UNITED STATES
                       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, 2006

                                       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: 1-11454-03
                                 vFinance, Inc.
             (Exact Name of Registrant as Specified in its Charter)

          DELAWARE                                        58-1974423
(State or Other Jurisdiction of                          (I.R.S. Employer
 Incorporation or Organization)                         Identification No.)

                   3010 NORTH MILITARY TRAIL, SUITE 300,
                            BOCA RATON, FLORIDA                      33431
                (Address of Principal Executive Offices)          (Zip Code)

                                 (561) 981-1000
              (Registrant's Telephone Number, Including Area Code)

        Securities Registered Pursuant to Section 12(b) of the Act: None

           Securities Registered Pursuant to Section 12(g) of the Act:

     Title of Each Class               Name of Each Exchange on Which Registered
     -------------------               -----------------------------------------
Common Stock, Par Value $.01 Per Share       OTC Bulletin Board of the NASD

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes [ ] No |X|

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No |X|

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated  filer" in Rule 12b-2 of the Act). Large accelerated
filer [ ] Accelerated filer [ ] Non-accelerated filer |X|

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

As of December 31, 2006,  the aggregate  market value of the common stock of the
registrant held by  non-affiliates  was  approximately  $4,843,094  based on the
closing  price  of the  common  stock  on OTC  Bulletin  Board  of the  National
Association of Securities Dealers, Inc. on such date.

As of March 26, 2007, the registrant had 54,429,876 shares of common stock
outstanding.


DOCUMENTS INCORPORATED BY REFERENCE: None

<PAGE>

                               INDEX TO FORM 10-K

PART I

ITEM 1.  BUSINESS..............................................................1

ITEM 1A. RISK FACTORS.........................................................13

ITEM 2.  PROPERTIES...........................................................25

ITEM 3.  LEGAL PROCEEDINGS ...................................................25

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................27

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .......28

ITEM 6.  SELECTED FINANCIAL DATA..............................................30

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATION.............................................31

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
         RISK.................................................................42

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................43

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.............................................78

ITEM 9A. CONTROLS AND PROCEDURES..............................................78

ITEM 9B. OTHER INFORMATION....................................................78

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE...............79

ITEM 11. EXECUTIVE COMPENSATION...............................................81

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......96

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE.........................................................98

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES...............................99

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.............................100

SIGNATURES...................................................................108

<PAGE>

                                     PART 1

                           FORWARD-LOOKING STATEMENTS

     The following  information  provides  cautionary  statements under the safe
harbor provisions of the Private  Securities  Litigation Reform Act of 1995 (the
Reform Act). We identify  important  factors that could cause our actual results
to differ materially from those projected in forward-looking  statements we make
in this report or in other documents that reference this report.  All statements
that  express  or  involve  discussions  as to:  expectations,  beliefs,  plans,
objectives,  assumptions or future events or performance (often, but not always,
identified  through  the use of words or  phrases  such as we or our  management
believes,  expects,  anticipates  or hopes  and  words or  phrases  such as will
result, are expected to, will continue,  is anticipated,  estimated,  projection
and outlook, and words of similar import) are not statements of historical facts
and may be forward-looking.  These forward-looking  statements are based largely
on our  expectations  and are  subject  to a number of risks  and  uncertainties
including,  but  not  limited  to,  economic,  competitive,  regulatory,  growth
strategies,  available  financing and other factors discussed  elsewhere in this
report  and in the  documents  filed  by us with  the  Securities  and  Exchange
Commission ("SEC"). Many of these factors are beyond our control. Actual results
could differ  materially  from the  forward-looking  statements  we make in this
report or in other documents that reference this report. In light of these risks
and uncertainties, there can be no assurance that the results anticipated in the
forward-looking  information  contained in this report or other  documents  that
reference this report will, in fact, occur.

     These  forward-looking   statements  involve  estimates,   assumptions  and
uncertainties,  and,  accordingly,  actual results could differ  materially from
those expressed in the forward-looking statements.  These uncertainties include,
among others, the following:  (i), the inability of our broker-dealer operations
to  operate  profitably  in the face of intense  competition  from  larger  full
service and discount brokers;  (ii) a general decrease in merger and acquisition
activities  and our potential  inability to receive  success fees as a result of
transactions  not being  completed;  (iii) increased  competition  from business
development portals; (iv) technological  changes; (v) our potential inability to
implement our growth strategy through  acquisitions or joint ventures;  and (vi)
our potential inability to secure additional debt or equity financing.

