production, key operating milestones and
profitability. There is a potential that we could pay individuals for revenue
production despite the business having negative cash flows and/or net losses in
order to ensure retention of key employees.




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





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





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. The industry has 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. These activities often involve the purchase, sale or
short sale of securities as principal in markets that may be characterized as
relatively illiquid or that may be particularly susceptible to rapid
fluctuations in liquidity and price. Trading losses resulting from such trading
could have a material adverse effect on our business and results of
operations.





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





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





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





Occasionally,
our company, its officers and/or employees may make principal investments in
securities through secondary market transactions or through direct investment in
companies through private placements. In many cases, employees and officers with
investment discretion on behalf of our company decide whether to invest in our
account or their personal account. It is possible that gains from investing will
accrue to these individuals because investments were made in their personal
accounts, and our company will not realize gains because it did not make an
investment. 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. 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 128 employees as of December
31, 2008 and revenue less than $40 million in 2008. Many of our competitors
in the investment banking and brokerage industries have a broader range of
products and services, greater financial and marketing resources, larger
customer bases, greater name recognition, more senior professionals to serve
their clients’ needs, greater global reach and more established relationships
with clients than we have. These larger and better capitalized competitors may
be better able to respond to changes in the brokerage, investment banking and
asset management industries, to compete for skilled professionals, to finance
acquisitions, to fund internal growth and to compete for market share
generally.





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





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





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





The
Company recorded net losses of $30,274,000 for the year ended December 31, 2008
and $8,220,000 for the year ended December 31, 2006. We also recorded net
losses in certain quarters within other past fiscal years. We may incur losses
in future periods. If we are unable to finance future losses, those losses may
have a significant effect on our liquidity as well as our ability to
operate.





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





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





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




14


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




A
significant portion of our brokerage revenue is generated from a relatively
small number of institutional clients. For example, in 2008 we generated 37% of
our brokerage revenue, or approximately 25% of our total revenue, from our ten
largest brokerage clients. Similarly, in 2007 we generated 26% of our brokerage
revenue, or approximately 9% of our total revenue, from our ten largest
brokerage clients. If any of our key clients departs or reduces its business
with us and we fail to attract new clients that are capable of generating
significant trading volumes, our business and results of operations will be
adversely affected.




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





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




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




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




In
addition, our ability to conduct business may be adversely impacted by a
disruption in the infrastructure that supports our businesses and the
communities in which located. This may include a disruption involving
electrical, communications, transportation or other services used by us or third
parties with which we conduct business, whether due to fire, other natural
disaster, power or communications failure, act of terrorism or war or otherwise.
Nearly all of our employees in our primary locations, including
San Francisco and New York, work in 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.




15





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




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




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




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




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




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




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.





We
are subject to an IRS audit.





The
United States Internal Revenue Service is auditing our 2006 corporate tax
return. The IRS audit may result in additional tax payments by us together with
interest and penalties, the amount of which may be material, but will not be
known until the IRS audit is finalized. Any such payments could have a material
adverse effect on our financial condition and results of
operations.





Risks
Related to Our Industry




Risks
associated with volatility and losses in the financial markets.





The U.S.
financial markets in 2008 suffered unprecedented volatility and
losses.  Several mortgage-related financial institutions and large,
reputable investment banks were not able to continue operating their
businesses.





As a
company, we cannot identify sources of cash that would ensure our ability to
continue as a going concern beyond December 31, 2009 under present economic and
financial market conditions.  Should these conditions improve from
2008 levels in the short-term, and should we be successful in negotiating a
settlement with litigants who are plaintiffs in legal actions against us, we may
secure sources of cash ensuring our ability to continue as a going concern, but
we cannot be assured of such an outcome.





The legal
proceedings against us and the investigations of our actions, policies and
procedures have resulted in a significant cash drain in the form of legal
expenses.  The cash drain has impaired our cash reserves which could
otherwise have been used as investments in our business or in normal
operations.





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




In
addition to our experience with our former employee Scott Cacchione, 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
reputation or financial harm to us. 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 reputation harm for
any misconduct by our employees.





Risks
associated with regulatory impact on capital markets.




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




16




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




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




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




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




17





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 10% 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 the organizational documents may discourage an acquisition of
us.




Our
Articles of Incorporation authorize our Board of Directors to issue up to an
additional 37,450,000 shares of preferred stock, without approval from our
stockholders. Of these, 6,150,000 have already been authorized by our Board of
Directors and may be issued by management.  The balance would require
authorization by our Board.  There are no plans to issue preferred
stock.





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




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


18





The
market price of our common stock may decline.





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


·
              variations
      in quarterly operating results;
 
 ·
              announcements
      of significant contracts, milestones,
  acquisitions;
  ·
              relationships
      with other companies;
  ·
              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.




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




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




We have a
significant number of outstanding stock options and warrants. During 2008,
shares issuable upon the exercise of these options and warrants, at prices
ranging currently from approximately $0.50 to $49.00 per share, represent
approximately 7% of our total outstanding stock on a fully diluted basis using
the treasury stock method.  In October 2008, our senior management and
certain employees gave back approximately 3 million shares of stock options in
order to expand the number of shares that can be granted to employees without
diluting our shareholders.




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.




19





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




None.




Item
2. Properties




As of
December 31, 2008, all of our properties are leased. Our principal executive
offices are located in San Francisco, California. We lease two additional
offices to support our various business activities. These offices are located in
New York, NY and Cambridge, MA. We believe the facilities we are now using are
adequate and suitable for business requirements.





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




20





Item
3. Legal Proceedings




The
Company responded to a Grand Jury subpoena from the U.S. Attorney’s Office for
the Northern District of California for documents relating to the activities of
a former retail broker of the Company, David Scott Cacchione, and one of his
customers, William Del Biaggio III.  Cacchione’s activities under
investigation relate primarily to the apparent misuse of various client accounts
as collateral for loans to Del Biaggio.  Cacchione purportedly signed
“account control agreements” in which he purported to act on behalf of the
Company to authorize the use of various client accounts as security for loans to
the customer from various third-party lenders.





Cacchione
appears to have improperly provided client account statements to third-party
lenders or to Del Biaggio for the purpose of representing to the lenders that
the accounts belonged to Del Biaggio.  The retail client account statements
were altered so that the accounts appear to belong to Del Biaggio when in fact
some of the accounts belonged to other Merriman Curhan Ford & Co. retail
clients.  Del Biaggio is no longer a customer of the Company and recently
pleaded guilty to securities fraud in the United States District
Court, Northern District of California.





Cacchione
was terminated.  The Company’s internal investigation found no evidence
that any of Cacchione’s supervisors or any member of management was aware of
these activities until they were uncovered.  The Company cooperated fully
with the Grand Jury inquiry and produced the documents called for by the
subpoena.





The
Company was also subject to a formal investigation commenced by the Securities
and Exchange Commission (“SEC”).  The SEC investigation appeared to relate
in part to the subject matter of the Grand Jury inquiry,i.e., Cacchione’s misuse of
client accounts as collateral for loans to the customer.  It also appeared
to relate to other possible violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder by Cacchione in the handling of
his client accounts.  The SEC investigation further appeared to relate to
the Company’s trading activities in the stock of various issuers in possible
violation of Rule 10b-5 as well as to a failure to adequately supervise its
personnel with a view toward preventing violations of the federal securities
laws.  The Company cooperated fully with the SEC in its
investigation.  The SEC has not indicated that it has concluded its
investigation.





The
investigation relating to client accounts appears to involve only Cacchione’s
retail accounts.  The Company’s high-net-worth client retail brokerage
business accounted for less than 2% of the Company’s revenue in 2008.  The
Company is phasing out this business and will concentrate on strengthening its
core investment banking and institutional brokerage businesses.  The
Company is also re-examining its compliance policies and procedures as well as
the alignment of the supervisory and compliance related functions of various
members of management.





Several
lawsuits have been filed against Merriman Curhan Ford & Co. in connection
with the alleged actions of Del Biaggio, and Cacchione.  The total amount
of damages sought under such lawsuits is over $43 million. The Company
anticipates at least two additional lawsuits will be filed against Merriman
Curhan Ford & Co. by a lender to Del Biaggio on similar facts to the
lawsuits described below, with claims believed to be approximately $12 million.
  The Company denies any involvement and will defend itself and attempt to
ensure that the most favorable outcome of these lawsuits for itself and its
shareholders.





In
addition, the Company received demand letters after December 31, 2008 from
individuals claiming to have suffered damages as a result of Cacchione’s
actions.  The Company believes it has meritorious defenses to all the
demands received to date and intends to contest them vigorously. The Company
believes they are unlikely to result in adverse outcomes.  Should they
result in adverse outcomes, it does not believe that the outcomes will have a
material effect on its financial position, financial results or cash
flows.





Due to
the early stages of these legal matters, we cannot estimate the amount of
damages if they are resolved unfavorably and accordingly, we have not provided
an accrual for these lawsuits. If the Company were to be found liable in all of
these lawsuits and the plaintiffs were to be awarded the damages they seek, it
would have a severe impact on the Company's financial condition and the Company
might not be able to continue in business. Even if the Company ultimately
prevails in all of these lawsuits, it may incur significant legal fees which may
have a severe impact on the Company's financial condition.





The
Company entered into a process of mediation to reach a settlement with a
majority of the civil litigants resulting from the alleged fraud by its former
customer William Del Biaggio III and its former employee Scott
Cacchione.  The Company is focused on reducing its potential liability
in these legal proceedings and the resources required to fight the allegations.
In addition, it is also aiming to free up valuable management resources needed
to face challenging market and economic conditions.  At present, there
is no indication that these negotiations will be successful, whether a
settlement will serve the Company’s aims and should a settlement result, the
amount involved is not yet estimable.  Should the Company’s settlement
negotiations ultimately prove unsuccessful, the Company believes it has
meritorious defenses and intends to contest these claims
vigorously.


21




Cacchione’s
activities have given rise to a number of lawsuits against the Company. 
They are as follows:




DGB
Investments, Inc. v. Merriman Curhan Ford & Co.




In May
2008, Merriman Curhan Ford & Co. was served with a complaint filed by DGB
Investments, Inc. which loaned money to William Del Biaggio III, the former
client of the Company, against Del Biaggio, David Scott Cacchione, a former
retail broker of Merriman Curhan Ford & Co., and the Company. Plaintiff
alleges that Del Biaggio defaulted on a multi-million dollar loan obtained from
Plaintiff.  The Company had suspended and, effective June 4, 2008,
terminated Cacchione’s employment.   The complaint further alleges
that Cacchione, while still employed with Merriman Curhan Ford & Co., signed
an account control agreement purporting to pledge a retail client stock account
as collateral for the Del Biaggio loan. On the basis of these allegations,
Plaintiff asserts various claims against the Company and others.  Plaintiff
seeks $3 million in damages.  We believe that we have meritorious defenses
and intend to contest this claim vigorously.  We successfully opposed
Plaintiff's petition for pre-judgment writ of attachment.




Heritage
Bank of Commerce v. Merriman Curhan Ford & Co.




In May
2008, Merriman Curhan Ford & Co. was served with a complaint filed by
Heritage Bank of Commerce, which loaned money to Del Biaggio, against Del
Biaggio and the Company.  Plaintiff alleges that Del Biaggio defaulted on a
multi-million dollar loan obtained from Plaintiff.  The complaint further
alleges that Cacchione, while still employed with Merriman Curhan Ford &
Co., signed an account control agreement purporting to pledge various retail
client stock accounts as collateral for the Del Biaggio loan. On the basis of
these allegations, Plaintiff asserts various claims against the Company and
others.  Plaintiff seeks $ 4 million in damages.  We believe that we
have meritorious defenses and intend to contest this claim
vigorously.  We successfully opposed Plaintiff's petition for
pre-judgment writ of attachment.




Modern
Bank, N.A. v. Merriman Curhan Ford & Co.




In June
2008, Merriman Curhan Ford & Co. was served with a complaint filed by Modern
Bank, N.A., which loaned money to Del Biaggio, against Del Biaggio, the Company,
and Cacchione, the same former retail broker of the Company named in the
lawsuits above.  Plaintiff alleges that Del Biaggio defaulted on a
multi-million dollar loan obtained from Plaintiff.  The complaint further
alleges that Cacchione, while still employed with Merriman Curhan Ford &
Co., signed an account control agreement purporting to pledge a retail client
stock account as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against the Company and
others.  Plaintiff seeks $10 million in damages.  We believe that we
have meritorious defenses and intend to contest this claim
vigorously.  We successfully opposed Plaintiff's petition for
pre-judgment writ of attachment.




22





Security
Pacific Bank v. Merriman Curhan Ford & Co.




In June
2008, Merriman Curhan Ford & Co. was served with a complaint filed by
Security Pacific Bank, which loaned money to Del Biaggio, against Del Biaggio,
the Company, and Cacchione named in the lawsuits above.  Plaintiff alleges
that Del Biaggio defaulted on a multi-million dollar loan obtained from
Plaintiff.  The complaint further alleges that Cacchione, while still
employed with Merriman Curhan Ford & Co., signed an account control
agreement purporting to pledge retail client stock accounts as collateral for
the Del Biaggio loan. On the basis of these allegations, Plaintiff asserts
various claims against the Company and others.  Plaintiff seeks $5 million
in damages.  We believe that we have meritorious defenses and intend to
contest this claim vigorously.  We successfully opposed Plaintiff's
petition for pre-judgment writ of attachment.




AEG
Facilities, Inc. v. Merriman Curhan Ford & Co.




In June
2008, Merriman Curhan Ford & Co. was served with a complaint filed by AEG
Facilities, Inc. which loaned money to Del Biaggio, against Del Biaggio, the
Company, and the same former retail broker of the Company named in the lawsuits
above.  Plaintiff alleges that Del Biaggio defaulted on a multi-million
dollar loan obtained from Plaintiff.  The complaint further alleges that
Cacchione, while still employed with Merriman Curhan Ford & Co., signed an
account control agreement purporting to pledge various retail client stock
accounts as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against the Company and
others.  Plaintiff seeks $7 million in damages.  We believe that we
have meritorious defenses and intend to contest this claim
vigorously.




Valley
Community Bank v. Merriman Curhan Ford & Co.




In June
2008, Merriman Curhan Ford & Co. was served with a complaint filed by Valley
Community Bank, which loaned money to Del Biaggio, against Del Biaggio, the
Company, and the same former retail broker of the Company named in the lawsuits
above.  Plaintiff alleges that Del Biaggio defaulted on a multi-million
dollar loan obtained from Plaintiff.  The complaint further alleges that
Cacchione, while still employed with Merriman Curhan Ford & Co., signed
account control agreements purporting to pledge various retail client stock
accounts as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against the Company and
others.  Plaintiff seeks over $4 million in damages.  We believe that
we have meritorious defenses and intend to contest this claim
vigorously.




The
Company anticipates at least one additional lawsuit will be filed against it by
a lender to Del Biaggio, on similar facts to the lawsuits described above, with
a claim believed to be approximately $10 million.




United
American Bank v. Merriman Curhan Ford & Co.





In July
2008, Merriman Curhan Ford & Co. was served with a complaint filed by United
American Bank, which loaned money to Del Biaggio alleging that the Company
entered into an account control agreement for an account that Del Biaggio
had previously pledged to another lender.  The account pledged was in
the name of Del Biaggio.  Plaintiff has brought claims for, among other
things, fraud arising out of the failure to disclose the alleged previous
pledge.  Plaintiff alleges damages in the amount of $1.75 million.  We
believe that we have meritorious defenses and intend to contest this claim
vigorously.




David
Hengehold v. Merriman Curhan Ford & Co.




In June
2008, Merriman Curhan Ford & Co. was served with a complaint filed by David
Hengehold.  Plaintiff alleges, among other things, fraud based on a former
employee of the Company having induced plaintiff into making loans to an entity
associated with Del Biaggio.  This plaintiff is a former client of the
Company.  This matter does not involve account control agreements.
Plaintiff in this lawsuit alleges damages of over $500,000.  We believe
that we have meritorious defenses and intend to contest this claim
vigorously.





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





In July
2008, Merriman Curhan Ford & Co. and Merriman Curhan Ford Group, Inc. were
served with a complaint filed by several plaintiffs who made loans to Del
Biaggio and related entities.  Plaintiffs allege, among other things, fraud
based on Cacchione having induced plaintiff into making loans to Del Biaggio and
certain related entities including Sand Hill Capital Partners III.  This
matter does not involve account control agreements. Plaintiff in this lawsuit
alleges damages of $3,025,000.  We believe that we have meritorious
defenses and intend to contest this claim vigorously.





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




In July
2008, Merriman Curhan Ford & Co. was served with a complaint filed by The
Private Bank of the Peninsula.  Plaintiff alleges, among other things,
fraud based on Cacchione having induced plaintiff into making loans to Del
Biaggio.  This matter does not involve account control agreements.
Plaintiff in this lawsuit alleges damages of $916,666.65.  We believe that
we have meritorious defenses and intend to contest this claim
vigorously.




Paul
Davis, et al. v. Merriman Curhan Ford & Co.




In August
2008, Merriman Curhan Ford & Co. was served with a complaint filed by
several plaintiffs who made loans to Del Biaggio and related entities. 
Plaintiffs allege, among other things, fraud based on Cacchione having induced
plaintiff into making loans to Del Biaggio and entities associated with
him.  This matter does not involve account control agreements. Plaintiffs
in this lawsuit allege damages of $1.65 million.  We believe that we have
meritorious defenses and intend to contest this claim vigorously


23


Gary
T. Cook et. al. v. Merriman Curhan Ford & Co.





In
September 2008, Merriman Curhan Ford & Co. was served with a complaint filed
by several plaintiffs who made loans to Del Biaggio and related entities. 
Plaintiffs allege, among other things, fraud based on Cacchione having induced
plaintiff into making loans to Del Biaggio and entities associated with
him.  This matter does not involve account control agreements. Plaintiffs
in this lawsuit allege damages of $2.59 million.  We believe that we have
meritorious defenses and intend to contest this claim vigorously.





Pacific
Capital Bank v. Merriman Curhan Ford & Co.





In
October 2008, Merriman Curhan Ford & Co. was served with a complaint filed
by Pacific Capital Bank.  Plaintiff alleges, among other things, fraud
based on Cacchione having induced plaintiff into making loans to Del
Biaggio.  This matter does not involve account control agreements.
Plaintiff in this lawsuit alleges damages of $1.84 million.  We believe
that we have meritorious defenses and intend to contest this claim
vigorously.





Bachelor
v. Merriman Curhan Ford & Co.