     Any  forward-looking  statement  speaks  only as of the date on which  such
statement is made, and we undertake no obligation to update any  forward-looking
statement or statements  to reflect  events or  circumstances  after the date on
which such  statement  is made or to reflect  the  occurrence  of  unanticipated
events.  New  factors  emerge from time to time and it is not  possible  for our
management to predict all of such  factors,  nor can our  management  assess the
impact of each such factor on the 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.


ITEM 1.   BUSINESS.

vFinance, Inc. ("vFinance") is a global financial services holding company which
specializes in high growth  opportunities.  Our expertise into this  marketplace
flows from three principal lines of business:  providing  investment banking and
advisory  services to micro,  small and mid-cap  high growth  companies;  making
markets in over  3,000  micro and small cap  stocks;  and  offering  information
services on our website,  which is a leading  destination for emerging companies
seeking capital and investors  seeking  opportunities.  Due to our focus, we are
uniquely  positioned  to offer  alternative  investments  to  institutional  and
high-net  worth  investors  seeking to outperform  market indices in addition to
offering a full range of investment options.  With over 40 locations in the U.S.
and other parts of the world, we serve more than 12,000 corporate, institutional
and high net worth clients. vFinance Investments,  Inc. ("vFinance Investments")
and  EquityStation,   Inc.   ("EquityStation"),   both  our  subsidiaries,   are
broker-dealers  registered with the SEC, and members of the National Association
of Securities Dealers ("NASD") and Securities  Investor  Protection  Corporation
("SIPC").  vFinance  Investments  is  also  a  member  of the  National  Futures
Association  ("NFA"). In all 50 states, the District of Columbia,  Latin America
and other parts of the world,  vFinance Investments provides investment banking,
retail and institutional  brokerage  services.  EquityStation  offers a suite of
services, including trading technology, routing software, hedge fund incubation,
capital  introduction and custodial services,  to institutional  traders,  hedge
funds and professional traders designed to enhance their trading performance.

                                      -1-

<PAGE>

     We own a  financial  services  website or  "channel"  on the World Wide Web
located at http://www.vfinance.com.  Clients, investors,  shareholders and other
stakeholders  may access us through  this  website.  With an  estimated  500,000
unique   visitors   annually,   our  website   reaches  a  global   audience  of
entrepreneurs,  CEOs,  and  private  and  institutional  investors  in over  150
countries. The website provides sales leads to our investment banking, brokerage
and  institutional  divisions.  The website is the premier  destination  for the
search phrases "venture  capital" and "raising  capital."  Website visitors have
convenient  access to a variety  of  financial  services,  proprietary  business
development  tools,  searchable  databases and daily news.  The website has over
60,000  "opted in"  subscribers  that  receive a newsletter  on private  funding
several times a week. The website features our database of venture capital firms
and angel investors accessible with vSearch, a proprietary web-based data mining
tool that allows  entrepreneurs to search potential funding sources by different
criteria,  including  geography,  amount of funds required,  industry,  stage of
corporate  development,  or keyword.  Much of the  information on the website is
provided free of charge,  however, users are charged nominal fees for the use of
proprietary  search engines and premium  services such as our business  planning
services.

Restatement and Revision of Financial Statements

     As discussed in Note 1 to our Consolidated Financial Statements included in
Item 8 to this Annual Report on Form 10-K, we have restated  certain  amounts in
our 2005, 2004, 2003 and 2002 Consolidated  Financial  Statements as a result of
comments we received from the staff of the Securities and Exchange Commission.

Our History

     We were incorporated in the state of Delaware in February 1992. On November
8, 1999, we acquired vFinance Holdings,  Inc., a Florida corporation,  and Union
Atlantic  LC, a Florida  limited  liability  company,  through a Share  Exchange
Agreement.  We received all the outstanding  capital stock of vFinance Holdings,
Inc.  and all the  outstanding  membership  interests  of Union  Atlantic  LC in
exchange for a total of approximately 7.0 million shares of our common stock.

     On January 4, 2001, we closed the merger of NW Holdings,  Inc.  ("NWH"),  a
Florida  corporation,  into us where we were the surviving  corporation.  On the
closing date of the merger, NWH was the parent company of and wholly owned First
Level Capital,  Inc., a Florida  corporation.  First Level Capital,  Inc. is now
known as vFinance  Investments,  which has  offices in New York,  New Jersey and
Florida.  In addition  to these  offices,  we have  relationships  with  certain
independent contractors located throughout the United States.

     Also,  on January 4,  2001,  we  completed  the merger of  Colonial  Direct
Financial  Group,  Inc.,  a  Delaware   corporation,   with  and  into  Colonial
Acquisition  Corp., our wholly owned subsidiary,  with Colonial Direct Financial
Group, Inc. as the surviving corporation and as our wholly owned subsidiary.  At
the time of the merger,  Colonial  Direct  Financial  Group,  Inc. was a holding
company comprised of two diversified  financial  services  companies,  including
First Colonial  Securities Group, Inc. and Colonial Direct Retirement  Services,
Inc.,  and a company that  provides  administrative  support to these  financial
service companies,  Colonial Direct Capital  Management,  Inc. Although Colonial
Direct Financial Group, Inc. is no longer one of our subsidiaries,  the majority
of the personnel, client accounts and client assets of First Colonial Securities
Group, Inc. still remain with vFinance Investments.

     On November 2, 2004,  our  wholly-owned  subsidiary,  vFinance  Investments
completed its acquisition of certain assets of Global Partners Securities,  Inc.
("Global")  and  100%  of  the  issued  and  outstanding  equity  securities  of
EquityStation,  Inc.  ("EquityStation"),  all of which were owned by Level2.com,
Inc. ("Level2"), a subsidiary of Global (together, the "Global Acquisition").

     The  assets  acquired  in the Global  Acquisition  consisted  primarily  of
customer  accounts and some older  computer  equipment.  Business lines acquired
included wholesale  market-making in selected equities for institutional clients
and  direct  market  access  equity  trading.  vFinance  Investments  assumed no
liabilities in connection  with the acquisition of Global's  assets.  Two of the
principals of Global and Equity Station each entered into employment  agreements
with us,  which  provided an annual base salary of $144,000,  certain  incentive
bonuses, and options to purchase 350,000 shares of our common stock. The options
are exercisable at $0.19 per share and vest ratably over a three year period.

                                      -2-

<PAGE>

     EquityStation is a broker-dealer registered with the SEC and is a member of
the NASD. The company is a Florida  corporation  incorporated  on July 22, 1999.
EquityStation offers institutional traders, hedge funds and professional traders
a suite of  services  designed to advance  their  trading  through  cutting-edge
trading  technologies  and  routing  software,  hedge fund  incubation,  capital
introduction and custodial services.

     In May 2006,  vFinance  Investments  completed the  acquisition  of certain
assets of Sterling  Financial  Investment  Group,  Inc.  ("SFIG")  and  Sterling
Financial  Group of Companies,  Inc.  ("SFGC" and together with SFIG,  "Sterling
Financial").  The assets  acquired  from  Sterling  Financial  include  customer
relationships  associated with Sterling  Financial's  Institutional Fixed Income
and Latin American  businesses.  These transactions were approved by the NASD on
April 28, 2006.

     In connection with this acquisition,  we established new divisions to focus
on the  rapidly-growing  U.S. Hispanic and Latin American investment markets and
to provide  investment  advisory  services relating to fixed income products and
execution of fixed income investment transactions.

Industry Overview

     In  the  last  decade,  the  U.S.  investment  banking  industry  has  been
characterized and influenced by the following trends:

o        increased levels of industry  consolidation,  particularly involving
         smaller regional investment banks that primarily provided investment
         banking and brokerage services to middle-market companies and their
         institutional investors;
o        the tendency for global competitors and acquired firms, once part of
         larger organizations, to focus on larger market capitalization
         companies and larger transactions; and
o        the emergence of smaller boutique investment banking firms focused
         exclusively on growth industries, particularly technology and
         healthcare.

     In  recent  years,  there  have  been a number  of  acquisitions  by larger
financial  services  institutions of U.S. brokerage and investment banking firms
that offer similar products and services to those that we provide.  These larger
financial  institutions  have generally  allocated  capital and resources toward
larger market  capitalization  companies and  transactions.  This shift of focus
away from  smaller  market  capitalization  companies  has led to a  decline  in
service to these companies,  including investment banking and research coverage,
and as a result such companies have reduced access to capital.