In
December 2008, Merriman Curhan Ford & Co. and Merriman Curhan Ford Group,
Inc. were served with a complaint filed by several plaintiffs who made loans to
Del Biaggio and related entities.  Plaintiffs allege, among other things,
fraud based on Cacchione having induced plaintiff into making loans to Del
Biaggio and certain related entities including Sand Hill Capital Partners
III.  This matter does not involve account control agreements. Plaintiffs
in this lawsuit allege damages of $1.15 million.  We believe that we have
meritorious defenses and intend to contest this claim vigorously.





Thomas
O'Shea v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in June 2006, our broker-dealer subsidiary
Merriman Curhan Ford & Co. was served with a claim in NASD Arbitration
by Thomas 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 proceeded to an arbitration hearing in October 2008 and an award was
made in favor of O’Shea.  The matter was subsequently settled for the
amount of $880,000.  As of December 31, 2008, the Company reserved for
the amount of the settlement.





Wesley
Rusch v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in October 2008, our broker-dealer
subsidiary Merriman Curhan Ford & Co. was served with a claim in FINRA
Arbitration by Wesley Rusch. Mr. Rusch is a former at-will employee of
Merriman Curhan Ford & Co. and worked in the compliance department. We
have not been presented with a demand for quantified damages. Mr. Rusch was
terminated by Merriman Curhan Ford & Co. in July 2007. Mr. Rusch
alleges theories of discrimination and lack of cause for
termination.  We believe that we have meritorious defenses and
contested this claim vigorously at the arbitration before a FINRA arbitration
panel in March 2009.  We have not yet received a decision from the
arbitration panel.   However, in the event that we do 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.




Joy
Ann Fell v. Merriman Curhan Ford & Co.
 
 Unrelated to the Del Biaggio/Cacchione matters, in November 2008, Merriman
Curhan Ford & Co. received a demand letter from a former employee, Joy Ann
Fell.  In January 2009, we received a claim filed by Ms. Fell in FINRA
arbitration.  Ms. Fell worked in our investment banking department and was
terminated in October of 2008, as part of a reduction in force.  Ms. Fell
alleges claims of breach of an implied employment contract, emotional distress
and work-place discrimination.  The demand for money damages is
approximately $350,000.  We believe that we have meritorious defenses and
intend to contest this claim vigorously.  We have not yet responded to the
claim.  An arbitration panel has not yet been selected, nor has a hearing
date been assigned.


Peter
Marcil v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in January 2009, our broker-dealer
subsidiary Merriman Curhan Ford & Co. was served with a claim in FINRA
Arbitration by Peter Marcil. Mr. Marcil is a former at-will employee of
Merriman Curhan Ford & Co. and worked in the investment banking
department. Mr. Marcil resigned from Merriman Curhan Ford & Co. in
March of 2007. Mr. Marcil alleges breach of an implied employment contract,
wrongful termination, and intentional infliction of emotional distress. Damages
are not specified in the arbitration claim.   Merriman Curhan
Ford & Co. has not replied to the claim and an arbitration hearing date has
not been set.  We believe that we have meritorious defenses and intend
to contest this claim vigorously.  However, in the event that we do
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.





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





In
January 2009, Merriman Curhan Ford & Co. and David Jonathan Merriman were
served with a FINRA arbitration claim filed by Irving Bronstein and several
other plaintiffs who made loans to Mr. Del Biaggio and related entities. 
Plaintiffs allege, among other things, fraud based on Mr. Cacchione having
induced plaintiff into making loans to Mr. Del Biaggio and certain related
entities including Sand Hill Capital Partners III.  This matter does not
involve account control agreements. Plaintiffs in this lawsuit allege damages in
a range of $2.5 to $10 million.  We believe that we have meritorious
defenses and intend to contest this claim vigorously.





Spare
Backup v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in





In
addition, we received a demand letter after the period covered by this report
from an individual claiming to have suffered damages as a result of Cacchione’s
actions.  We believe that we have meritorious defenses to all the
demands received to date and intend to contest them vigorously. This case is in
its early stage.  We believe it is unlikely to result in an adverse
outcome.  However, in the event we do not prevail, we do not believe
that the outcome will have a material effect on our financial position,
financial results or cash flows.





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





We
believe that these cases are either unlikely to result in adverse rulings or are
in early stages and the amount of a likely adverse ruling cannot be estimated at
present.


24




Item
4. Submission of Matters to a Vote of Stockholders




No
matters were submitted to a vote of stockholders during the fourth quarter of
2008.




PART
II




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




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




High
                                              
                                              
                                              Low2008Fourth
      Quarter
                                              
                                              $
                                              1.02
                                              
                                              
                                              $
                                              0.40Third
      Quarter
                                              
                                              
                                              1.57
                                              
                                              
                                              
                                              0.93Second
      Quarter
                                              
                                              
                                              4.10
                                              
                                              
                                              
                                              1.19First
      Quarter
                                              
                                              
                                              5.94
                                              
                                              
                                              
                                              3.912007Fourth
      Quarter
                                              
                                              $
                                              5.50
                                              
                                              
                                              $
                                              3.90Third
      Quarter
                                              
                                              
                                              5.45
                                              
                                              
                                              
                                              3.44Second
      Quarter
                                              
                                              
                                              6.15
                                              
                                              
                                              
                                              3.86First
      Quarter
                                              
                                              
                                              5.79
                                              
                                              
                                              
                                              3.95




The
closing sale price for the common stock on March 25, 2009 was $0.40. 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 676 stockholders of record as of
December 31, 2008. 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.




25




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, 2008.





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
                                      PlansEquity
      compensation plans approved by stockholders:1999
      Stock Option Plan
                                    
                                    77,019
                                    
                                    $
                                    4.47
                                    
                                    273,0962000
      Stock Option and Incentive Plan
                                    
                                    174,154
                                    
                                    $
                                    5.23
                                    
                                    398,3962001
      Stock Option and Incentive Plan
                                    
                                    103,013
                                    
                                    $
                                    2.83
                                    
                                    412,9732003
      Stock Option and Incentive Plan
                                    
                                    798,752
                                    
                                    $
                                    4.76
                                    
                                    3,211,9482006
      Directors’ Stock Option and Incentive Plan
                                    
                                    —
                                    
                                    $
                                    —
                                    
                                    103,9072002
      Employee Stock Purchase Plan
                                    
                                    —
                                    
                                    $
                                    —
                                    
                                    —Equity
      compensation not approved by stockholders
                                    
                                    63,098
                                    
                                    $
                                    23.40
                                    
                                    176,189




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




Recent
Sale of Unregistered Securities




None.




26




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.




2008
                                                                
                                                                
                                                                2007
                                                                
                                                                
                                                                2006
                                                                
                                                                
                                                                2005
                                                                
                                                                
                                                                2004Statement
      of operations data:Revenue
                                                                
                                                                $
                                                                36,567,836
                                                                
                                                                
                                                                $
                                                                83,748,265
                                                                
                                                                
                                                                $
                                                                51,818,638
                                                                
                                                                
                                                                $
                                                                43,184,315
                                                                
                                                                
                                                                $
                                                                38,368,310Operating
      expenses
                                                                
                                                                
                                                                62,979,424
                                                                
                                                                
                                                                
                                                                70,701,900
                                                                
                                                                
                                                                
                                                                58,315,930
                                                                
                                                                
                                                                
                                                                44,912,772
                                                                
                                                                
                                                                
                                                                36,194,924Operating
      (loss) income
                                                                
                                                                
                                                                (26,411,588
                                                                )
                                                                
                                                                
                                                                13,046,365
                                                                
                                                                
                                                                
                                                                (6,497,292
                                                                )
                                                                
                                                                
                                                                (1,728,457
                                                                )
                                                                
                                                                
                                                                2,173,386Loss
      on retirement of convertible notes payable (1)
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                (1,348,805
                                                                )
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —Interest
      income
                                                                
                                                                
                                                                375,949
                                                                
                                                                
                                                                
                                                                461,491
                                                                
                                                                
                                                                
                                                                484,909
                                                                
                                                                
                                                                
                                                                446,273
                                                                
                                                                
                                                                
                                                                120,431Interest
      expense
                                                                
                                                                
                                                                (72,304
                                                                )
                                                                
                                                                
                                                                (134,868
                                                                )
                                                                
                                                                
                                                                (535,014
                                                                )
                                                                
                                                                
                                                                (76,103
                                                                )
                                                                
                                                                
                                                                (169,787
                                                                )Income
      tax benefit (expense)
                                                                
                                                                
                                                                1,635,214
                                                                
                                                                
                                                                
                                                                (2,462,165
                                                                )
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                (142,425
                                                                )
                                                                
                                                                
                                                                (249,744
                                                                )(Loss)
      income from continuing operations
                                                                
                                                                
                                                                (24,472,729
                                                                )
                                                                
                                                                
                                                                10,910,823
                                                                
                                                                
                                                                
                                                                (7,896,202
                                                                )
                                                                
                                                                
                                                                (1,500,712
                                                                )
                                                                
                                                                
                                                                1,874,286Loss
      from discontinued operations
                                                                
                                                                
                                                                (5,801,076
                                                                )
                                                                
                                                                
                                                                (1,587,788
                                                                )
                                                                
                                                                
                                                                (324,213
                                                                )
                                                                
                                                                
                                                                (13,731
                                                                )
                                                                
                                                                
                                                                —Net
      (loss) income
                                                                
                                                                $
                                                                (30,273,805
                                                                )
                                                                
                                                                $
                                                                9,323,035
                                                                
                                                                
                                                                $
                                                                (8,220,415
                                                                )
                                                                
                                                                $
                                                                (1,514,443
                                                                )
                                                                
                                                                $
                                                                1,874,286Basic
      (loss) income from continuing operations
                                                                
                                                                $
                                                                (1.95
                                                                )
                                                                
                                                                $
                                                                0.95
                                                                
                                                                
                                                                $
                                                                (0.79
                                                                )
                                                                
                                                                $
                                                                (0.16
                                                                )
                                                                
                                                                $
                                                                0.21Diluted
      (loss) income from continuing operations
                                                                
                                                                $
                                                                (1.95
                                                                )
                                                                
                                                                $
                                                                0.86
                                                                
                                                                
                                                                $
                                                                (0.79
                                                                )
                                                                
                                                                $
                                                                (0.16
                                                                )
                                                                
                                                                $
                                                                0.16Statement
      of financial condition data:Cash
      and cash equivalents
                                                                
                                                                $
                                                                6,358,128
                                                                
                                                                
                                                                $
                                                                31,653,657
                                                                
                                                                
                                                                $
                                                                13,746,590
                                                                
                                                                
                                                                $
                                                                11,138,923
                                                                
                                                                
                                                                $
                                                                17,459,113Marketable
      securities owned
                                                                
                                                                
                                                                4,622,577
                                                                
                                                                
                                                                
                                                                14,115,022
                                                                
                                                                
                                                                
                                                                7,492,914
                                                                
                                                                
                                                                
                                                                8,627,543
                                                                
                                                                
                                                                
                                                                2,342,225Total
      assets
                                                                
                                                                
                                                                18,865,590
                                                                
                                                                
                                                                
                                                                64,573,331
                                                                
                                                                
                                                                
                                                                30,498,213
                                                                
                                                                
                                                                
                                                                27,694,413
                                                                
                                                                
                                                                
                                                                25,007,824Capital
      lease obligations
                                                                
                                                                
                                                                923,683
                                                                
                                                                
                                                                
                                                                721,380
                                                                
                                                                
                                                                
                                                                1,292,378
                                                                
                                                                
                                                                
                                                                883,993
                                                                
                                                                
                                                                
                                                                452,993Notes
      payable, net
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                238,989
                                                                
                                                                
                                                                
                                                                325,650
                                                                
                                                                
                                                                
                                                                408,513
                                                                
                                                                
                                                                
                                                                1,487,728Stockholders’
      equity
                                                                
                                                                $
                                                                7,715,201
                                                                
                                                                
                                                                $
                                                                34,806,048
                                                                
                                                                
                                                                $
                                                                16,215,020
                                                                
                                                                
                                                                $
                                                                18,403,001
                                                                
                                                                
                                                                $
                                                                16,733,850





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




27


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




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




Overview




Merriman
Curhan Ford Group, Inc. (formerly MCF Corporation) is a financial services
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.,
Panel Intelligence, LLC (“Panel”) and MCF Asset Management, 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 attempting to gain market share by originating differentiated
research for our institutional investor clients and providing specialized and
integrated services for our fast-growing corporate clients.




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





MCF Asset
Management, LLC manages absolute return investment products for institutional
and high-net worth clients. We are the sub-advisor for the MCF Focus fund. In an
effort to refocus the holding company back to its core investment banking and
broker-dealers services and to reduce expenses, management decided to begin the
process of liquidating the funds under management and returning investments to
the investors. As of December 31, 2008, assets under management across our three
fund products, Navigator, Voyager, and Focus, had been liquidated to $11 million
from $56 million in 2007.





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




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




In
December 2001, we acquired Instream Securities, Inc. and later changed the name
of the entity to RTX Securities Corporation, then to Merriman Curhan Ford &
Co. We formed MCF Asset Management, LLC in January 2004, MCF Wealth Management,
LLC in January 2005, and acquired Panel Intelligence, LLC in April 2007 as
wholly owned subsidiaries. Panel Intelligence, LLC is accounted for as
discontinued operations in these consolidated financial statements for the years
ended December 31, 2008 and 2007 while MCF Wealth Management, LLC was accounted
for as such for the year ended December 31, 2006.





Going
Concern





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern for the foreseeable future and will
be able to realize its assets and discharge its liabilities in the normal course
of operations.




During
the year ended December 31, 2008, the Company incurred a net loss of $30,274,000
and used $24,945,000 in net cash from operating activities.  At
December 31, 2008, the Company had cash and cash equivalents of $6,358,000,
marketable securities of $4,623,000 and receivables from clearing broker of
$1,753,000.  The Company had liabilities of
$11,150,000.  The Company’s ability to generate profits is highly
dependent on stock market trading volumes and the general economic environment.
As a result, the ability of the Company to meet its forward obligations and the
ability to continue as a going concern may be in question.




The
Company is in the process of implementing a plan to increase its operating
flexibility and extend its cash reserves. The plan primarily consists of four
steps which are more fully described below:




1.
            Reduce
      operating costs


2.
            Shed
      non-essential operations


3.
            Negotiate
      a settlement of pending litigations


4.
            Raise
      additional capital





During
2008 and early 2009, the Company implemented significant expense control and
cost reduction programs focused on reducing cash losses and increasing
operational flexibility in which it has eliminated more than $10 million in
annual operating expenses. The primary contributor to these savings has been the
elimination of more than 50% of the Company’s workforce, as well as salary
reductions. The CEO, the Head of Institutional Securities and the Head of
Professional Services voluntarily eliminated their salaries.  They
will be remunerated based on month-to-month profitability.  The Board
of Directors has, as of early 2009, also voluntarily eliminated its
compensation.  The Company believes that it has been able to execute
these reductions with limited impact to its ability to generate and execute new
business in the current market environment. With these measures largely
complete, the company believes that it has increased its ability to meet its
obligations during 2009 and beyond.




As a part
of the four-step plan mentioned above, in January of 2009, the Company shed
non-essential operations or those requiring substantial cash
infusions.  First, the Company sold Panel Intelligence, LLC on January
30, 2009. This subsidiary required a cash injection of $1,131,000 during 2008
and was projected to reach breakeven only in late 2009. Also in January 2009,
the Company sold its operations known as Institutional Cash Distributors to a
group of its employees. While this business was profitable, management was able
to reach a deal that substantially increases the near-term flow of capital.
Finally, the Company is in the process of shutting down MCF Asset Management,
another subsidiary which had been costing the Company considerable capital
during 2008. The result of these actions has been to reduce operating loses and
increase available cash.


28


The
Company has entered into a process of mediation to reach a settlement with a
majority of the civil litigants resulting from the alleged fraud by its former
customer William Del Biaggio III and its terminated employee Scott
Cacchione.  The Company is focused on reducing its potential liability
in these legal proceedings and the resources required to fight the allegations.
In addition, it is also aiming to free up valuable management resources needed
to face challenging market and economic conditions.  At present, there
is no indication that these negotiations will be successful and whether it will
serve the Company’s aims and should a settlement result, it is not yet
estimable.




The
Company is assessing interest of potential investors in providing additional
capital to the business. While the Company does not have a definitive agreement
from any investor, preliminary discussions have yielded some interest subject to
the completion of the three steps outlined above.  There are no
assurances that the Company will be successful in completing its plans outlined
above and ultimately in raising additional capital.




The
Company’s ability to meet its going concern obligations is highly dependent on
market and economic conditions.  Even if it is successful in executing
its four-step plan, it will not be capable of sustaining losses such as those
incurred in 2008.  However, it is worth noting that 2008 was an
unprecedented year both in terms of stock market volatility and general economic
challenges. Furthermore, the large number of civil litigations and resulting SEC
investigation was a significant drain on corporate resources. The Company
believes that its reduced cost structure and shedding of non core business has
increased its operating runway. However, if operating conditions worsen in 2009
or if the company receives adverse judgments in its pending litigations, it may
not have the resources to meet its financial obligations as a going
concern.




These
financial statements do not reflect adjustments in the carrying values of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate.  These adjustments could be
material.




Executive
Summary




Our
revenue decreased 56% during 2008 to $36,568,000, as virtually all product lines
were impacted by the industry slow down. Including discontinued operations, net
loss was $30,274,000, or ($2.41) per diluted share during 2008 which represents
a significant reversal from our $9,323,000 net income in 2007. The substantial
operating loss was primarily driven by the decline in top line revenues combined
with a rise in operating expenses. While we were able to remove significant cost
through the second half of 2008, these gains were offset by a substantial
increase in legal expenses resulting from the large number of claims facing the
firm. Our focus during 2008 was to manage the growing legal expenses while
surviving one of the worst financial markets in U.S. history.  We
instituted aggressive plans to reduce our operating costs and focus our business
back to our core offerings. As a result, we reduced our workforce by over 50% as
of the end of February 2009, contributing to an annual savings of more than $10
million. In addition, management took steps to eliminate non-core businesses
such as Panel Intelligence and MCF Asset Management that had consumed a large
portion of our operating cash flow. Our focus in 2009 will be to build on our
core businesses, further develop our new businesses, including OTCQX and IMS
advisory, while capitalizing on the general devastation in the financial markets
that we serve.