     Additionally,  because the United States securities  industry has also been
subjected to increased regulation and governmental  scrutiny,  including certain
mandated  changes,  many larger firms have  restructured  their  businesses  and
market-making  activities  away from companies  whose market  capitalization  is
below certain  thresholds.  Research and capital  markets  resources  previously
dedicated to smaller market  capitalization  companies were either reassigned to
larger  companies or eliminated.  These  circumstances  have contributed to both
companies in, and  investors  focused on, the growth and  middle-market  sectors
seeking the services of boutique  investment  banking  professionals  who have a
high degree of applicable  industry  knowledge.  This increase in regulation has
also  made it more  expensive  for  smaller  firms to remain  in  business  thus
accelerating the consolidation of these firms.

                                      -3-

<PAGE>

     To  facilitate  access to  capital  markets  and to  industry  and  company
specific  research,  smaller boutique  financial  services firms have emerged to
offer  investment  banking  and  research  support to small-  and  middle-market
capitalization companies.

Our Market Opportunity

     We view ourselves as a strategically  positioned financial services holding
company recognized for our insight into alternative investments to institutional
and high-net worth investors  seeking to outperform  market indices.  The market
opportunity available to us is significant due to the following factors:

     Market Consolidation Opportunities

     Our industry  continues to  consolidate.  During the past several years, we
have successfully acquired industry related businesses.

     Our Targeted Addressable Market Continues to Grow

     High growth middle market or small capitalization companies not serviced by
the larger firms will  continue to seek out capital.  Institutions  and high net
worth  investors  looking for  alternative  investments  in order to  outperform
market  indices will continue to seek out investment  opportunities.  Additional
opportunities  continue to arise in the U.S.,  Latin  America,  Canada,  Mexico,
Europe, China and India.

     Our Extensive  Insight from and traffic to the our website into High Growth
Companies and Institutional and High Net Worth Investors

     Through  our  website,  we are in a unique  position  to  generate a lot of
information   about  high  growth   companies   who  are  seeking   capital  and
institutional  and high net worth  investors  who are seeking  investments.  Our
website generates leads for our institutional and retail business units.

Our Competitive Strengths

     Highly Regarded  Investment  Banking,  Retail Brokerage,  and Institutional
Equity and Fixed Income Trading

     We believe that we are widely recognized for the quality of the services we
provide to our institutional and retail clients. We analyze each material aspect
of client's business,  develop strong professional relationships with management
and related industry  professionals,  and effectively communicate with investors
and institutions.

     Experienced Professionals

     We  believe  that  our  team  of  professionals,  including  our  executive
management  team,  has diverse and  extensive  experience,  ranging from 8 to 15
years in the financial service industries.  Our sales and trading  professionals
have developed long-term client  relationships with hedge funds,  pension funds,
state and local  municipalities,  banks,  insurance companies and high net worth
individuals,  and these core clients  have  historically  made up a  significant
portion of our revenues.

                                      -4-

<PAGE>

     Focus on Under-Served Business Opportunities

     We seek out  under-served  business  opportunities  where there is a market
need that is not being addressed by the larger firms.

     Entrepreneurial Culture

     We have fully embraced an  entrepreneurial  culture.  Our employees own our
common stock or may be granted options as an incentive, which, when coupled with
our competitive compensation packages, enables our employees to directly benefit
from their  individual  production  as well as our  overall  performance.  Every
employee has the incentive to generate ideas and communicate  them to management
to maximize client returns and our overall profitability.

Our Growth Strategies

     Our goal is to  become  a  leading  financial  services  company  providing
brokerage,  trading, investment banking, financial and operational services, and
insight into market place opportunities to our clients. In order to achieve this
goal, we plan on implementing the following strategies:

o        expand  investment  banking  efforts to include  additional
         capabilities  and markets  including the U.S.  Hispanic  Markets,
         Europe, Canada, Mexico, China, Latin America and India;
o        capitalize on trading resources by leveraging technology and increasing
         the size and asset class of brokered transactions;
o        expanding retail brokerage through recruiting initiatives and market
         expansion including growth in Latin America and other emerging markets;
o        grow through acquisitions and mergers; and
o        diversify revenues.