Investment Banking - The
investment banking team had an unfavorable year with a decrease in revenue of
62% in 2008, as compared to 42% revenue growth in 2007. In 2008, we closed 20
corporate financing and strategic advisory transactions during the year with
average transaction fees of $273,000 as compared to 40 coporate financing and
strategic advisory transactions in 2007.  As a percentage of total
revenue, Investment Banking’s contribution was 31% in 2008 compared to 36% in
2007. Our challenges in the business were widely experienced by our competition
as the new issue market was largely closed.




29




Principal Transactions –
Principal transactions produced a substantial loss of $9,040,218 during 2008 as
compared to our record gains of $20,116,000 experienced in 2007. The 2008 loss
was largely driven by a decline in the fair value of the Proprietary and
Investment accounts. Principal transactions revenue consists of four different
activities: customer principal trades, market making, trading for our
proprietary account, and realized and unrealized gains and losses in our
investment portfolio. As a broker-dealer, we account for all of our marketable
security positions on a trading basis and as a result, all security positions
are marked to fair market value each day. Returns from market making and
proprietary trading activities tend to be more volatile than acting as agent or
principal for customers.





We
will from time to time take significant positions in fast-growing companies that
we feel are undervalued in the market place. We believe that our window into
these opportunities, due to the types of companies we research, offers us a
significant competitive advantage. 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 increased
slightly or by 6.3% to $33,679,000 in 2008 over the prior year. This business
continues to face increasing challenges including the proliferation of
electronic communications networks which have reduced commission rates and
profitability in the brokerage industry. Many large investment banks have
responded to lower margins within their equity brokerage divisions by reducing
research coverage, particularly for smaller companies, consolidating sales and
trading services, and reducing headcount of sales and trading professionals. We
believe that we can grow our institutional brokerage revenue by producing
differentiated equity research on relatively undiscovered, fast-growing
companies within our selected growth sectors and providing this research to
small and mid-sized traditional and alternative investment managers for whom
these companies comprise an important part of their investment
portfolios.




Institutional Cash Distributors
(ICD) - ICD is a broker of money market funds serving the short-term
investing needs of corporate finance departments at companies throughout the
United States and Europe. Companies using ICD’s services receive access to over
40 fund families through ICD’s one-stop process that includes one application,
one wire and one statement that consolidates reporting regardless of the number
of funds utilized. As of December 31, 2008, ICD clients have invested over $42
billion in money market funds from which ICD earns brokerage fees. ICD is a
division of Merriman Curhan Ford & Co.  Our Institutional Cash
Distributors business continued to expand rapidly in 2008 with average assets
brokered nearly doubling over 2007. ICD revenue grew at a rate of 70% in 2007
and 77% in 2008. In January 2009, we sold our ICD assets to three of our
employees and will no longer benefit from these revenues when the sale is
completed, expected for the second quarter of 2009, when the buyers of the
assets will have formed their own broker-dealer.





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 January 2009, we sold the assets related to MedPanel, in
order to focus on our core investment banking and broker-dealer businesses and
to reduce expenses.  The primary research assets have been classified
as discontinued operations.  Certain Panel assets and liabilities have
been reclassified to assets and liabilities held for sale in the consolidated
statements of financial condition.




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 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 decreased by 36% to 128 during 2008, with further reductions to 89 as
of the end of February 2009, after the sale of Panel assets. For 2009, we remain
focused on finding the most qualified employee for each position to boost
revenue per employee. We expect that we will maintain headcount at below 100
people during 2009, 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 2008.




While the
subprime mortgage crisis has not had any direct impact on our firm, the current
economic outlook for 2009 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.





30





Business
Environment




The
equity markets were highly volatile to the downside in 2008, posting the
third-worst year in more than a century.  Globally, the value of
financial assets including stocks, bonds and currencies fell by more than $50
trillion in 2008, the equivalent to a year of world GDP, according to the Asian
Development Bank.  Investor psychology was badly shaken, and the
year’s poor results also placed stocks behind almost every other asset class in
terms of 10 year performance.  The year was shaped by several landmark
events: the serial failure of brand name, “blue chip” institutions, such as Bear
Stearns, Lehman Brothers, AIG and Fannie Mae; record market volatility; the
cratering of home prices and foreclosure rates skyrocketing; and crude oil
trading to a high of $145 in July then dropping to $34 in
December.  Confused and panicked investors sought shelter in
government debt obligations, driving the return in T bonds with 30 year
maturities to a 41% gain (Merrill Lynch Long-Term Index), an unprecedented price
move.  The Federal Reserve cut its key interest rate 7 times in 2008,
from 4.25% at the start of the year, with the final cut pushing the rate to 0%
to .25%, a historic low.  In the 4th quarter, some investors were
buying short term T bills at a 0% yield, the ultimate flight to safety
reflecting a historical extreme of pessimism.





The
S&P 500 lost 38.5% for the year, while the NASDAQ Composite fell
40.5%.  The decline in the NASDAQ was the worst in its 38 year
history.  The Russell 2000 index continued its 2007 decline, dropping
34%.  High yield bonds as measured by the Merrill Lynch HY index fell
26% on a total return basis, reflecting further flight from risk.





Hedge
funds were badly hurt in 2008, with performance across “long-short” funds down
26% on average.  The failure of these funds to live up to the billing
of thriving in rough markets led to massive redemptions, and many funds went out
of business in the 4th quarter of 2008.  The hedge fund community is
an important component of our business, as they are one of the most active
purchasers of our investment banking and research product. Our securities
broker-dealer and investment banking activities are inextricably tied to the
capital markets through our customer base and its exposure to the stock market.
In addition, our business activities are focused in the CleanTech,
Consumer/Internet/Media, Health Care and Tech/Telecom sectors.  By
their nature, these 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.





The
economic environment, and the multiple negative events that were triggered by
it, have led to a financial services industry which is under unprecedented
pressure.  Some of the problems were self created, as the development
of many types of derivatives led to unprecedented profits as well as
unprecedented risks.  These derivative products also enabled mass
speculation in the housing market.  With leverage ratios in some cases
exceeding 30 times at many of the “bulge bracket” brokerage firms there was no
room for error.  Several such firms, much older, larger and better
capitalized than ours, went out of business in 2008 or have been merged
away.  An estimated 175,000 jobs have been lost by the financial
sector worldwide, with many more expected in 2009.  The investment
banking and M&A markets slowed precipitously in 2008, and these two areas
are the primary drivers of profitability for firms in our sector.  The
diminution of the hedge fund community also decreased the pool of commissions in
the “regular way” business, so both origination and distribution sides of the
business are being badly squeezed.  Cost cutting, shrewd application
of capital, and intense focus on ROI, have been the keys to survival in the
brokerage business.  For many in the investment community, survival
will truly be the new success in 2009.  We expect aggressive
consolidation as firms seek to reduce costs and increase efficiencies, as well
as position themselves for their share of a shrinking pool of
commissions.  Our market segment of sub $2 billion market cap
companies has grown exponentially due to the massive disruption in the capital
markets.  There are also many companies under $500MM with no research
coverage, advisory relationships or no sponsorship at all.  We view
this group of potential clients as a huge opportunity and are aggressively
adjusting our economic breakeven and approach to the business in order to
benefit from this new world economy.




31




Results
of Operations


The
following table sets forth a summary of financial highlights for the three years
ended December 31, 2008 and includes the results of the Company’s two operating
segments, Merriman Curhan Ford & Co., which is the substantial majority of
the results, and MCF Asset Management:
  2008
                  
                  
                  2007
                  
                  
                  2006Revenue:Commissions
                  
                  $
                  33,678,706
                  
                  
                  $
                  31,681,563
                  
                  
                  $
                  30,105,085Principal
      transactions
                  
                  
                  (9,040,218
                  )
                  
                  
                  20,116,392
                  
                  
                  
                  (171,055
                  )Investment
      banking
                  
                  
                  11,432,454
                  
                  
                  
                  30,138,783
                  
                  
                  
                  21,190,786Advisory
      and other fees
                  
                  
                  496,894
                  
                  
                  
                  1,811,527
                  
                  
                  
                  693,822Total
      revenue
                  
                  
                  36,567,836
                  
                  
                  
                  83,748,265
                  
                  
                  
                  51,818,638Operating
      expenses:Compensation
      and benefits
                  
                  
                  36,670,457
                  
                  
                  
                  53,669,449
                  
                  
                  
                  42,840,431Brokerage
      and clearing fees
                  
                  
                  3,042,133
                  
                  
                  
                  2,635,328
                  
                  
                  
                  2,614,513Professional
      services
                  
                  
                  9,161,729
                  
                  
                  
                  2,785,414
                  
                  
                  
                  2,441,417Occupancy
      and equipment
                  
                  
                  2,303,944
                  
                  
                  
                  1,638,353
                  
                  
                  
                  1,665,410Communications
      and technology
                  
                  
                  3,762,954
                  
                  
                  
                  3,405,411
                  
                  
                  
                  2,969,872Depreciation
      and amortization
                  
                  
                  705,883
                  
                  
                  
                  681,756
                  
                  
                  
                  645,129Travel
      and business development
                  
                  
                  2,921,196
                  
                  
                  
                  2,499,768
                  
                  
                  
                  2,738,393Other
                  
                  
                  4,411,128
                  
                  
                  
                  3,386,421
                  
                  
                  
                  2,400,765Total
      operating expenses
                  
                  
                  62,976,424
                  
                  
                  
                  70,701,900
                  
                  
                  
                  58,315,930Operating
      (loss) income
                  
                  
                  (26,411,588
                  )
                  
                  
                  13,046,365
                  
                  
                  
                  (6,497,292
                  )Loss
      on retirement of convertible note payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,348,805
                  )Interest
      income
                  
                  
                  375,949
                  
                  
                  
                  461,491
                  
                  
                  
                  484,909Interest
      expense
                  
                  
                  (72,304
                  )
                  
                  
                  (134,868
                  )
                  
                  
                  (535,014
                  )(Loss)
      income from continuing operations before income taxes
                  
                  
                  (26,107,943
                  )
                  
                  
                  13,372,988
                  
                  
                  
                  (7,896,202
                  )Income
      tax benefit (expense)
                  
                  
                  1,635,214
                  
                  
                  
                  (2,462,165
                  )
                  
                  
                  —(Loss)
      income from continuing operations
                  
                  
                  (24,472,729
                  )
                  
                  
                  10,910,823
                  
                  
                  
                  (7,896,202
                  )Loss
      on discontinued operations
                  
                  
                  (5,801,076
                  )
                  
                  
                  (1,587,788
                  )
                  
                  
                  (324,213
                  )Net
      (loss) income
                  
                  $
                  (30,273,805
                  )
                  
                  
                  9,323,035
                  
                  
                  $
                  (8,220,415
                  )
  Our
revenue during 2008 decreased by $47,180,000 or 56%, from 2007 reflecting
weaknesses across our businesses, with accentuated decline in principal
transactions and investment banking transactions. Net loss for 2008 was
$30,274,000 as compared to net income of $9,323,000 during 2007.
 
 Our net
(loss) income during the three years ended December 31, 2008 included the
following non-cash items:
 
 2008
                  
                  
                  2007
                  
                  
                  2006Stock-based
      compensation
                  
                  $
                  2,353,383
                  
                  
                  $
                  2,824,107
                  
                  
                  $
                  3,836,781Reversal
      of FIN 48 Liability
                  
                  
                  (1,838,743
                  )
                  
                  
                  —
                  
                  
                  
                  —Impairment
      of goodwill and intangible assets
                  
                  
                  4,538,945
                  
                  
                  
                  —
                  
                  
                  
                  —Amortization
      of intangible assets
                  
                  
                  466,142
                  
                  
                  
                  750,185
                  
                  
                  
                  138,051Depreciation
      and amortization
                  
                  
                  828,598
                  
                  
                  
                  740,445
                  
                  
                  
                  655,334Provision
      for uncollectible accounts receivable
                  
                  
                  476,713
                  
                  
                  
                  368,272
                  
                  
                  
                  383,565Issuance
      of common stock to consultant
                  
                  
                  —
                  
                  
                  
                  75,791
                  
                  
                  
                  —Amortization
      of discounts on debt
                  
                  
                  2,584
                  
                  
                  
                  10,332
                  
                  
                  
                  146,776Loss
      on retirement of convertible note payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,348,805Amortization
      of debt issuance costs
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  35,757Common
      stock received for services
                  
                  
                  (1,752,625
                  )
                  
                  
                  (400,875
                  )
                  
                  
                  —Total
                  
                  $
                  5,074,997
                  
                  
                  $
                  4,368,257
                  
                  
                  $
                  6,545,069
 
 32
 
 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,
2008:
 
 2008
                  
                  
                  2007
                  
                  
                  2006Revenue:Capital
      raising
                  
                  $
                  9,031,592
                  
                  
                  $
                  26,996,283
                  
                  
                  $
                  15,939,480Financial
      advisory
                  
                  
                  2,400,862
                  
                  
                  
                  3,142,500
                  
                  
                  
                  5,251,306Total
      investment banking revenue
                  
                  $
                  11,432,454
                  
                  
                  $
                  30,138,783
                  
                  
                  $
                  21,190,786Transaction
      Volumes:Public
      offerings:Capital
      underwritten participations
                  
                  $
                  182,780,000
                  
                  
                  $
                  234,596,000
                  
                  
                  $
                  156,500,000Number
      of transactions
                  
                  
                  3
                  
                  
                  
                  13
                  
                  
                  
                  15Private
      placements:Capital
      raised
                  
                  $
                  290,380,000
                  
                  
                  $
                  331,480,000
                  
                  
                  $
                  173,101,000Number
      of transactions
                  
                  
                  13
                  
                  
                  
                  26
                  
                  
                  
                  15Financial
      advisory:Transaction
      amounts
                  
                  $
                  82,600,000
                  
                  
                  $
                  129,161,000
                  
                  
                  $
                  169,423,000Number
      of transactions
                  
                  
                  4
                  
                  
                  
                  1
                  
                  
                  
                  1
  Our
investment banking revenue amounted to $11,432,000, or 31% of our revenue during
2008, representing a 62% decrease compared to $30,139,000 recognized in 2007.
The decrease in revenue was driven by equity underwritten transactions which
decreased by 96% in 2008 as compared to the prior year. Average fees per
investment banking transaction decreased to $273,000 in 2008 from $710,000 in
2007.  Our investment banking revenue of $30,139,000 amounted to 36%
of our revenue during 2007, representing a 42% increase compared to $21,191,000
recognized in 2006.
 
 During
the year ended December 31, 2008, two investment banking clients each accounted
for more than 10% of our revenue.  No single investment banking client
accounted for more than 10% of our revenue in 2007 and 2006.
  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.
 33
  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:
  2008
                  
                  
                  2007
                  
                  
                  2006Revenue:Commissions:Institutional
      equities
                  
                  $
                  22,385,277
                  
                  
                  $
                  25,312,803
                  
                  
                  $
                  26,348,811Institutional
      Cash Distributors
                  
                  
                  11,293,429
                  
                  
                  
                  6,368,760
                  
                  
                  
                  3,756,274Total
      commissions revenue
                  
                  $
                  33,678,706
                  
                  
                  $
                  31,681,563
                  
                  
                  $
                  30,105,085Principal
      transactions:Customer
      principal transactions, proprietary trading and market
    making
                  
                  $
                  (7,693,703
                  )
                  
                  $
                  18,380,237
                  
                  
                  $
                  (207,779
                  )Investment
      portfolio
                  
                  
                  (1,346,515
                  )
                  
                  
                  1,736,155
                  
                  
                  
                  36,724Total
      principal transactions revenue
                  
                  $
                  (9,040,218
                  )
                  
                  $
                  20,116,392
                  
                  
                  $
                  (171,055
                  )Equity
      research:Publishing
      analysts
                  
                  
                  7
                  
                  
                  
                  15
                  
                  
                  
                  14Companies
      covered
                  
                  
                  100
                  
                  
                  
                  186
                  
                  
                  
                  194Transaction
      Volumes:Number
      of shares traded
                  
                  
                  1,281,568,000
                  
                  
                  
                  1,160,782,000
                  
                  
                  
                  937,005,000Number
      of active clients
                  
                  
                  491
                  
                  
                  
                  597
                  
                  
                  
                  564
  Commissions
amounted to $33,679,000, or 92%, of our revenue during 2008, representing a 6%
increase over $31,682,000 recognized during 2007. The growth in commissions
revenue was attributed to higher assets brokered by our Institutional Cash
Distributors group during 2008. Commissions revenue from our institutional
equities trading business was down slightly during 2008 due to a decrease in
average commissions per share and a slightly lower average daily trading
volume.
  Commissions
amounted to $31,682,000, or 38%, 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.
  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 decreased revenue by $9,040,000 in 2008, while principal
transactions were $20,116,000, or 24% of revenue during 2007. Of the 2008
revenue, a substantial portion of the loss resulted from our concentrated
positions in two securities which accounted for 52% and 41% of our positions
held for proprietary trading as of December 31, 2008.
 
 Other
components of principal transactions revenue during 2008 included principal
trades for customers, realized and unrealized gains from our investment
portfolio and trading gains from making markets in equity
securities.
  During
the year ended December 31, 2008, one brokerage customer accounted for more than
10% of our revenues.  During the previous two years, no single
brokerage customer accounted for more than 10% of our revenue.
 
 34
 
 Compensation
and Benefits Expenses
  Compensation
and benefits expense represents the majority of our operating expenses and
includes commissions, base salaries, discretionary bonuses and stock-based
compensation. Commissions are typically paid to sales representatives based on
their production.  Historically, these employees have not been
eligible for discretionary bonuses. Investment banking, research, support and
executives are salaried and may participate in the discretionary bonus plan. The
bonus pool is funded based on a number of criteria including revenue production,
profitability and other key metrics. However, the total bonuses pool is
considered by management and theBoard of Directors and can be adjusted at their
discretion. Salaries, payroll taxes and employee benefits tend to vary based on
title and overall headcount.
  The
following table sets forth the major components of our compensation and benefits
for the three years ended December 31, 2008:
  2008
                    
                    
                    2007
                    
                    
                    2006Incentive
      compensation and discretionary bonuses
                    
                    $
                    17,824,388
                    
                    
                    $
                    34,408,271
                    
                    
                    $
                    26,563,425Salaries
      and wages
                    
                    
                    13,009,535
                    
                    
                    
                    12,756,961
                    
                    
                    
                    9,076,815Stock-based
      compensation
                    
                    
                    2,353,383
                    
                    
                    
                    2,824,109
                    
                    
                    
                    3,836,781Payroll
      taxes, benefits and other
                    
                    
                    3,483,151
                    
                    
                    
                    3,680,108
                    
                    
                    
                    3,363,410Total
      compensation and benefits
                    
                    $
                    36,670,457
                    
                    
                    $
                    53,669,449
                    
                    
                    $
                    42,840,431Total
      compensation and benefits as a percentage of revenue
                    
                    
                    100
                    %
                    
                    
                    64
                    %
                    
                    
                    83
                    %Cash
      compensation and benefits as a percentage of revenue
                    
                    
                    94
                    %
                    
                    
                    61
                    %
                    
                    
                    75
                    %
  The
decrease in compensation and benefits expense of $16,999,000, or 32%, from 2007
to 2008 was due primarily to lower 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 increased to 94% during 2008 as compared to 61% during 2007. This
increase in 2008 was largely attributed to our overall decrease in revenue which
was 56% lower than 2007.
  The
increase in compensation and benefits expense of $10,829,000, or 25%, from 2006
to 2007 was due primarily to higher incentive compensation which is directly
correlated to revenue production. 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 62% higher than 2006 and our extraordinary principal
transactions revenue as this activity has a low compensation expense
ratio.
 
 Our
headcount increased from 166 at December 31, 2006 to 198 as of December 31,
2007, and decreased to 128 at December 31, 2008. Two single sales professionals
each accounted for more than 10% of our revenue in 2008.  No single
sales professional accounted for more than 10% of our revenue in 2007 and
2006.
 
 35
  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 increase in brokerage and clearing fees of $407,000, or 15%
from 2007 to 2008 reflected increased per-transaction costs during the latest
year, as we added to costs by deploying electronic tools to assist in our
trading. The slight increase in brokerage and clearing fees of $21,000, or
1% from 2006 to 2007 reflected increased market making activity during
2007.
  Professional
services expense includes legal fees, accounting fees, expenses related to
investment banking transactions and various consulting fees. The increase of
$6,376,000, or 229%, from 2007 to 2008 reflected higher legal fees for
litigation defense related to the Del Biaggio matters and increased audit fees.
The increase of $344,000, or 14%, 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.  We anticipate professional services expense for 2009
will decrease substantially as compared to 2008, as the legal expenses in 2008
were unusually high.
  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 $666,000, or 41%, from 2007 to
2008 resulted mostly from expansion of our offices.  The slight
decrease of $27,000, or 2%, from 2006 to 2007 resulted mostly from assets being
fully depreciated during the year.  During 2008, we relocated our New
York office to larger premises.  We anticipate occupancy and equipment
expense in 2009 will decrease slightly over 2008 as we vacated some
premises.
  Communications
and technology expense includes market data and quote services, voice, data and
Internet service fees, and data processing costs. The increase of $358,000, or
10%, from 2007 to 2008 was due to higher per unit cost and the notice period
typically required for cancellations of service contracts to take
effect.  The increase of $436,000, or 15%, from 2006 to 2007 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 2009 will decrease by approximately 10% over 2008.
  Depreciation
and amortization expense primarily relate to the depreciation of our computer
equipment and leasehold improvements. Depreciation and amortization are mostly
fixed in nature. The increase of $24,000, or 4%, from 2007 to 2008 mostly
resulted from the depreciation of assets acquired with our expanded New York
offices requiring additional equipment and leasehold improvements. The increase
of $37,000, or 6%, from 2006 to 2007 mostly resulted from the expansion of our
facilities in San Francisco.  We anticipate depreciation and
amortization expense for 2009 will be slightly lower as compared to 2008 as some
of our fixed assets become fully depreciated.
 36
  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 increase of $421,000, or 17%, from 2007 to 2008 resulted from active sales
and marketing efforts in the early part of the year. The decrease of $239,000,
or 9%, from 2006 to 2007 resulted from fewer uncompleted investment banking
transactions in 2007 as compared to 2006. 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 2009 will likely be lower than 2008.
  The
following expenses are included in other operating expenses for the three years
ended December 31, 2008:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Investor
      conferences
                    
                    $
                    817,177
                    
                    
                    $
                    918,153
                    
                    
                    $
                    947,793Recruiting
                    
                    
                    288,500
                    
                    
                    
                    476,483
                    
                    
                    
                    316,021Public
      and investor relations
                    
                    
                    508,692
                    
                    
                    
                    436,977
                    
                    
                    
                    294,664Provision
      for uncollectible accounts receivable
                    
                    
                    347,410
                    
                    
                    
                    368,271
                    
                    
                    
                    (116,435
                    )Insurance
                    
                    
                    450,872
                    
                    
                    
                    315,186
                    
                    
                    
                    271,725Supplies
                    
                    
                    335,778
                    
                    
                    
                    297,814
                    
                    
                    
                    300,598Dues
      and subscriptions
                    
                    
                    359,606
                    
                    
                    
                    198,967
                    
                    
                    
                    162,064Other
                    
                    
                    1,303,092
                    
                    
                    
                    374,570
                    
                    
                    
                    224,335Total
      other operating expenses
                    
                    $
                    4,411,128
                    
                    
                    $
                    3,386,421
                    
                    
                    $
                    2,400,765
  The
significant increase of $1,025,000, or 30%, from 2007 to 2008 was due primarily
to a legal settlement with a former employee as described in the Legal
Proceedings section above.  In addition, higher costs of dues and
subscriptions related to information services and higher insurance premiums
partially attributable to our legal matters also contributed to the increase.
The increase of $986,000, or 41%, from 2006 to 2007 was due primarily to
one-time events in 2006 that reduced other expense by approximately $600,000. We
anticipate other operating expense for 2009 will decrease over 2008 as we are
permitted to cancel services and activities which are less suited to our reduced
business levels.
  Loss
on Retirement of Convertible Note Payable
 
 In
December 2006, the Company repaid the $7.5 million variable rate secured
convertible note issued to Midsummer Investment, Ltd, or Midsummer, in March
2006. The loss of $1,349,000 recorded as of December 31, 2006 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. Midsummer retained the stock warrant to purchase 267,857 shares
of our common stock.
 
 37
 
 Interest
Income
  Interest
income represents interest earned on our cash balances maintained at financial
institutions. The decrease of $86,000, or 19%, from 2007 to 2008 and the
decrease of $23,000, or 5%, from 2006 to 2007 were due to changes in average
interest earning assets and average interest rates during these
periods.
  Interest
Expense
  Interest
expense for 2008 included $70,000 for interest expense and $2,500 for
amortization of discounts while 2007 included $125,000 for interest expense and
$10,000 for amortization of discounts.
  Income
Tax Expense
  We
recorded an income tax benefit of $1,635,000 in 2008 resulting in an effective
tax rate of 5%. Income tax expense was $2,462,000 in 2007 resulting in an
effective tax rate of 21%.  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. During 2008, we recognized $1,839,000 of unrecognized tax
benefits previously established in 2007.  Accordingly, there were no
unrecognized tax benefits as of December 31, 2008, and 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. We are subject
to taxation in the US and various state and foreign jurisdictions. The tax years
2000-2008 remain open in the U.S. and several U.S. state
jurisdictions.
  Discontinued
Operations
 
 On April
17, 2007, we acquired 100 percent of the outstanding common shares of MedPanel
Corp. which we subsequently renamed Panel Intelligence LLC (“Panel”) and made
into a subsidiary of the Merriman Curhan Ford Group, Inc. The results of Panel’s
operations have been included in our consolidated financial statements since
that date. As a result of the acquisition, we began providing independent market
data and information to clients in the biotechnology, pharmaceutical, medical
device, and financial industries by leveraging Panel's proprietary methodology
and vast network of medical experts.
 
 We paid
$6.1 million in common stock for Panel. The value of the 1,547,743 shares of
common shares issued was determined based on the average market price of the our
common stock over the period including three days before and after the terms of
the acquisition were agreed to and announced. The selling stockholders were also
entitled to additional consideration on the third anniversary from the closing
which is based upon Panel Intelligence achieving specific revenue and
profitability milestones.
  In
December 2008, we determined that the sale of Panel would reduce investments
required to develop Panel’s business.  Its sale would also generate
capital necessary for our core business.   We determined that the
plan of sale criteria in FASB Statement No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets,” had been met. Accordingly, the carrying value
of the Panel assets was adjusted to their fair value less costs to
sell.  As a result, an impairment loss in the amount of $1,937,000 was
recorded and is included in “Other expenses” in the table in Note
8.  In January 2009, we sold Panel to Panel Intelligence, LLC (Newco)
for $1,000,000 and shares of our common stock in the amount of
$100,000.
  Critical
Accounting Policies and Estimates
  The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, 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.
  38
 
 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.  It is reported in our financial statements under
captions labeled “Discontinued Operations”.
 
 OTCQX
revenue is recognized in two parts – Due Diligence and Listing
Fees.  Due Diligence Fees are recognized at its
completion.  The Listing Fees are pro-rated monthly from the time the
end of the Due Diligence period until the end of the engagement
term.
  Fair
Value of Financial Instruments
 
 Substantially
all of the Company's financial instruments are recorded at fair value or
contract amounts that approximate fair value. Securities owned and securities
sold, not yet purchased are stated at fair value, with any related changes in
unrealized appreciation or depreciation reflected in Principal Transactions in
the consolidated statements of operations. Financial instruments carried at
contract amounts include cash and cash equivalents and amounts due from and to
brokers, dealers and clearing brokers.
 
 Fair
Value Measurement—Definition and Hierarchy
 
 The
Company adopted the provisions of SFAS No. 157, Fair Value Measurements (SFAS
No. 157), effective January 1, 2008. Under this standard, fair value
is defined as the price that would be received to sell an asset or paid to
transfer a liability (i.e. , the “exit price”) in
an orderly transaction between market participants at the measurement
date.
 
 Where
available, fair value is based on observable market prices or parameters or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by SFAS 157 and directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:
  Level 1 —
Inputs are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date. The types of assets and liabilities carried
at Level 1 fair value generally are G-7 government and agency securities,
equities listed in active markets, investments in publicly traded mutual funds
with quoted market prices and listed derivatives.
  Level 2 —
Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life. Fair valued assets that are generally included in this
category are stock warrants for which there are market-based implied
volatilities, unregistered common stock and thinly traded common
stock.
  Level 3 —
Inputs reflect management’s best estimate of what market participants would use
in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model. Generally, assets carried at fair value and included in
this category include stock warrants for which market-based implied volatilities
are not available.
 
 Assets
measured at fair value on a recurring basis are categorized into a Level based
upon the lowest level of significant input to the valuations.
 
 39
 
 Stock-Based
Compensation
  On
January 1, 2006, the company 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 three years ended December 31, 2008
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).
  The
company estimates 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, 2008 and 2007 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
and Intangible Assets
  In
accordance with SFAS 142, indefinite-life intangible assets and goodwill are not
amortized. Rather, they are subject to impairment testing on an annual basis or
more often if events or circumstances indicate there may be impairment. This
test involves assigning tangible assets and liabilities, identified intangible
assets and goodwill to reporting units and comparing the fair value of each
reporting unit to its carrying amount. If the fair value is less than the
carrying amount, a further test is required to measure the amount of the
impairment.  When available, we use recent, comparable transactions to
estimate the fair value of the respective reporting unit. We calculate an
estimated fair value based on multiples of revenue, earnings, and book value of
comparable transactions. However, when such comparable transactions are not
available or have become outdated, we use discounted cash flow scenarios to
estimate the fair value of the reporting units.
 
 The
goodwill and intangible assets we recorded are related to Panel assets,
classified as held for sale in our financial statements.  In the year
ended December 31, 2008, we recorded impairments to goodwill and intangible
assets in the amounts of $3,338,000 and $1,301,000, respectively.  At
December 31, 2008, the assets held for sale included no remaining goodwill and
$283,000 of intangible assets after impairment and depreciation.
 
 40
  Liquidity
and Capital Resources
  As of
December 31, 2008, liquid assets consisted primarily of cash and cash
equivalents of $6,358,000 and marketable securities of $4,623,000, for a total
of $10,981,000, which is $34,788,000 lower than $45,769,000 in liquid
assets as of December 31, 2007.
  Cash and
cash equivalents decreased by $25,296,000 during 2008. Cash used in our
operating activities for 2008 was $24,945,000 which consists of our net loss of
$30,274,000 adjusted for non-cash expenses including unrealized loss on
securities owned of $9,775,000, partially offset by the decrease in commissions
and bonus payable of $14,223,000, net stock-based compensation of $2,353,000,
depreciation and amortization of $829,000, provision for doubtful accounts of
$477,000, and amortization of intangible assets of $466,000. Cash used in
investing activities amounted to $204,000 during 2008 which reflects our
purchase of equipment and fixtures. Cash used in our financing activities was
$232,000. Our financing activities included debt service payments partially
offset by proceeds from the exercise of stock options by our
employees.
  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, 2008,
Merriman Curhan Ford & Co. had regulatory net capital of $2,899,000, which
exceeded the required amount by $1,899,000.
 
 During
the year ended December 31, 2008, the Company incurred a net loss of $30,274,000
and used $24,945,000 in net cash from operating activities.  At
December 31, 2008, the Company had cash and cash equivalents of $6,358,000,
marketable securities of $4,623,000 and receivables from clearing broker of
$1,753,000.  The Company had liabilities of
$11,150,000.  The Company’s ability to generate profits is highly
dependent on stock market trading volumes and the general economic environment.
As a result, the ability of the Company to meet its forward obligations and the
ability to continue as a going concern may be in question.
  We
believe that our existing cash balances and investments could be sufficient to
meet our liquidity and capital spending requirements depending on the
successful implementation of the plan to increase the Company’s operating
flexibility and extend its cash reserves,the settlement of our legal
proceedings, the stability of financial markets and the economic
environment.  The company may require additional capital investment to
fund our working capital. 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,
2008, consisting of capital leases and future minimum lease payments under all
non-cancelable operating leases with initial or remaining terms in excess of one
year.
  Operating
                      Leases
                    
                    
                    Capital
                      Leases2009
                    
                    
                    1,772,554
                    
                    
                    
                    634,9682010
                    
                    
                    1,720,897
                    
                    
                    
                    319,7332011
                    
                    
                    1,658,148
                    
                    
                    
                    146,6472012
                    
                    
                    1,095,440
                    
                    
                    
                    —2013
                    
                    
                    616,000
                    
                    
                    
                    —Thereafter
                    
                    
                    —
                    
                    
                    
                    —Total
      commitments
                    
                    $
                    6,863,039
                    
                    
                    $
                    1,101,347Interest
                    
                    
                    —
                    
                    
                    
                    (66,441
                    )Net
      commitments
                    
                    $
                    6,863,039
                    
                    
                    $
                    1,034,906
  Off-Balance
Sheet Arrangements
  We were
not a party to any off-balance sheet arrangements during the three years ended
December 31, 2008. In particular, we do not have any interest in so-called
limited purpose entities, which include special purpose entities and structured
finance entities.
 
 41
 
 Newly
Issued Accounting Standards
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value
Measurements(“SFAS No. 157”), which
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.
  In
February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial
Assets and Financial Liabilities(“SFAS No. 159”), 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 FASB Staff Position (“FSP”) FIN No. 46R-7, Application of FASB Interpretation
No. 46(R) to Investment Companies(“FSP FIN 46R-7”),
which 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 adoption of FSP FIN No. 46R-7 did not have a
material impact on the Company’s consolidated financial statements
 
 In
December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS
141R”), which requires the acquiring entity in a business combination to
recognize the full fair value of assets acquired and liabilities assumed in the
transaction (whether a full or partial acquisition); establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose to investors and
other users all of the information needed to evaluate and understand the nature
and financial effect of the business combination. SFAS 141R applies to all
transactions or other events in which the Company obtains control of one or more
businesses, including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights.
SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not expect
the adoption of SFAS 141R will have a material impact on its consolidated
financial position or results of operations.
 
 Also in
December 2007, SFAS No. 160,Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”), which requires reporting entities to
present noncontrolling (minority) interests as equity (as opposed to as a
liability or mezzanine equity) and provides guidance on the accounting for
transactions between an entity and noncontrolling interests. SFAS 160 applies to
all fiscal years and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure
requirements which will be applied retrospectively for all periods presented.
The Company does not expect the adoption of SFAS 160 will have a material effect
on its consolidated financial statements.
 
 In
February 2008, the FASB issued FSP FAS 157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13(“FSP FAS 157-1”), which amends SFAS 157 to exclude
its applicability to leases, except if the lease asset is acquired or lease
liability is assumed as part of a merger or business combination. FSP FAS 157-1
was effective upon the initial adoption of SFAS No. 157. The adoption of FSP FAS
157-1 did not have a material impact on the Company’s consolidated financial
statements.
 
 In
October 2008, the FASB issued FSP 157-3,Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (“FSP
157-3”),  which clarifies
the application SFAS No. 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 was effective immediately upon issuance and includes prior period
financial statements that have not yet been issued, and therefore the Company is
subject to the provisions of FSP-157-3 effective September 30, 2008. The
implementation of FSP 157-3 did not affect the Company’s fair value measurements
of financial assets as of December 31, 2008 and had no impact on its
consolidated results of operations or financial condition.
 42
 
 Item
7a. Quantitative and Qualitative Disclosures about Market Risk
  The
following discussion about market risk disclosures involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We may be exposed to market risks related to changes
in equity prices, interest rates and foreign currency exchange rates. We do not
use derivative financial instruments for speculative, trading or any other
purpose.
  Equity
Price Risk
  The
potential for changes in the market value of our trading positions is referred
to as “market risk.” Our trading positions result from proprietary trading
activities. These trading positions in individual equities and equity indices
may be either long or short at any given time. Equity price risks result from
exposures to changes in prices and volatilities of individual equities and
equity indices. We seek to manage this risk exposure through diversification and
limiting the size of individual positions within the portfolio. The effect on
earnings and cash flows of an immediate 10% increase or decrease in equity
prices generally is not ascertainable and could be positive or negative,
depending on the positions we hold at the time. We do not establish hedges in
related securities or derivatives. From time to time, we also hold equity
securities received as compensation for our services in investment banking
transactions. These equity positions are always long. However, as the prices of
individual equity securities do not necessarily move in tandem with the
direction of the general equity market, the effect on earnings and cash flows of
an immediate 10% increase or decrease in equity prices generally is not
ascertainable.
  Interest
Rate Risk
  Our
exposure to market risk resulting from changes in interest rates relates
primarily to our investment portfolio and long term debt obligations. Our
interest income and cash flows may be impacted by changes in the general level
of U.S. interest rates. We do not hedge this exposure because we believe that we
are not subject to any material market risk exposure due to the short-term
nature of our investments. We would not expect an immediate 10% increase or
decrease in current interest rates to have a material effect on the fair market
value of our investment portfolio.
  Foreign
Currency Risk
  We do not
have any foreign currency denominated assets or liabilities or purchase
commitments and have not entered into any foreign currency contracts.
Accordingly, we are not exposed to fluctuations in foreign currency exchange
rates.
 