Financial Arrangements with Clearing Brokers

     vFinance  Investments  entered  into a  clearing  agreement  with  National
Financial Services LLC, Member New York Stock Exchange ("NYSE")/SIPC, a Fidelity
Investments company ("NFS") in 2004 (the "Clearing Agreement"), for NFS to serve
as  vFinance  Investment's  primary  clearing  broker.  The  Clearing  Agreement
requires  NFS to pay a monthly  incentive  bonus to vFinance  Investments  up to
$25.0 thousand per month (up to an aggregate of $1.5 million) over the five-year
term of the Clearing  Agreement.  vFinance  Investments  also  received a $200.0
thousand  payment from NFS in 2004, as  compensation  for the  transition  costs
associated  with  migrating to a new clearing firm. As  consideration  for these
incentives, NFS required a termination fee of $1.7 million in the event vFinance
Investments  terminates the Clearing  Agreement,  reduced annually on a pro rata
basis over the  five-year  term of the  Clearing  Agreement.  As of December 31,
2006, our contingent  obligation in connection  with the Clearing  Agreement was
$1.0 million.

     EquityStation and vFinance  Investments have ancillary clearing  agreements
with Merrill Lynch Pierce Fenner & Smith (Broadcoart Clearing Division),  Fortis
Clearing, Legent Clearing and North American Clearing, providing services in the
areas NFS is not suited to handle.  These clearing  agreements contain customary
terms and conditions.

                                      -5-

<PAGE>

Our Business

Retail Brokerage

     The largest  portion of our  revenues,  62%, 72% and 65% in 2006,  2005 and
2004,  respectively was attributable to commissions and other  brokerage-related
income generated by our retail brokerage activities.

     vFinance  Investments'  retail brokerage division buys and sells securities
for its customers in exchange for a commission,  or in exchange for a fee, based
on customer assets or as dictated by security placement agreements.  Through our
brokers, we offer a wide variety of financial  investments,  including,  but not
limited to, equities,  corporate  bonds,  municipal  securities,  collateralized
mortgage  obligations,  mutual funds and insurance products.  We are licensed in
all fifty  states,  plus the  District  of  Columbia  and Puerto  Rico,  and our
registered  representatives are registered in those states where their customers
reside.   vFinance   Investments,   Inc.'s   relationship  with  its  registered
representatives can be either as an employee,  or in an independent  contractor,
depending on how the broker chooses to conduct his business. As an employee, all
of the expenses of his  operation  are paid for by the  company,  and he is only
charged  for  certain  fees such as  special  information  services,  insurance,
benefits and professional  services. As an independent  contractor,  in exchange
for a higher overall payout, the broker would be responsible for all of the fees
associated   with  his   business,   including,   but  not  limited  to,   rent,
telecommunications  expenses,  insurance,   benefits,   transactions  fees,  all
information  services,  state and  regulatory  registration  fees and compliance
oversight.

      Market Making

     We generated  25%, 16% and 19% of our revenues from trading  profits in our
market making activities in 2006, 2005 and 2004, respectively.

     vFinance  Investments  provides  liquidity by making  markets in over 3,000
Over-the-Counter  Bulletin Board, ("OTC Bulletin Board") National Market System,
Pink Sheet,  and NASDAQ  Small Cap stocks and  American  Depositary  Receipts in
addition to providing this liquidity to our other business units.  Our customers
are national  and  regional  full-service  broker-dealers,  electronic  discount
brokers and institutional  investors that require fast and efficient  executions
for each security.  This expertise  supports our investment  banking strategy of
servicing high growth public companies that are looking for a financial services
firm that is capable of assisting  them in building  broad-based  market support
for  their  securities.  As a  market  maker,  we use our  capital  and  systems
resources to represent a stock and compete  with other market  makers.  Operated
primarily by electronic execution,  buyers and sellers meet via computer to make
bids and  offers.  Each  market  maker  competes  for  "customer  order flow" by
displaying  buy and sell  quotations  for a  guaranteed  number  of  shares in a
security.  Once an order is received, the market maker will immediately purchase
for or sell from its own inventory, or seek the other side of the trade until it
is executed, often in a matter of seconds. The market maker generates all of its
revenue from the difference between the price paid when a security is bought and
price  received  when  that  security  is sold or the  price  received  when the
security is shorted and the price received when the short is covered.