 43
 
 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.
 44
 
 Report
of Independent Registered Public Accounting Firm
  The Board
of Directors and Stockholders of
 Merriman
Curhan Ford Group, Inc.
  We have
audited the accompanying consolidated statements of financial condition of
Merriman Curhan Ford Group, Inc. (the Company) as of December 31, 2008 and 2007,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31,
2008.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our 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 position of Merriman Curhan Ford
Group, Inc. at December 31, 2008 and 2007, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 3, the Company
has incurred recurring operating losses and is facing significant litigation as
discussed more fully in Note 14.  These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters also are described in Note3.  The 2008
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Merriman Curhan Ford Group, Inc.’s internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
30, 2009 expressed an unqualified opinion thereon.
  /s/
      Ernst & Young LLPSan
      Francisco, California
                      March
      30, 2009
  45
  MERRIMAN
CURHAN FORD GROUP, INC.
  CONSOLIDATED
STATEMENTS OF OPERATIONS
  Year ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Revenue:Commissions
                    
                    $
                    33,678,706
                    
                    
                    $
                    31,681,563
                    
                    
                    $
                    30,105,085Principal
      transactions
                    
                    
                    (9,040,218
                    )
                    
                    
                    20,116,392
                    
                    
                    
                    (171,055
                    )Investment
      banking
                    
                    
                    11,432,454
                    
                    
                    
                    30,138,783
                    
                    
                    
                    21,190,786Advisory
      and other fees
                    
                    
                    496,894
                    
                    
                    
                    1,811,527
                    
                    
                    
                    693,822Total
      revenue
                    
                    
                    36,567,836
                    
                    
                    
                    83,748,265
                    
                    
                    
                    51,818,638Operating
      expenses:Compensation
      and benefits
                    
                    
                    36,670,457
                    
                    
                    
                    53,669,449
                    
                    
                    
                    42,840,431Brokerage
      and clearing fees
                    
                    
                    3,042,133
                    
                    
                    
                    2,635,328
                    
                    
                    
                    2,614,513Professional
      services
                    
                    
                    9,161,729
                    
                    
                    
                    2,785,414
                    
                    
                    
                    2,441,417Occupancy
      and equipment
                    
                    
                    2,303,944
                    
                    
                    
                    1,638,353
                    
                    
                    
                    1,665,410Communications
      and technology
                    
                    
                    3,762,954
                    
                    
                    
                    3,405,411
                    
                    
                    
                    2,969,872Depreciation
      and amortization
                    
                    
                    705,883
                    
                    
                    
                    681,756
                    
                    
                    
                    645,129Travel
      and business development
                    
                    
                    2,921,196
                    
                    
                    
                    2,499,768
                    
                    
                    
                    2,738,393Other
                    
                    
                    4,411,128
                    
                    
                    
                    3,386,421
                    
                    
                    
                    2,400,765Total
      operating expenses
                    
                    
                    62,979,424
                    
                    
                    
                    70,701,900
                    
                    
                    
                    58,315,930Operating
      (loss) income
                    
                    
                    (26,411,588
                    )
                    
                    
                    13,046,365
                    
                    
                    
                    (6,497,292
                    )Loss
      on retirement of convertible note payable
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,348,805
                    )Interest
      income
                    
                    
                    375,949
                    
                    
                    
                    461,491
                    
                    
                    
                    484,909Interest
      expense
                    
                    
                    (72,304
                    )
                    
                    
                    (134,868
                    )
                    
                    
                    (535,014
                    )(Loss)
      income from continuing operations before income taxes
                    
                    
                    (26,107,943
                    )
                    
                    
                    13,372,988
                    
                    
                    
                    (7,896,202
                    )Income
      tax benefit (expense)
                    
                    
                    1,635,214
                    
                    
                    
                    (2,462,165
                    )
                    
                    
                    —(Loss)
      income from continuing operations
                    
                    
                    (24,472,729
                    )
                    
                    
                    10,910,823
                    
                    
                    
                    (7,896,202
                    )Loss
      from discontinued operations
                    
                    
                    (5,801,076
                    )
                    
                    
                    (1,587,788
                    )
                    
                    
                    (324,213
                    )Net
      (loss) income
                    
                    $
                    (30,273,805
                    )
                    
                    $
                    9,323,035
                    
                    
                    $
                    (8,220,415
                    )Basic
      net income (loss) per share:(Loss)
      income from continuing operations
                    
                    $
                    (1.95
                    )
                    
                    $
                    0.95
                    
                    
                    $
                    (0.79
                    )Loss
      from discontinued operations
                    
                    $
                    (0.46
                    )
                    
                    $
                    (0.14
                    )
                    
                    $
                    (0.03
                    )Net
      (loss) income
                    
                    $
                    (2.41
                    )
                    
                    $
                    0.81
                    
                    
                    $
                    (0.82
                    )Diluted
      net (loss) income per share:(Loss)
      income from continuing operations
                    
                    $
                    (1.95
                    )
                    
                    $
                    0.86
                    
                    
                    $
                    (0.79
                    )Loss
      from discontinued operations
                    
                    $
                    (0.46
                    )
                    
                    $
                    (0.12
                    )
                    
                    $
                    (0.03
                    )Net
      (loss) income
                    
                    $
                    (2.41
                    )
                    
                    $
                    0.74
                    
                    
                    $
                    (0.82
                    )Weighted
      average number of common shares:Basic
                    
                    
                    12,550,872
                    
                    
                    
                    11,528,187
                    
                    
                    
                    9,989,265Diluted
                    
                    
                    12,550,872
                    
                    
                    
                    12,643,524
                    
                    
                    
                    9,989,265
  The
accompanying notes are an integral part of these consolidated financial
statements.
  46
  MERRIMAN
CURHAN FORD GROUP, INC.
  CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
  December 31,2008
                  
                  
                  2007ASSETSCash
      and cash equivalents
                  
                  $
                  6,358,128
                  
                  
                  $
                  31,653,657Securities
      owned:Marketable,
      at fair value
                  
                  
                  4,622,577
                  
                  
                  
                  14,115,022Not
      readily marketable, at estimated fair value
                  
                  
                  366,061
                  
                  
                  
                  2,275,668Other
                  
                  
                  185,065
                  
                  
                  
                  2,229,120Restricted
      cash
                  
                  
                  1,131,182
                  
                  
                  
                  689,157Due
      from clearing broker
                  
                  
                  1,752,535
                  
                  
                  
                  1,251,446Accounts
      receivable, net
                  
                  
                  612,234
                  
                  
                  
                  2,940,959Prepaid
      expenses and other assets
                  
                  
                  619,759
                  
                  
                  
                  1,651,051Equipment
      and fixtures, net
                  
                  
                  1,260,011
                  
                  
                  
                  995,880Assets
      held for sale
                  
                  
                  1,958,038
                  
                  
                  
                  6,771,371Total
      assets
                  
                  $
                  18,865,590
                  
                  
                  $
                  64,573,331LIABILITIES
      AND STOCKHOLDERS’ EQUITYAccounts
      payable
                  
                  $
                  712,591
                  
                  
                  $
                  579,097Commissions
      and bonus payable
                  
                  
                  3,182,941
                  
                  
                  
                  17,346,304Accrued
      expenses
                  
                  
                  3,637,345
                  
                  
                  
                  5,541,501Due
      to clearing and other brokers
                  
                  
                  28,022
                  
                  
                  
                  6,865Securities
      sold, not yet purchased
                  
                  
                  903,217
                  
                  
                  
                  3,804,558Deferred
      revenue
                  
                  
                  709,691
                  
                  
                  
                  119,999Capital
      lease obligation
                  
                  
                  923,683
                  
                  
                  
                  721,380Convertible
      notes payable, net
                  
                  
                  —
                  
                  
                  
                  197,416Notes
      payable
                  
                  
                  —
                  
                  
                  
                  41,573Liabilities
      held for sale
                  
                  
                  1,052,899
                  
                  
                  
                  1,408,590Total
      liabilities
                  
                  
                  11,150,389
                  
                  
                  
                  29,767,283Commitments
      and contingenciesStockholders’
      equity:Convertible
      Preferred stock, Series A—$0.0001 par value; 2,000,000 shares
      authorized; 2,000,000 shares issued and 0 shares outstanding as of
      December 31, 2008 and 2007, respectively; aggregate liquidation preference
      of $0
                  
                  
                  —
                  
                  
                  
                  —Convertible
      Preferred stock, Series B—$0.0001 par value; 12,500,000 shares
      authorized; 8,750,000 shares issued and 0 shares outstanding as of
      December 31, 2008 and 2007; aggregate liquidation preference of
      $0
                  
                  
                  —
                  
                  
                  
                  —Convertible
      Preferred stock, Series C—$0.0001 par value; 14,200,000 shares
      authorized; 11,800,000 shares issued and 0 shares outstanding as of
      December 31, 2008 and 2007; aggregate liquidation preference of
      $0
                  
                  
                  —
                  
                  
                  
                  —Common
      stock, $0.0001 par value; 300,000,000 shares authorized; 12,756,656 and
      12,310,886 shares issued and 12,730,218 and  12,284,448 shares
      outstanding as of December 31, 2008 and 2007, respectively
                  
                  
                  1,278
                  
                  
                  
                  1,232Additional
      paid-in capital
                  
                  
                  127,193,195
                  
                  
                  
                  124,010,283Treasury
      stock
                  
                  
                  (125,613
                  )
                  
                  
                  (125,613
                  )Accumulated
      deficit
                  
                  
                  (119,353,659
                  )
                  
                  
                  (89,079,854
                  )Total
      stockholders’ equity
                  
                  
                  7,715,201
                  
                  
                  
                  34,806,048Total
      liabilities and stockholders’ equity
                  
                  $
                  18,865,590
                  
                  
                  $
                  64,573,331
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  47
  MERRIMAN
CURHAN FORD GROUP, INC.
  CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
  Preferred Stock
                                                      
                                                      
                                                      Common Stock
                                                      
                                                      Treasury Stock
                                                      
                                                      Additional
                                                        Paid-in
                                                      
                                                      Deferred
                                                      
                                                      AccumulatedShares
                                                      
                                                      Amount
                                                      
                                                      
                                                      Shares
                                                      
                                                      Amount
                                                      
                                                      Shares
                                                      
                                                      Amount
                                                      
                                                      Capital
                                                      
                                                      Compensation
                                                      
                                                      Deficit
                                                      
                                                      TotalBalance
      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
                                                      )
                                                      $
                                                      34,806,048Net
      loss
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      (30,273,805)
                                                      
                                                      
                                                      (30,273,805
                                                      )Conversion
      of debt to common stock
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      142,858
                                                      
                                                      
                                                      14
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      199,986
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      200,000Issuance
      of common stock for MedPanel acquisition
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      47,623
                                                      
                                                      
                                                      5
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      193,345
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      193,350Issuance of
      common stock
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      52,938
                                                      
                                                      
                                                      5
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      95,298
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      95,303Issuance
      of restricted common stock
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      79,265
                                                      
                                                      
                                                      8
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      (8
                                                      )
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —Exercise of
      stock warrants
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      188,582
                                                      
                                                      
                                                      20
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      374,980
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      375,000Common
      stock returned from restricted
stock  Shareholder
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      (65,496
                                                      )
                                                      
                                                      (6
                                                      )
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      6
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —Tax
      benefits from employee stock option plans
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      (34,078)
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      (34,078)Stock-based
      compensation
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      2,353,383
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      2,353,383Balance
      at December 31, 2008
                                                      
                                                      —
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      
                                                      12,756,656
                                                      
                                                      $
                                                      1,278
                                                      
                                                      (26,438
                                                      )
                                                      $
                                                      (125,613
                                                      )
                                                      $
                                                      127,193,195
                                                      
                                                      $
                                                      —
                                                      
                                                      $
                                                      (119,353,659
                                                      )
                                                      $
                                                      7,715,201
  The
accompanying notes are an integral part of these consolidated financial
statements.
  48
 
 MERRIMAN
CURHAN FORD GROUP, INC.
  CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Year ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Cash
      flows from operating activities:Net
      (loss) income
                      
                      $
                      (30,273,805
                      )
                      
                      $
                      9,323,035
                      
                      
                      $
                      (8,220,415
                      )Adjustments
      to reconcile net (loss) income to net cash (used in) provided
      by operating activities:Reversal
      of FIN 48 liability
                      
                      
                      (1,838,743
                      )
                      
                      
                      —
                      
                      
                      
                      —Depreciation
      and amortization
                      
                      
                      828,598
                      
                      
                      
                      740,445
                      
                      
                      
                      655,334Stock-based
      compensation
                      
                      
                      2,353,383
                      
                      
                      
                      2,824,107
                      
                      
                      
                      3,836,781Issuance
      of common stock to consultant
                      
                      
                      —
                      
                      
                      
                      75,791
                      
                      
                      
                      —Tax
      benefits (expense) from employee stock option plans
                      
                      
                      (34,078
                      )
                      
                      
                      45,184
                      
                      
                      
                      —Amortization
      of discounts on convertible notes payable
                      
                      
                      2,584
                      
                      
                      
                      10,332
                      
                      
                      
                      146,776Impairment
      of goodwill
                      
                      
                      3,338,016
                      
                      
                      
                      —
                      
                      
                      
                      —Impairment
      of intangible assets
                      
                      
                      1,200,929
                      
                      
                      
                      —
                      
                      
                      
                      —Impairment
      of securities
                      
                      
                      230,556
                      
                      
                      
                      —
                      
                      
                      
                      —Amortization
      of debt issuance costs
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      35,757Amortization
      of intangible asset
                      
                      
                      466,142
                      
                      
                      
                      750,185
                      
                      
                      
                      138,051Loss
      on retirement of convertible note payable
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,348,805Loss
      on disposal of equipment and fixtures
                      
                      
                      2,921
                      
                      
                      
                      5,553
                      
                      
                      
                      14,196Provision
      for uncollectible accounts receivable
                      
                      
                      820,417
                      
                      
                      
                      368,272
                      
                      
                      
                      383,565Common
      stock received for services
                      
                      
                      (1,752,625
                      )
                      
                      
                      (400,875
                      )
                      
                      
                      —Unrealized
      loss (gain) on securities owned
                      
                      
                      9,774,573
                      
                      
                      
                      (6,763,635
                      )
                      
                      
                      2,172,407Changes
      in operating assets and liabilities:Securities
      owned and sold, but not purchased
                      
                      
                      2,292,261
                      
                      
                      
                      (203,639
                      )
                      
                      
                      (203,536
                      )Restricted
      cash
                      
                      
                      (442,025
                      )
                      
                      
                      (59,730
                      )
                      
                      
                      (1,821
                      )Due
      from clearing broker
                      
                      
                      (501,089
                      )
                      
                      
                      (699,615
                      )
                      
                      
                      421,307Accounts
      receivable
                      
                      
                      1,458,397
                      
                      
                      
                      (649,560
                      )
                      
                      
                      (789,908
                      )Prepaid
      expenses and other assets
                      
                      
                      910,840
                      
                      
                      
                      404,769
                      
                      
                      
                      (786,306
                      )Accounts
      payable
                      
                      
                      (18,166
                      )
                      
                      
                      (740,825
                      )
                      
                      
                      220,485Commissions
      and bonus payable
                      
                      
                      (14,223,458
                      )
                      
                      
                      9,617,504
                      
                      
                      
                      2,975,913Accrued
      liabilities
                      
                      
                      437,960
                      
                      
                      
                      3,928,196
                      
                      
                      
                      84,171Due
      to clearing and other brokers
                      
                      
                      21,157
                      
                      
                      
                      (4,249
                      )
                      
                      
                      (107,684
                      )Net
      cash (used in) provided by operating activities
                      
                      
                      (24,945,255
                      )
                      
                      
                      18,571,245
                      
                      
                      
                      (2,323,878
                      )Cash
      flows from investing activities:Purchase
      of equipment and fixtures
                      
                      
                      (203,566
                      )
                      
                      
                      (170,541
                      )
                      
                      
                      (78,216
                      )Acquisition
      of Catalyst
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (58,558
                      )Proceeds
      from sale of Catalyst
                      
                      
                      —
                      
                      
                      
                      163,219
                      
                      
                      
                      —Investment
      in MCF Navigator fund
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (7,500,000
                      )Redemption
      from MCF Navigator fund
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      7,500,000Acquisition
      of MedPanel
                      
                      
                      —
                      
                      
                      
                      670,027
                      
                      
                      
                      —Increase
      in intangible assets
                      
                      
                      —
                      
                      
                      
                      (694,612
                      )
                      
                      
                      —Net
      cash used in investing activities
                      
                      
                      (203,566
                      )
                      
                      
                      (31,907
                      )
                      
                      
                      (136,774
                      )Cash
      flows from financing activities:Proceeds
      from the issuance of common stock
                      
                      
                      —
                      
                      
                      
                      185,041
                      
                      
                      
                      603,070Proceeds
      from the exercise of stock options and warrants
                      
                      
                      470,303
                      
                      
                      
                      172,996
                      
                      
                      
                      302,017Proceeds
      from convertible debenture and stock warrant
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      7,500,000Repayment
      of convertible debenture
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (7,500,000
                      )Debt
      service principal payments
                      
                      
                      (702,663
                      )
                      
                      
                      (681,764
                      )
                      
                      
                      (484,524
                      )Net
      cash (used in) provided by financing activities
                      
                      
                      (232,360
                      )
                      
                      
                      (323,727
                      )
                      
                      
                      420,563Increase
      (decrease) in cash and cash equivalents
                      
                      
                      (25,381,181
                      )
                      
                      
                      18,215,611
                      
                      
                      
                      (2,607,667
                      )Cash
      and cash equivalents at beginning of year
                      
                      
                      31,962,201
                      
                      
                      
                      13,746,590
                      
                      
                      
                      11,138,923Cash
      and cash equivalents, assets held for sale
                      
                      
                      (222,892
                      )
                      
                      
                      (308,544
                      )Cash
      and cash equivalents at end of year
                      
                      $
                      6,358,128
                      
                      
                      $
                      31,653,657
                      
                      
                      $
                      13,746,590
  The
accompanying notes are an integral part of these consolidated financial
statements.
 