                                      -6-

<PAGE>

Investment Banking

     We derived  13%, 11% and 14% of our revenues  from our  investment  banking
activities in 2006, 2005 and 2004,  respectively.  We assist  emerging  growths,
private and public  companies by (i)  developing  sound  strategic  plans,  (ii)
obtaining equity,  mezzanine,  bridge, or acquisition  capital,  (iii) executing
strategically sound acquisitions or divestiture strategies, (iv) raising capital
in the  public  markets,  and (v)  maximizing  shareholder  value by  conducting
recapitalizations  or other liquidity  transactions.  As consideration  for such
services, we are paid retainers and success fees, based on the percentage of the
total value of a transaction,  which are contingent on the successful completion
of a specified transaction. As part of our success fees, we periodically receive
equity  instruments  and stock  purchase  warrants  from  companies for which we
perform services in addition to cash paid for such services.

     In the area of corporate finance,  vFinance  Investments has been active as
an underwriter or selling group member in numerous  public equity  transactions.
Participation as a managing underwriter or in an underwriting syndicate involves
both economic and regulatory  risks.  An  underwriter  may incur losses if it is
unable to resell the securities it is committed to purchase. In addition,  under
the federal  securities  laws,  other laws and court  decisions  with respect to
underwriters' liabilities and limitations on the indemnification of underwriters
by issuers,  an underwriter is subject to  substantial  potential  liability for
misstatements   or  omissions  of  material  facts  in  prospectuses  and  other
communications with respect to such offerings.  Acting as a managing underwriter
increases these risks.  Underwriting commitments constitute a charge against net
capital and our subsidiaries'  ability to make  underwriting  commitments may be
limited by the  requirement  that they must at all times be in  compliance  with
regulations regarding their net capital.

Institutional Services

     A critical  element of our business  strategy is to identify  institutional
quality  investments that offer above market returns. We support that mission by
providing  institutional  investment managers,  primarily hedge fund managers, a
complete  array of services  designed to enhance  portfolio  performance.  Hedge
funds represent the fastest growing segment of the money  management  market and
by  definition  are focused on achieving  positive  returns for their  investors
while  controlling  risk. We offer fund managers  access to direct market access
tradng platforms,  investment  opportunities  and independent  research products
that  boost  return on  investment.  Additionally,  we offer fund  managers  the
ability to reduce their transaction costs by offering them access to our trading
desk for illiquid  securities  and  automated  trading  systems for their liquid
transactions.  We have a mutually  beneficial  relationship  with our Investment
Banking Division  ("IBD") as fund managers looking for investment  opportunities
fund IBD's corporate clients and having relationships with fund managers creates
opportunities to increase the number and quality of IBD clients.

                                      -7-

<PAGE>

Internet Strategy

     The Center for Innovative Entrepreneurship, dedicated to providing research
services to promote  innovative  entrepreneurship  has been  engaged by vFinance
Holdings,  Inc., by means of a licensing  arrangement,  to operate its financial
services   website   or   "channel"   on  the   World   Wide  Web   located   at
http://www.vfinance.com. With an estimated 500,000 unique visitors annually, our
website  reaches a global  audience  of  entrepreneurs,  CEOs,  and  private and
institutional investors in over 150 countries.  The website provides sales leads
to our investment banking,  brokerage and institutional services divisions.  The
website is the premier  destination for the search phrases "venture capital" and
"raising  capital."  Website  visitors  have  convenient  access to a variety of
financial services, proprietary business development tools, searchable databases
and daily news. The website has over 60,000 "opted in" subscribers  that receive
a daily  newsletter  on private  funding.  The website  features our database of
venture  capital  firms  and  angel  investors   accessible  with  vSearch,  our
proprietary  web-based  data  mining tool that  allows  entrepreneurs  to search
potential funding sources by different criteria, including, geography, amount of
funds required, industry, stage of corporate development or keyword. Much of the
information  on the website is provided  free of charge,  however,  we do charge
nominal fees for the use of proprietary search engines and premium services such
as our business planning services.