 49
  MERRIMAN
CURHAN FORD GROUP, INC.
  CONSOLIDATED
STATEMENTS OF CASH FLOWS — (Continued)
  Year ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006Supplementary
      disclosure of cash flow information:Cash
      paid during the year:Interest
                            
                            $
                            79,941
                            
                            
                            $
                            121,331
                            
                            
                            $
                            323,345Income
      taxes
                            
                            $
                            565,959
                            
                            
                            $
                            120,400
                            
                            
                            $
                            18,800Non-cash
      investing and financing activities:Conversion
      of note payable into common stock
                            
                            $
                            200,000
                            
                            
                            $
                            —
                            
                            
                            $
                            —Purchase
      of equipment and fixtures through capital lease
                            
                            $
                            805,776
                            
                            
                            $
                            182,665
                            
                            
                            $
                            799,709Issuance
      of common stock for MedPanel
                            
                            $
                            193,350
                            
                            
                            $
                            —
                            
                            
                            $
                            —
  The
accompanying notes are an integral part of these consolidated financial
statements.
 
 50







MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




1.
Description of Business




Merriman
Curhan Ford Group, Inc. (formerly MCF Corporation) is a financial services
holding company that provides investment banking, capital markets services,
corporate and venture services, investment banking, asset management and primary
research through its operating subsidiaries, Merriman Curhan Ford & Co.,
Panel Intelligence, LLC (“Panel”) and MCF Asset Management, LLC.  In
the fourth quarter of 2008, Merriman Curhan Ford Group, Inc. decided to begin
the process of liquidating the funds under management by MCF Asset Management,
LLC and is still consolidated in the accompanying financial statements as of and
for the years ended December 31, 2008 and 2007.  In January 2009,
Merriman Curhan Ford Group, Inc. sold its primary research business, Panel
Intelligence, LLC, and has presented its results of operations as discontinued
operations, see Note 8 for further discussion.  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.




Merriman
Curhan Ford Group, Inc., also referred to as the Company, formerly Ratexchange
Corporation, NetAmerica.com Corporation and Venture World, Ltd., is a Delaware
corporation 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 acquired Panel Intelligence, LLC in
April 2007 as wholly owned subsidiaries. Panel Intelligence, LLC is accounted
for as discontinued operations in these consolidated financial statements for
the years ended December 31, 2008 and 2007 while MCF Wealth Management, LLC was
accounted for as such for the year ended December 31, 2006.




2.
Summary of Significant Accounting Policies




Principles
of Consolidation




As of
December 31, 2008, Merriman Curhan Ford Group, Inc. wholly owned three U.S.
subsidiaries.  The subsidiaries Merriman Curhan Ford & Co. and MCF
Asset Management, LLC have been consolidated in the accompanying financial
statements.  In January 2009, Merriman Curhan Ford Group, Inc. sold its
third subsidiary, Panel Intelligence, LLC, and has presented its results of
operations as discontinued operations.  All significant inter-company
accounts and transactions have been eliminated.





Cash
and Cash Equivalents




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


51




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




2.
Summary of Significant Accounting Policies - (continued)




Restricted
Cash and Letters of Credit




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




Securities
Owned




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




Fair
Value of Financial Instruments





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





Fair
Value Measurement—Definition and Hierarchy





The
Company adopted the provisions of SFAS No. 157, Fair Value Measurements (SFAS
No. 157), effective January 1, 2008. Under this standard, fair value
is defined as the price that would be received to sell an asset or paid to
transfer a liability (i.e. , the “exit price”) in
an orderly transaction between market participants at the measurement
date.





Where
available, fair value is based on observable market prices or parameters or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by SFAS 157 and directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:




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




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




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





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





For
further information on financial assets and liabilities that are measured at
fair value on a recurring and nonrecurring basis, and a description of valuation
techniques, see Note 4.


52


MERRIMAN
CURHAN FORD GROUP, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS   2.
Summary of Significant Accounting Policies - (continued)


Accounts
Receivable





Accounts
receivable are recorded at the invoiced amount and do not bear interest. To the
extent deemed necessary, the Company maintains an allowance for estimated losses
from the inability of clients to make required payments. The 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.





We
recorded $733,000 and $57,000 as of December 31, 2008 and 2007, respectively, as
an allowance for uncollectible accounts.





Equipment
and Fixtures




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




Long-Lived
Assets




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




Discontinued
Operations and Assets Held For Sale




For those
businesses where management has committed to a plan to divest, each business is
valued at the lower of its carrying amount or estimated fair value less
estimated cost to sell. If the carrying amount of the business exceeds its
estimated fair value, a loss is recognized. For businesses classified as
discontinued operations, statement of operations results are reclassified from
their historical presentation to discontinued operations in the consolidated
statements of operations for all periods presented. The gains or losses
associated with these divested businesses are recorded in (loss) income from
discontinued operations in the consolidated statements of operations.
Additionally, segment information does not include the results of businesses
classified as discontinued operations.


53




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




2.
Summary of Significant Accounting Policies - (continued)




Goodwill
and Intangible Assets




In
accordance with SFAS 142, indefinite-life intangible assets and goodwill are not
amortized. Rather, they are subject to impairment testing on an annual basis or
more often if events or circumstances indicate there may be impairment. This
test involves assigning tangible assets and liabilities, identified intangible
assets and goodwill to reporting units and comparing the fair value of each
reporting unit to its carrying amount. If the fair value is less than the
carrying amount, a further test is required to measure the amount of the
impairment.  When available, recent, comparable transactions are used
to estimate the fair value of the respective reporting unit. The Company
calculates an estimated fair value based on multiples of revenue, earnings, and
book value of comparable transactions. However, when such comparable
transactions are not available or have become outdated, discounted cash flow
scenarios are used to estimate the fair value of the reporting
units.





The
goodwill and intangible assets recorded by the Company are related to its
acquisition of Panel.  These are more discussed more fully in Note
8.





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.


54




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




2.
Summary of Significant Accounting Policies - (continued)




Commissions
and Principal Transactions Revenue




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




Primary
Research Revenue




Revenue
from primary research services is recognized on a proportional performance basis
as services are provided.  It is reported in the consolidated
statement of operations as a part of the loss from discontinued
operations.




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.  These are reported in
the consolidated statements of financial condition as a part of the loss from
discontinued operations.




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.


55




MERRIMAN
CURHAN FORD GROUP, INC.




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, 2008 and
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). 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.





Deferred
Revenue




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




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




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. Merriman Curhan Ford
Group, Inc. adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement 109, 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, 2008 and 2006, because the addition of common shares that
would be issued assuming exercise or conversion would be
anti-dilutive.


56




MERRIMAN
CURHAN FORD GROUP, INC.




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, 2008, the Company held concentrated positions in two securities
with a total value in the amount of $2,749,000. The stock prices of these equity
securities are highly volatile and they are relatively illiquid.  The
weighted average price of these concentrated positions in two securities
declined by 12% subsequent to December 31, 2008.




During
2008, two sales professionals accounted for 21% and 20% of  total
revenue, respectively.  During 2007 and 2006, no sales professional
accounted for more than 10% of revenue. During the year ended December 31, 2008,
one customer accounted for 18% of total revenue.  During the years
ended December 31, 2007 and 2006, no single customer accounted for more than 10%
of revenue.





Segment
Reporting




The
Company organizes its operations into two operating segments for the purpose of
making operating decisions and assessing performance. These operating segments
are organized along operating subsidiaries, Merriman Curhan Ford & Co. and
MCF Asset Management, LLC.  Accordingly, the Company operated in two
reportable operating segments in the United States during 2008. In January 2009,
the Company sold its primary research business, Panel Intelligence, LLC, and has
presented its results of operations as discontinued operations, see Note 8 for
further discussion.




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 (“FASB”) issued SFAS
No. 157, Fair Value
Measurements(“SFAS No. 157”), which
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.




In
February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial
Assets and Financial Liabilities(“SFAS No. 159”), 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 FASB Staff Position (“FSP”) FIN No. 46R-7, Application of FASB Interpretation
No. 46(R) to Investment Companies(“FSP FIN 46R-7”),
which 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 adoption of FSP FIN No. 46R-7 did not have a
material impact on the Company’s consolidated financial
statements.


57




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS   2.
Summary of Significant Accounting Policies - (continued)


In
December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS
141R”), which requires the acquiring entity in a business combination to
recognize the full fair value of assets acquired and liabilities assumed in the
transaction (whether a full or partial acquisition); establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose to investors and
other users all of the information needed to evaluate and understand the nature
and financial effect of the business combination. SFAS 141R applies to all
transactions or other events in which the Company obtains control of one or more
businesses, including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights.
SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not expect
the adoption of SFAS 141R will have a material impact on its consolidated
financial position or results of operations.





Also in
December 2007, SFAS No. 160,Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”), which requires reporting entities to
present noncontrolling (minority) interests as equity (as opposed to as a
liability or mezzanine equity) and provides guidance on the accounting for
transactions between an entity and noncontrolling interests. SFAS 160 applies to
all fiscal years and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure
requirements which will be applied retrospectively for all periods presented.
The Company does not expect the adoption of SFAS 160 will have a material effect
on its consolidated financial statements.





In
February 2008, the FASB issued FSP FAS 157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13(“FSP FAS 157-1”), which amends SFAS 157 to exclude
its applicability to leases, except if the lease asset is acquired or lease
liability is assumed as part of a merger or business combination. FSP FAS 157-1
was effective upon the initial adoption of SFAS No. 157. The adoption of FSP FAS
157-1 did not have a material impact on the Company’s consolidated financial
statements.





In
October 2008, the FASB issued FSP 157-3,Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (“FSP
157-3”),  which clarifies
the application SFAS No. 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 was effective immediately upon issuance and includes prior period
financial statements that have not yet been issued, and therefore the Company is
subject to the provisions of FSP-157-3 effective September 30, 2008. The
implementation of FSP 157-3 did not affect the Company’s fair value measurements
of financial assets as of December 31, 2008 and had no impact on its
consolidated results of operations or financial condition.





3.
Going Concern




These
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern for the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.




During
the year ended December 31, 2008, the Company incurred a net loss of $30,274,000
and used $24,945,000 in net cash from operating activities.  At
December 31, 2008, the Company had cash and cash equivalents of $6,358,000,
marketable securities of $4,623,000 and receivables from clearing broker of
$1,753,000.  The Company had liabilities of
$11,150,000.  The Company’s ability to generate profits is highly
dependent on stock market trading volumes and the general economic environment.
As a result, the ability of the Company to meet its forward obligations and the
ability to continue as a going concern may be in question.




The
Company is in the process of implementing a plan to increase its operating
flexibility and extend its cash reserves. The plan primarily consists of four
steps which are more fully described below:




1.
            Reduce
      operating costs


2.
            Shed
      non-essential operations


3.
            Negotiate
      a settlement of pending litigations


4.
            Raise
      additional capital





During
2008 and early 2009, the Company implemented significant expense control and
cost reduction programs focused on reducing cash losses and increasing
operational flexibility in which it has eliminated more than $10 million in
annual operating expenses. The primary contributor to these savings has been the
elimination of more than 50% of the Company’s workforce, as well as salary
reductions. The CEO, the Head of Institutional Securities and the Head of
Professional Services voluntarily eliminated their salaries.  They
will be remunerated based on month-to-month profitability.  The Board
of Directors has, as of early 2009, also voluntarily eliminated its
compensation.  The Company believes that it has been able to execute
these reductions with limited impact to its ability to generate and execute new
business in the current market environment. With these measures largely
complete, the company believes that it has increased its ability to meet its
obligations during 2009 and beyond.




As a part
of the four-step plan mentioned above, in January of 2009, the Company shed
non-essential operations or those requiring substantial cash
infusions.  First, the Company sold Panel Intelligence, LLC on January
30, 2009. This subsidiary required a cash injection of $1,131,000 during 2008
and was projected to reach breakeven only in late 2009. Also in January 2009,
the Company sold its operations known as Institutional Cash Distributors to a
group of its employees. While this business was profitable, management was able
to reach a deal that substantially increases the near-term flow of capital.
Finally, the Company is in the process of shutting down MCF Asset Management,
another subsidiary which had been costing the Company considerable capital
during 2008. The result of these actions has been to reduce operating loses and
increase available cash.


58


MERRIMAN
CURHAN FORD GROUP, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
Going Concern - (continued)


The
Company has entered into a process of mediation to reach a settlement with a
majority of the civil litigants resulting from the alleged fraud by its former
customer William Del Biaggio III and its terminated employee Scott
Cacchione.  The Company is focused on reducing its potential liability
in these legal proceedings and the resources required to fight the allegations.
In addition, it is also aiming to free up valuable management resources needed
to face challenging market and economic conditions.  At present, there
is no indication that these negotiations will be successful and whether it will
serve the Company’s aims and should a settlement result, it is not yet
estimable.




The
Company is assessing interest of potential investors in providing additional
capital to the business. While the Company does not have a definitive agreement
from any investor, preliminary discussions have yielded some interest subject to
the completion of the three steps outlined above.  There are no
assurances that the Company will be successful in completing its plans outlined
above and ultimately in raising additional capital.




The
Company’s ability to meet its going concern obligations is highly dependent on
market and economic conditions.  Even if it is successful in executing
its four-step plan, it will not be capable of sustaining losses such as those
incurred in 2008.  However, it is worth noting that 2008 was an
unprecedented year both in terms of stock market volatility and general economic
challenges. Furthermore, the large number of civil litigations and resulting SEC
investigation was a significant drain on corporate resources. The Company
believes that its reduced cost structure and shedding of non core business has
increased its operating runway. However, if operating conditions worsen in 2009
or if the company receives adverse judgments in its pending litigations, it may
not have the resources to meet its financial obligations as a going
concern.




These
financial statements do not reflect adjustments in the carrying values of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate.  These adjustments could be
material.




4.
Fair Value of Assets and Liabilities




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






Securities
Owned





Corporate
Equities





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





Stock
Warrants





Stock
warrants represent warrants to purchase equity in a publicly traded
company.  Such positions are considered illiquid and do not have
readily determinable fair values, and therefore require significant management
judgment or estimation. For these securities, the Company uses the Black-Scholes
valuation methodology or similar techniques. They are classified within Level 3
of the fair value hierarchy.





Underwriters’
Purchase Options





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




59


MERRIMAN
CURHAN FORD GROUP, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


4.
Fair Value of Assets and Liabilities - (continued)




Preferred
Stock




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





Securities
Sold, Not Yet Purchased





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




In
accordance with SFAS 157, assets measured at fair value on a recurring basis are
categorized in the table below based upon the lowest level of significant input
to the valuations.





AssetsatFairValueatDecember31,2008Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                TotalAssets:Securities
      owned:Corporate
      equities
                
                $
                3,353,784
                
                
                $
                650
                
                
                $
                695
                
                
                $
                3,355,129Stock
      warrants
                
                
                —
                
                
                
                —
                
                
                
                1,605,451
                
                
                
                1,605,451Underwriters’
      purchase option
                
                
                —
                
                
                
                —
                
                
                
                27,995
                
                
                
                27,995Preferred
      stock
                
                
                63
                
                
                
                —
                
                
                
                —
                
                
                
                63Total
      securities owned
                
                
                3,353,847
                
                
                
                650
                
                
                
                1,634,141
                
                
                
                4,988,638Liabilities:Securities
      sold, not yet purchased
                
                
                903,217
                
                
                
                —
                
                
                
                —
                
                
                
                903,217







The
following table presents additional information about Level 3 assets measured at
fair value on a recurring basis for fiscal 2008.  The unrealized
gains or (losses) during the period for assets and liabilities within
the Level 3 category presented in the table below may
include changes in fair value during the period that were attributable to both
observable and unobservable inputs.





Corporate
                  Equities
                
                
                Stock
                  Warrants
                
                
                Underwriters’
                  PurchaseOption
                
                
                TotalBalance
      at December 31, 2007
                
                $
                489,453
                
                
                $
                1,756,580
                
                
                $
                194,957
                
                
                $
                2,440,990Purchases,
      issuances, settlements, and sales
                
                
                920,412
                
                
                
                807,449
                
                
                
                —
                
                
                
                1,727,861Net
      transfers in / (out)
                
                
                (1,299,696
                )
                
                
                —
                
                
                
                —
                
                
                
                (1,299,696
                )Gains
      / (losses)Realized
                
                
                —
                
                
                
                107,310
                
                
                
                —
                
                
                
                107,310Unrealized
                
                
                (109,474
                )
                
                
                (1,065,888
                )
                
                
                (166,962
                )
                
                
                (1,342,324
                )Balance
      at December 31, 2008
                
                $
                695
                
                
                $
                1,605,451
                
                
                $
                27,995
                
                
                $
                1,634,141Change
      in unrealized gains/ (losses) relating to instruments still held at
      December 31, 2008
                
                $
                (54,716
                )
                
                $
                (891,369
                )
                
                $
                (166,962
                )
                
                $
                (1,113,047
                )




Gains/(losses)
(both realized and unrealized) for Level 3 financial instruments are a
component of Principal transactions revenue in the statements of
income.


60


MERRIMAN
CURHAN FORD GROUP, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




5.
Equipment and Fixtures




Equipment
and fixtures consisted of the following:




December31,2008
                
                
                2007Computer
      equipment
                
                $
                568,116
                
                
                $
                776,578Furniture
      and equipment
                
                
                1,223,050
                
                
                
                1,045,220Software
                
                
                183,098
                
                
                
                164,690Leasehold
      improvements
                
                
                1,641,497
                
                
                
                1,010,3783,615,761
                
                
                
                2,996,866Less
      accumulated depreciation
                
                
                (2,355,750
                )
                
                
                (2,000,986
                )$
                1,260,011
                
                
                $
                995,880




Equipment
and fixtures purchased with capital lease financing during 2008 and 2007 were
$806,000 and $183,000, respectively.  See Note 14 for additional
information on capital leases.




6.
Notes Payable and Convertible Notes Payable




Convertible
Notes Payable Issued in 2003




In April
2003, the Company completed a private placement financing that included
convertible notes payable with aggregate principal of $1,000,000, due April
2008. The notes bear interest at 3% per annum payable quarterly on January 1,
April 1, July 1 and October 1 beginning July 1, 2003. The notes could 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 was being
amortized over the five-year term. In October 2003, notes payable with a face
amount of $500,000 were converted under their original terms into 51,021 shares
of common stock resulting in the accelerated amortization of discounts in the
amount of $118,000. In December 2004, notes payable with a face amount of
$300,000 were converted under their original terms into 30,613 shares of common
stock resulting in the accelerated amortization of discounts in the amount of
$50,000. Amortization of discounts during 2007 and 2006 was approximately
$10,000 and $10,000, respectively.





In April
2008, the remaining balance of $200,000 was converted in the Company’s common
stock in the amount of 142,858 shares.  There is no remaining
unamortized discount or warrants exercisable as of December 31,
2008.




Note
Payable Held By Donald Sledge




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





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




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 bore 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.


61




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




6.
Notes Payable and Convertible Notes Payable - (continued)




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.  All of the 267,858 warrants issued are still outstanding as of
December 31, 2008.





Interest
payable in connection with the notes described above is included with accrued
liabilities balance in the statements of financial condition. As of December 31,
2008 and 2007, interest payable amounted to $0 and $1,500,
respectively.




7.
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 60,000,000 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.


62




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




8.
Discontinued Operations




Panel
Intelligence





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





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




In
December 2008, the Company determined that the sale of Panel would reduce
investments required to develop Panel’s business.  Its sale would also
generate capital necessary for its core business.   The Company
determined that the plan of sale criteria in FASB Statement No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets,” had been met. Accordingly,
the carrying value of the Panel assets was adjusted to their fair value less
costs to sell.  As a result, an impairment loss in the amount of
$1,937,000 was recorded and is included in “Other expenses” shown in the table
below.  In January 2009, the Company sold Panel to Panel Intelligence,
LLC (Newco) for $1,000,000 and shares of the Company’s common stock in the
amount of $100,000.




The
revenue and expenses of Panel Intelligence has been reclassified and included in
discontinued operations in the consolidated statements of
operations.  Certain assets and liabilities of Panel have been
reclassified and included in assets and liabilities for sale in the consolidated
statements of financial condition.





The
following revenue and expenses have been reclassified as discontinued operations
for the years ended December 31, 2008 and 2007:




2008
                
                
                2007Revenue
                
                $
                6,304,420
                
                
                $
                3,907,727Operating
      expenses:Compensation
      and benefits
                
                
                3,533,175
                
                
                
                2,432,438Cost
      of primary research services
                
                
                2,295,510
                
                
                
                1,595,502Professional
      services
                
                
                188,157
                
                
                
                37,978Occupancy
      and equipment
                
                
                354,388
                
                
                
                223,716Communications
      and technology
                
                
                132,384
                
                
                
                78,342Depreciation
      and amortization
                
                
                588,858
                
                
                
                808,873Travel
      and entertainment
                
                
                140,399
                
                
                
                107,275Impairment
      of goodwill and intangible assets
                
                
                4,538,945
                
                
                
                –Other
      expenses
                
                
                323,458
                
                
                
                208,63512,095,274
                
                
                
                5,492,759Operating
      loss
                
                
                (5,790,854
                )
                
                
                (1,585,032
                )Interest
      expense, net
                
                
                (10,222
                )
                
                
                (2,756
                )Net
      loss
                
                $
                (5,801,076
                )
                
                $
                (1,587,788
                )




63


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




8.
Discontinued Operations - (continued)


The
assets and liabilities of operations held for sale as of December 31, 2008 and
2007 are as follows :




December31,2008
                  
                  
                  2007Assets:Cash
      and cash equivalents
                  
                  $
                  222,892
                  
                  
                  $
                  308,544Accounts
      receivable
                  
                  
                  1,102,681
                  
                  
                  
                  1,067,770Furniture
      and equipment
                  
                  
                  163,505
                  
                  
                  
                  249,811Intangible
      assets, net of accumulated amortization
                  
                  
                  282,744
                  
                  
                  
                  1,949,815Prepaid
      expenses and other assets
                  
                  
                  186,216
                  
                  
                  
                  3,195,431$
                  1,958,038
                  
                  
                  $
                  6,771,371Liabilities:Accounts
      payable
                  
                  
                  227,213
                  
                  
                  
                  378,872Commissions
      and bonus payable
                  
                  
                  110,632
                  
                  
                  
                  170,728Accrued
      liabilities
                  
                  
                  603,780
                  
                  
                  
                  690,098Capital
      leases
                  
                  
                  111,274
                  
                  
                  
                  168,892$
                  1,052,899
                  
                  
                  $
                  1,408,590




Goodwill





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





Intangible
Assets





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





As of December 31,2008
                      
                      
                      2007Depreciable
      intangible assets:Customer
      relationships
                      
                      $
                      990,000
                      
                      
                      $
                      990,000Database
      of panelists
                      
                      
                      220,000
                      
                      
                      
                      220,000Technology
      platform
                      
                      
                      360,000
                      
                      
                      
                      360,000Customer
      backlog
                      
                      
                      420,000
                      
                      
                      
                      420,0001,990,000
                      
                      
                      
                      1,990,000Less:
      accumulated amortization
                      
                      
                      (1,216,327
                      )
                      
                      
                      (750,185
                      )Less:
      impairment
                      
                      
                      (490,929
                      )
                      
                      
                      –282,744
                      
                      
                      
                      1,239,815Non-depreciable
      intangible assetTradenames
                      
                      
                      710,000
                      
                      
                      
                      710,000Less:
      impairment
                      
                      
                      (710,000
                      )Total
      intangible assets, net of amort. and impairment
                      
                      $
                      282,744
                      
                      
                      $
                      1,949,815





Total
amortization expense for the above intangibles in 2008, 2007 and 2006 were
$466,000, $750,000, and $0, respectively.  Total impairment loss
related to intangible assets in 2008 amounted to $1,201,000.  No
impairment loss was recorded in 2007.Annual amortization expense for 2008 for
customer relationships, database of panelists, technology platform and customer
backlog were $212,000, $110,000, $144,000 and $0, respectively.  The
remaining lives of the intangible assets are 36, 4, and 10 months for customer
relationships, database of panelists and technology platform,
respectively.  Customer backlog has been fully amortized as of
December 31, 2008.





Catalyst





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.


64


MERRIMAN
CURHAN FORD GROUP, INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  8.
Discontinued Operations - (continued)


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 have been reclassified and included in
discontinued operations in the consolidated statements of
operations.




The
following revenue and expenses have been reclassified as discontinued operations
for the years ended December 31, 2006:




2006Revenue
                  
                  $
                  865,808Operating
      expenses:Compensation
      and benefits
                  
                  
                  736,536Professional
      services
                  
                  
                  34,834Occupancy
      and equipment
                  
                  
                  121,794Communications
      and technology
                  
                  
                  15,410Depreciation
      and amortization
                  
                  
                  56,137Travel
      and entertainment
                  
                  
                  72,260Other
      expenses
                  
                  
                  156,5631,193,534Operating
      loss
                  
                  
                  (327,726
                  )Interest
      income, net
                  
                  
                  3,513Net
      loss
                  
                  $
                  (324,213
                  )




65




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




9.
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, 2008 and 2007 there were no shares subject to
repurchase.




As of
December 31, 2008, there were 7,091,430 shares authorized for issuance under the
Option Plans, and 612,858 shares authorized for issuance outside of the Option
Plans. As of December 31, 2008, 4,576,509 shares were available for future
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, 2008 was $2,139,000,
$1,373,000, and $1,336,000, respectively.




The
following table is a summary of the Company’s stock option activity for the
three years ended December 31, 2008:




2008
                
                
                2007
                
                
                2006Shares
                
                
                Wtd-Avg
                  Exercise
                  Price
                
                
                Shares
                
                
                Wtd-Avg
                  Exercise
                  Price
                
                
                Shares
                
                
                Wtd-Avg
                  Exercise
                  PriceOutstanding
      at beginning of year
                
                
                4,066,259
                
                
                $
                6.00
                
                
                
                3,570,370
                
                
                $
                6.19
                
                
                
                3,324,358
                
                
                $
                6.24Granted
                
                
                717,780
                
                
                
                3.41
                
                
                
                736,640
                
                
                
                4.82
                
                
                
                398,538
                
                
                
                6.27Exercised
                
                
                (64,628
                )
                
                
                (2.36
                )
                
                
                (83,939
                )
                
                
                (2.06
                )
                
                
                (52,819
                )
                
                
                (2.08
                )Canceled
                
                
                (3,552,294
                )
                
                
                (5.59
                )
                
                
                (156,812
                )
                
                
                (6.76
                )
                
                
                (99,707
                )
                
                
                (10.38
                )Outstanding
      at end of year
                
                
                1,167,117
                
                
                $
                5.85
                
                
                
                4,066,259
                
                
                $
                6.00
                
                
                
                3,570,370
                
                
                $
                6.19Exercisable
      at end of year
                
                
                646,907
                
                
                $
                7.39
                
                
                
                3,084,852
                
                
                $
                6.16
                
                
                
                2,934,029
                
                
                $
                6.00




The total
intrinsic value of options exercised during the year ended December 31, 2008 was
$136,000.




The
following table summarizes information with respect to stock options outstanding
at December 31, 2008, based on the Company’s closing stock price on December 31,
2008 of $0.60 per share:




OptionsOutstandingatDecember31,2008
                                      
                                      
                                      VestedOptionsatDecember31,2008Rangeof
                                        ExercisePrice
                                      
                                      Number
                                      
                                      
                                      Weighted
                                        Average
                                        Remaining
                                        Contractual
                                        LifeYears)
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise
                                        Price
                                      
                                      
                                      Aggregate
                                        Intrinsic
                                        Value
                                      
                                      
                                      Number
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise
                                        Price
                                      
                                      
                                      Aggregate
                                        Intrinsic
                                        Value$ 0
      - $ 3.50
                                      
                                      
                                      330,592
                                      
                                      
                                      
                                      5.35
                                      
                                      
                                      $
                                      2.47
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      
                                      231,847
                                      
                                      
                                      $
                                      2.69
                                      
                                      
                                      $
                                      —$
      3.51 - $ 7.00
                                      
                                      
                                      549,256
                                      
                                      
                                      
                                      8.13
                                      
                                      
                                      $
                                      4.38
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      150,349
                                      
                                      
                                      
                                      4.86
                                      
                                      
                                      
                                      —$
      7.01 - $14.00
                                      
                                      
                                      261,121
                                      
                                      
                                      
                                      3.36
                                      
                                      
                                      $
                                      9.05
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      238,563
                                      
                                      
                                      
                                      9.16
                                      
                                      
                                      
                                      —$
      14.01 - $28.00
                                      
                                      
                                      1,147
                                      
                                      
                                      
                                      2.00
                                      
                                      
                                      $
                                      15.34
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      1,147
                                      
                                      
                                      
                                      15.34
                                      
                                      
                                      
                                      —$ 28.01 - $49.00
                                      
                                      
                                      25,001
                                      
                                      
                                      
                                      1.15
                                      
                                      
                                      $
                                      49.00
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      25,001
                                      
                                      
                                      
                                      49.00
                                      
                                      
                                      
                                      —1,167,117
                                      
                                      
                                      
                                      6.12
                                      
                                      
                                      $
                                      5.85
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      
                                      646,907
                                      
                                      
                                      $
                                      7.39
                                      
                                      
                                      $




As of
December 31, 2008, total unrecognized compensation expense related to unvested
stock options was $919,000. This amount is expected to be recognized as expense
over a weighted-average period of 2.7 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, 2008 was $215,000,
$1,262,000, and $1,915,000, respectively.


66





MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




9.
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, 2008 of $0.60 per
share:




Non-Vested
                  Stock
                  Outstanding
                
                
                Weighted
                  Average
                  GrantDate
                  FairValue
                
                
                Aggregate
                  Intrinsic
                  ValueBalance
      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
                
                
                $
                1,356,000Granted
                
                
                79,265
                
                
                
                2.34Vested
                
                
                (145,610
                )
                
                
                (5.05
                )Canceled
                
                
                (65,496
                )
                
                
                (5.00
                )Balance
      as of December 31, 2008
                
                
                48,779
                
                
                $
                9.84
                
                
                $
                479,985




The total
intrinsic value of non-vested stock which vested during the year ended December
31, 2008 was $735,000.




As of
December 31, 2008, total unrecognized compensation expense related to non-vested
stock was $164,000. This expense is expected to be recognized over a
weighted-average period of 0.90 year.




Employee
Stock Purchase Plan




The
Company issued all shares previously available under the Employee Stock Purchase
Plan, or ESPP, to its employees through August 15, 2007. As of December 31,
2008, 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 years ended December 31, 2008, 2007 and
2006 was $0, $189,000, and $539,000, respectively. As of December 31, 2008,
there was no unrecognized compensation expense related to the ESPP.





Employee
Stock Option Give-Back Program





In
October 2008, the Company implemented a Stock Option Give-Back Program which
allowed all employees to give back stock options he or she was granted, whether
vested or unvested.  Employees were notified that there would be no
quid-pro-quo and that
any employee who elected to give back any shares of stock options would not
receive a grant for the period of six months and one day following the end of
the program on October 31, 2008.





Sixteen
employees elected to participate in the program collectively giving back
3,012,000 shares of stock options granted under the Company’s various
plans.  The Company recorded a compensation expense of $993,000
related to the give-back program.


67




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




9.
Share-Based Compensation Expense - (continued)




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




The
weighted average fair value of each stock option granted for 2008, 2007, and
2006 was $2.16, $2.54, and $3.59, 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 2008, 2007, and 2006:




2008
                
                
                2007
                
                
                2006Volatility
                
                
                70
                %
                
                
                63
                %
                
                
                81
                %Average
      expected term (years)
                
                
                6.3
                
                
                
                4.2
                
                
                
                4.4Risk-free
      interest rate
                
                
                3.10
                %
                
                
                4.55
                %
                
                
                4.75
                %Dividend
      yield
                
                
                —
                
                
                
                —
                
                
                
                —




68




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




9.
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, 2008, 2007, and 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 Non-Vested Stock Awards under SFAS 123(R)




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 2008, 2007, and 2006 was
$2.34, $4.48, and $7.16 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.




10.
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,
2008.


69




MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




11.
Income Taxes




Income
tax (benefit) expense consisted of the following for the three years ended
December 31, 2008:




2008
                  
                  
                  2007
                  
                  
                  2006Current:Federal
                  
                  $
                  (1,627,734
                  )
                  
                  $
                  1,857,783
                  
                  
                  $
                  —State
                  
                  
                  (7,480
                  )
                  
                  
                  604,832
                  
                  
                  
                  —Total
                  
                  $
                  (1,635,214
                  )
                  
                  $
                  2,462,165
                  
                  
                  $
                  —




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,
2008:




2008
                
                
                2007
                
                
                2006Federal
      statutory income tax rate (benefit)
                
                
                (34
                )%
                
                
                34
                %
                
                
                (34
                )%State
      income taxes
                
                
                (7
                )
                
                
                8
                
                
                
                (5
                )Loss
      on retirement of convertible note payable
                
                
                —
                
                
                
                —
                
                
                
                5Permanent
      differences
                
                
                3
                
                
                
                9
                
                
                
                13Losses
      for which no benefit has been recognized
                
                
                —
                
                
                
                —
                
                
                
                21Valuation
      allowance
                
                
                33
                %
                
                
                (30
                )%
                
                
                —Effective
      tax rate
                
                
                (5
                )%
                
                
                21
                %
                
                
                —
                %




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, 2008 and 2007 are presented as
follows:




December31,2008
                  
                  
                  2007Deferred
      tax assets:Net
      operating loss carryforwards
                  
                  $
                  23,149,680
                  
                  
                  $
                  16,016,822Stock
      options and warrants for services
                  
                  
                  —
                  
                  
                  
                  12,411,225Other
                  
                  
                  3,148,077
                  
                  
                  
                  (154,566
                  )Total
      deferred tax assets
                  
                  
                  26,297,757
                  
                  
                  
                  28,273,481Valuation
      allowance
                  
                  
                  (26,297,757
                  )
                  
                  
                  (28,273,481
                  )Net
      deferred tax assets
                  
                  $
                  —
                  
                  
                  $
                  —




The net
change in the valuation allowance for the year ended December 31, 2008 was a
decrease of $1,976,000. This reduction was primary the result of cancellation of
the Company’s employee stock options during 2008 and of unrealized losses and
gains of securities in the Company’s proprietary trading account, both included
in Other listed above. 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, 2008, the Company had federal and state operating loss
carryforwards of approximately $61,171,000 and $41,376,000, respectively. If not
earlier utilized, the federal net operating loss carryforward will expire
between 2021 and 2028 and the state loss carryforward will expire between 2009
and 2018. 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.


70


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




11.
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.




The
following is a rollforward of our total gross unrecognized tax benefit
liabilities for the year ended December 31, 2008:





Balance
      as of December 31, 2007
                
                $
                1,838,743Tax
      positions related to current year:Additions
                
                
                -Reductions
                
                
                (1,838,743
                )Tax
      positions related to prior year:Additions
                
                
                -Reductions
                
                
                -Settlements
                
                
                -Lapses
      in statues of limitations
                
                
                -Balance
      as of December 31, 2008
                
                $
                -




The
reduction in the unrecognized benefit in the current year is due to a favorable
IRS ruling regarding timing of recognition of principal transaction revenue in
2008.




The
Company’s tax years 2001-2008 will remain open for three years for examination
by the Internal Revenue Service from the date the federal corporation tax
returns were filed. The Company’s tax years 2000-2008 will remain open for all
tax years with loss carryovers for examination by state tax authorities. Net
operating losses deducted are subject to review and adjustment for three to four
years after the net operating losses are deducted on the U.S. and state returns
filed.





12.
(Loss) Earnings per Share




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




2008
                
                
                2007
                
                
                2006Net
      (loss) income available to common stockholders — basic
                
                $
                (30,273,805
                )
                
                $
                9,323,035
                
                
                $
                (8,220,415
                )Interest
      on convertible note payable
                
                
                —
                
                
                
                16,336
                
                
                
                —Net
      (loss) income available to common stockholders — diluted
                
                
                (30,273,805
                )
                
                
                9,339,371
                
                
                
                (8,220,415
                )Weighted-average
      number of common shares — basic
                
                
                12,550,872
                
                
                
                11,528,187
                
                
                
                9,989,265Assumed
      exercise or conversion of all potentially dilutive common shares
      outstanding
                
                
                —
                
                
                
                1,115,337
                
                
                
                —Weighted-average
      number of common shares — diluted
                
                
                12,550,872
                
                
                
                12,643,524
                
                
                
                9,989,265Basic
      net (loss) income per share:(Loss)
      income from continuing operations
                
                $
                (1.95
                )
                
                $
                0.95
                
                
                $
                (0.79
                )Loss
      from discontinued operations
                
                
                (0.46
                )
                
                
                (0.14
                )
                
                
                (0.03
                )Net
      (loss) income
                
                $
                (2.41
                )
                
                $
                0.81
                
                
                $
                (0.82
                )Diluted net
      (loss) income per share:(Loss)
      income from continuing operations
                
                $
                (1.95
                )
                
                $
                0.86
                
                
                $
                (0.79
                )Loss
      from discontinued operations
                
                
                (0.46
                )
                
                
                (0.12
                )
                
                
                (0.03
                )Net
      (loss) income
                
                $
                (2.41
                )
                
                $
                0.74
                
                
                $
                (0.82
                )


Basic
(loss) earnings per share is computed by dividing net (loss) income 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 2008 and 2006 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 $2.35, $4.56, and $6.41 per share for
2008, 2007, and 2006, respectively.


71


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




12.
(Loss) Earnings 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:




2008
                    
                    2007
                    
                    2006Stock
      options and warrants excluded due to the exercise price exceeding the
      average fair value of the Company’s common stock during the
      period
                    
                    
                    1,354,525
                    
                    1,799,523
                    
                    
                    1,397,022Weighted
      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
                    
                    
                    170,665
                    
                    —
                    
                    
                    1,833,389Weighted
      average shares issuable upon conversion of the convertible notes
      payable
                    
                    
                    46,576
                    
                    —
                    
                    
                    704,960Weighted
      average shares contingently issuable
                    
                    
                    —
                    
                    —
                    
                    
                    73,402Total
      common stock equivalents excluded from diluted net income (loss) per
      share
                    
                    
                    1,571,766
                    
                    1,799,523
                    
                    
                    4,008,773




13.
Business Segments




The
Company’s business results are categorized into the following two segments:
investment bank / broker-dealer 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 asset
management segment manages investment products for investors. We sold our wealth
management subsidiary in January 2007 and our primary research subsidiary in
January 2009. The results from these segments 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, 2008 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.


72


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




13.
Business Segments - (continued)




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




2008
                
                
                2007
                
                
                2006Broker-Dealer
                Revenue
                
                $
                37,543,942
                
                
                $
                83,089,245
                
                
                $
                51,436,697Operating
      expenses
                
                
                43,854,921
                
                
                
                60,251,106
                
                
                
                49,720,757Segment
      operating (loss) income
                
                $
                (6,310,979
                )
                
                $
                22,838,139
                
                
                $
                1,715,940Segment
      assets
                
                $
                15,411,348
                
                
                $
                53,653,805
                
                
                $
                27,501,531Asset
      Management
                Revenue
                
                $
                (976,106
                )
                
                $
                659,020
                
                
                $
                381,941Operating
      expenses
                
                
                2,026,689
                
                
                
                1,127,413
                
                
                
                761,805Segment
      operating loss
                
                $
                (3,002,794
                )
                
                $
                (468,393
                )
                
                $
                (379,864
                )Segment
      assets
                
                $
                577,867
                
                
                $
                3,363,019
                
                
                $
                1,231,842Corporate
      Support
                Operating
      loss
                
                $
                (17,097,814
                )
                
                $
                (9,323,381
                )
                
                $
                7,833,368Segment
      assets
                
                $
                2,876,375
                
                
                $
                7,556,507
                
                
                $
                1,764,840Consolidated
      Entity
                Revenue
                
                $
                36,567,836
                
                
                $
                83,748,265
                
                
                $
                51,818,638Operating
      expenses
                
                
                62,979,424
                
                
                
                70,701,900
                
                
                
                58,315,930Operating
      (loss) income
                
                $
                (26,411,588
                )
                
                $
                13,046,365
                
                
                $
                (6,497,292
                )Total
      assets
                
                $
                18,865,590
                
                
                $
                64,573,331
                
                
                $
                30,498,213




14.
Commitments and Contingencies




The
following is a table summarizing significant commitments as of December 31,
2008, consisting of future minimum lease payments under all non-cancelable
operating leases and capital leases with initial or remaining terms in excess of
one year.




Operating
                  Leases
                
                
                Capital
                  Leases2009
                
                $
                1,772,554
                
                
                $
                634,9682010
                
                
                1,720,897
                
                
                
                319,7332011
                
                
                1,658,148
                
                
                
                146,6472012
                
                
                1,095,440
                
                
                
                —2013
                
                
                616,000
                
                
                
                —Thereafter
                
                
                —
                
                
                
                —Total
      commitments
                
                
                6,863,039
                
                
                
                1,101,348Interest
                
                
                —
                
                
                
                (66,441
                )Net
      commitments
                
                $
                6,863,039
                
                
                $
                1,034,907




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 $1,587,000, $973,000 and $1,043,000 in
2008, 2007 and 2006, respectively.




In
connection with its underwriting activities, the Company enters into firm
commitments for the purchase of securities in return for a fee.  These
commitments require it to purchase securities at a specified price. Securities
underwriting exposes the Company to market and credit risk, primarily in the
event that, for any reason, securities purchased by the Company cannot be
distributed at anticipated price levels.  As December 31, 2008 and
2007, the Company had no open underwriting commitments.





The
marketable securities owned and the restricted cash as well as the cash held by
the clearing broker may be used to maintain margin requirements.  At
December 31, 2008 and 2007, the Company had $250,000 of cash on deposit with its
clearing broker.  Furthermore, the marketable securities owned may be
hypothecated or borrowed by the clearing broker.


73


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




14.
Commitments and Contingencies - (continued)




Legal
Proceedings




The
Company responded to a Grand Jury subpoena from the U.S. Attorney’s Office for
the Northern District of California for documents relating to the activities of
a former retail broker of the Company, David Scott Cacchione, and one of his
customers, William Del Biaggio III.  Cacchione’s activities under
investigation relate primarily to the apparent misuse of various client accounts
as collateral for loans to Del Biaggio.  Cacchione purportedly signed
“account control agreements” in which he purported to act on behalf of the
Company to authorize the use of various client accounts as security for loans to
the customer from various third-party lenders.





Cacchione
appears to have improperly provided client account statements to third-party
lenders or to Del Biaggio for the purpose of representing to the lenders that
the accounts belonged to Del Biaggio.  The retail client account statements
were altered so that the accounts appear to belong to Del Biaggio when in fact
some of the accounts belonged to other Merriman Curhan Ford & Co. retail
clients.  Del Biaggio is no longer a customer of the Company and recently
pleaded guilty to securities fraud in the United States District
Court, Northern District of California.





Cacchione
has been terminated.  The Company’s internal investigation thus far has
found no evidence that any of Cacchione’s supervisors or any member of
management was aware of these activities until they were uncovered.  The
Company cooperated fully with the Grand Jury inquiry and produced the documents
called for by the subpoena.





The
Company was also subject to a formal investigation commenced by the Securities
and Exchange Commission (“SEC”).  The SEC investigation appeared to relate
in part to the subject matter of the Grand Jury inquiry,i.e., Cacchione’s misuse of
client accounts as collateral for loans to the customer.  It also appeared
to relate to other possible violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder by Cacchione in the handling of
his client accounts.  The SEC investigation further appeared to relate to
the Company’s trading activities in various stocks in possible violation of Rule
10b-5 as well as to a failure to adequately supervise its personnel with a view
toward preventing violations of the federal securities laws.  The Company
cooperated fully with the SEC in its investigation.  The SEC has given
no indication it has concluded its investigation.





The
investigation relating to client accounts appears to involve only Cacchione’s
retail accounts.  The Company’s high-net-worth client retail brokerage
business accounted for less than 2 % of the Company’s revenue in
2008.  The Company is phasing out this business and will concentrate on
strengthening its core institutional brokerage and investment banking
businesses.  The Company also is re-examining its compliance policies and
procedures as well as the alignment of the supervisory and compliance related
functions of various members of management.





Several
lawsuits have been filed against Merriman Curhan Ford & Co. in connection
with the alleged actions of Del Biaggio, and Cacchione.  The total amount
of damages sought under such lawsuits is over $43 million. The Company
anticipates at least two additional lawsuits will be filed against Merriman
Curhan Ford & Co. by a lender to the Customer on similar facts to the
lawsuits described below, with claims believed to be approximately $12 million.
 The Company denies any involvement and will defend itself and attempt to
ensure that the most favorable outcome of these lawsuits for itself and its
shareholders.





Due to
the early stages of these legal matters, the Company cannot estimate the amount
of damages if they are resolved unfavorably and accordingly, it has not provided
an accrual for these lawsuits. If Merriman Curhan Ford & Co. were to be
found liable in all of these lawsuits and the plaintiffs were to be awarded the
damages they seek, it may have a severe impact on the Company's financial
condition. Even if the Company ultimately prevails in all of these lawsuits, it
may incur significant legal fees which may have a severe impact on the Company's
financial condition.





The
Company entered into a process of mediation to reach a settlement with a
majority of the civil litigants resulting from the alleged fraud by its former
customer William Del Biaggio III and its former employee Scott
Cacchione.  The Company is focused on reducing its potential liability
in these legal proceedings and the resources required to fight the allegations.
In addition, it is also aiming to free up valuable management resources needed
to face challenging market and economic conditions.  At present, there
is no indication that these negotiations will be successful and whether it will
serve the Company’s aims and should a settlement result, it is not yet
estimable.





In
addition, the company received demand letters after December 31, 2008 from
individuals claiming to have suffered damages as a result of. Cacchione’s
actions.  The Company believes it has meritorious defenses to all the
demands received to date and intends to contest them vigorously. This case
is in its early stage.  The Company believes it is unlikely to result
in an adverse outcome.  Should it result in an adverse outcome, it
does not believe that the outcome will have a material effect on its financial
position, financial results or cash flows.


74


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




14.
Commitments and Contingencies - (continued)


Thomas
O'Shea v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in June 2006, our broker-dealer subsidiary
Merriman Curhan Ford & Co. was served with a claim in NASD Arbitration
by Thomas 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 proceeded to an arbitration hearing in October 2008 and an award was
made in favor of O’Shea. $880,000.  As of December 31, 2008, the
Company reserved for the amount of the settlement.





Peter
Marcil v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in January 2009, our broker-dealer
subsidiary Merriman Curhan Ford & Co. was served with a claim in FINRA
Arbitration by Peter Marcil. Mr. Marcil is a former at-will employee of
Merriman Curhan Ford & Co. and worked in the investment banking
department. Mr. Marcil resigned from Merriman Curhan Ford & Co. in
March of 2007. Mr. O’Shea alleges breach of an implied employment contract,
wrongful termination, and intentional infliction of emotional distress. Damages
are not specified in the arbitration claim.   Merriman Curhan
Ford & Co. has not replied to the claim and an arbitration hearing date has
not been set.  We believe that we have meritorious defenses and intend
to contest this claim vigorously.  However, in the event that we do
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.





The
Company believes that these cases are either unlikely to result in adverse
rulings or are in early stages and the amount of a likely adverse ruling cannot
be estimated at present.





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




15.
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, 2008 and 2007, 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.


75


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




15.
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, 2008. 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.





16. Reductions in
Force





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





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, 2008,
Merriman Curhan Ford & Co. had regulatory net capital, as defined, of
$2,899,000, which exceeded the amount required by $1,899,000. 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 6, 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 April 30, 2008, the
remaining principal amount of the note payable was converted to common shares of
the Company. Mr. Sledge served as a member of the Company’s Board of
Directors until March 2007.  There was no outstanding balance for the
convertible note as of December 31, 2008.




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, 2008. 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.


76


MERRIMAN
CURHAN FORD GROUP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




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





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




20071st
                
                
                2nd
                
                
                3rd
                
                
                4thRevenue
                
                $
                14,323,144
                
                
                $
                19,399,287
                
                
                $
                16,465,566
                
                
                $
                33,560,268Operating
      expenses
                
                
                14,322,037
                
                
                
                16,632,455
                
                
                
                15,633,279
                
                
                
                24,114,129Operating
      income from continuing operations
                
                
                1,107
                
                
                
                2,766,832
                
                
                
                832,287
                
                
                
                9,446,139Income  from
      continuing operations
                
                
                69,256
                
                
                
                2,791,998
                
                
                
                949,374
                
                
                
                7,100,196Loss
      from discontinued operations
                
                
                —
                
                
                
                (471,625
                )
                
                
                (760,914
                )
                
                
                (355,250
                )Net
      income
                
                
                69,256
                
                
                
                2,320,373
                
                
                
                188,460
                
                
                
                6,744,946Basic
      net income (loss) per share:Income
      from continuing operations
                
                
                0.01
                
                
                
                0.24
                
                
                
                0.08
                
                
                
                0.59Loss
      from discontinued operations
                
                
                —
                
                
                
                (0.04
                )
                
                
                (0.06
                )
                
                
                (0.03
                )Net
      income
                
                $
                0.01
                
                
                $
                0.20
                
                
                $
                0.02
                
                
                $
                0.56Diluted
      net income (loss) per share:Income
      from continuing operations
                
                
                0.01
                
                
                
                0.22
                
                
                
                0.07
                
                
                
                0.54Loss
      from discontinued operations
                
                
                —
                
                
                
                (0.04
                )
                
                
                (0.06
                )
                
                
                (0.03
                )Net
      income
                
                $
                0.01
                
                
                $
                0.18
                
                
                $
                0.01
                
                
                $
                0.51




20.
Subsequent Events





Sale
of a Subsidiary





As
mentioned in Note 8 above, on January 30, 2009, the Company sold assets related
to Panel Intelligence, LLC, its wholly-owned subsidiary to a group of investors
for $1,000,000 and shares of the Company’s common stock in the amount of
$100,000.  As part of the sale agreement, the Company received 175,439
shares of Merriman Curhan Ford Group, Inc. common stock previously issued to the
CEO and the COO of Panel Intelligence. These shares were returned to the
Company’s treasury and classified as treasury stock with a volume-weighted
average value of $100,000 over the 30 days immediately preceding the transaction
date of January 30, 2009.





Sale
of a Line of Business





The
Company’ broker-dealer subsidiary Merriman Curhan Ford & Co. entered into an
agreement dated January 16, 2009 for the sale of one of its lines of business
and certain related assets.  The business was, at December 31, 2008,
integrated with the Company’s other broker-dealer operations.  The
purchaser is Institutional Cash Distributors LLC, a California Limited Liability
Company.  Tom Newton, Ed Baldry, and Jeff Jellison, employees of the
Company, are members of Institutional Cash Distributors LLC.





The
assets sold include the Company’s rights in trademark, copyright and other
intellectual property used in the business, customer lists, marketing materials,
and books and records.  Consideration for the assets consists of $2
million payable in cash in monthly installments.





Reduction
in Force





On
January 23, 2009 the Company performed an additional RIF affecting 10
employees.  There were one-time termination benefits of
$41,000.  There were no disposal of assets nor contract terminations
associated with the RIF.


77


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, 2008 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, 2008, the principal executive officer and
principal financial officer of the Company have concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective.




Management’s Report on Internal
Control Over Financial Reporting - Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework inInternal
Control—Integrated Framework  issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation
under the framework inInternal Control—Integrated Framework , our management concluded that our
internal control over financial reporting was effective as of December 31,
2008.




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, 2008, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.




Item
9b. Other Information




Not
applicable.


78


Report
of Independent Registered Public Accounting Firm




The Board
of Directors and Stockholders of


Merriman
Curhan Ford Group, Inc.




We have
audited Merriman Curhan Ford Group, Inc.’s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Merriman Curhan Ford Group,
Inc.’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial
reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit 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, Merriman Curhan Ford Group, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based onthe COSO
criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Merriman
Curhan Ford Group, Inc. as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2008of Merriman Curhan Ford
Group, Inc. and our report dated March 30, 2009 expressed an unqualified opinion
thereon, that included an explanatory paragraph regarding Merriman Curhan Ford
Group Inc.’s ability to continue as going concern.


.




/s/
      Ernst & Young LLPSan
      Francisco, CaliforniaMarch
      30, 2009




79


PART
III




Item
10. Directors and Executive Officers of the Registrant




The
information is incorporated by reference to the Company’s definitive 2009 Proxy
Statement.





Item
11. Executive Compensation




The
information is incorporated by reference to the Company’s definitive 2009 Proxy
Statement.




Item
12. Security Ownership of Certain Beneficial Owners and Management




The
information is incorporated by reference to the Company’s definitive 2009 Proxy
Statement.




Item
13. Certain Relationships and Related Transactions




The
information is incorporated by reference to the Company’s definitive 2009 Proxy
Statement.




Item
14. Principal Accounting Fees and Services




The
information is incorporated by reference to the Company’s definitive 2009 Proxy
Statement.


80


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.


81


SIGNATURES




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





Merriman
      Curhan Ford Group, Inc.March
      30, 2009
            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
                    
                    March
      30, 2009D.
      Jonathan Merriman/s/
      Peter V. Coleman
                    
                    Chief
      Financial Officer and
                    
                    March
      30, 2009Peter
      V. Coleman
                    
                    Principal
      Accounting Officer/s/
      John M. Thompson
                    
                    Chairman
      of the Board of Directors
                    
                    March
      30, 2009John
      M. Thompson/s/
      Patrick H. Arbor
                    
                    Director
                    
                    March
      30, 2009Patrick
      H. Arbor/s/
      William J. Febbo
                    
                    Director
                    
                    March
      30, 2009William
      J. Febbo/s/
      Raymond J. Minehan
                    
                    Director
                    
                    March
      30, 2009Raymond
      J. Minehan/s/
      Dennis G. Schmal
                    
                    Director
                    
                    March
      30, 2009Dennis
      G. Schmal/s/
      Jeff Soinski
                    
                    Director
                    
                    March
      30, 2009Jeff
      Soinski/s/
      Steven W. Town
                    
                    Director
                    
                    March
      30, 2009Steven
      W. Town




82


EXHIBIT
INDEX




Exhibit No.
            
            Description3.1
            
            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)).3.4
            
            Certificate
      of Amendment to the Certificate of Incorporation changing name from MCF
      Corporation to Merriman Curhan Ford Group, Inc. (incorporated herein by
      reference to Exhibit 99.2 to MCF’s Current Report on Form 8-K filed on May
      14, 2008 (Reg. No. 001-15831).4.1
            
            Form
      of Convertible Subordinated Note related to 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
      Merriman Curhan Ford Group, Inc. 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).




83





Exhibit No.
                    
                    Description10.30+
                    
                    Offer
      of Employment Agreement between Merriman Curhan Ford Group, Inc. 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 Merriman Curhan Ford Group, Inc. 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 Merriman Curhan Ford Group, Inc.
      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).




84





Exhibit No.
                                                                    
                                                                    Description10.43
                                                                    
                                                                    Stock
      Purchase Agreement by and between Merriman Curhan Ford Group, Inc. 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 Merriman Curhan Ford Group, Inc. 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 Merriman Curhan Ford Group, Inc. 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.




85