Administration,  Operations,  Securities  Transactions  Processing  and Customer
Accounts

     Our operating subsidiaries,  vFinance Investments and EquityStation, do not
hold any funds or securities  for customers.  Instead,  they use the services of
clearing agents on a  fully-disclosed  basis.  These clearing agents process all
securities  transactions and maintain customer accounts on a fee basis. Customer
accounts are protected  through the SIPC for up to $500,000,  of which  coverage
for cash balances is limited to $100,000. In addition,  all customer accounts of
vFinance  Investments are fully protected by an Excess Securities Bond providing
protection for the account's entire net equity (both cash and  securities).  The
services of our subsidiaries' clearing agents include billing and credit control
as well as receipt,  custody and delivery of  securities.  The  clearing  agents
provide  the  operational  support  necessary  to process,  record and  maintain
securities transactions for our subsidiary's brokerage activities.  They provide
these services to our subsidiary's  customers at a total cost that we believe is
less than it would cost us to process such transactions on our own. The clearing
agents also lend funds to our subsidiaries'  customers through the use of margin
credit.  These loans are made to customers on a secured basis, with the clearing
agents maintaining  collateral in the form of saleable securities,  cash or cash
equivalents.  vFinance  Investments  and Equity Station have agreed to indemnify
the clearing brokers for losses they incur on these credit arrangements.

                                      -8-

<PAGE>

Competition

     All  aspects of our  business  are highly  competitive.  In our  investment
banking  activities,  we compete with large Wall Street investment banks as well
as regional boutique banks that offer private  placement  services to small- and
middle-market companies. We compete for these investment banking transactions on
the basis of our  relationships  with the issuers and potential  investors,  our
experience  in the industry and  transactional  fees.  In our general  brokerage
activities,  we compete  directly with numerous  other  broker-dealers,  many of
which are large  well-known  firms  with  substantially  greater  financial  and
personnel resources.  We compete for brokerage  transactions on the basis of our
experience in the industry, our ability to execute transactions and the strength
of our  relationships  with our clients.  Many of our  competitors for brokerage
service and investment  banking  transactions  employ extensive  advertising and
actively solicit potential clients in order to increase  business.  In addition,
brokerage  firms  compete by  furnishing  investment  research  publications  to
existing clients,  the quality and breadth of which are considered  important in
the development of new business and the retention of existing  clients.  We also
compete with a number of smaller regional  brokerage firms throughout the United
States.  In our  advisory  activities,  we compete with  investment  banking and
consulting firms on the basis of expertise in our broad variety of industries.

     The securities  industry has become considerably more concentrated and more
competitive  since we were  founded,  as numerous  securities  firms have either
ceased  operations  or have been  acquired  by or merged  into other  firms.  In
addition,  companies not engaged primarily in the securities business,  but with
substantial  financial resources,  have acquired leading securities firms. These
developments  have  increased   competition  from  firms  with  greater  capital
resources than ours.

     Since the adoption of the  Gramm-Leach-Bliley Act of 1999, commercial banks
and thrift  institutions  have been able to engage in traditional  brokerage and
investment  banking  services,  thus  increasing  competition  in the securities
industry and potentially  increasing the rate of consolidation in the securities
industry.

     We  also  compete  with  other   securities   firms  for  successful  sales
representatives,  securities  traders and investment  bankers.  Competition  for
qualified employees in the financial services industry is intense. Our continued
ability to compete  effectively  depends on our ability to attract new employees
and to retain and motivate our existing employees.

Government Regulation

Regulation of the Securities Industry and Broker-Dealers

     Our  business  is  subject  to  extensive  regulation   applicable  to  the
securities  industry in the United States and  elsewhere.  As a matter of public
policy,  regulatory  bodies in the  United  States and the rest of the world are
charged with  safeguarding  the integrity of the securities and other  financial
markets and with  protecting the interests of customers  participating  in those
markets. In the United States, the SEC is the federal agency responsible for the
administration of the federal  securities laws. In general,  broker-dealers  are
required to register with the SEC under the Securities  Exchange Act of 1934, as
amended  (the  "Exchange  Act").   Under  the  Exchange  Act,  every  registered
broker-dealer  that does  business with the public is required to be a member of
and is  subject  to the rules of the NASD.  The NASD  administers  qualification
testing for all securities principals and registered representatives for its own
account and on behalf of the state securities authorities.  vFinance Investments
and EquityStation are broker-dealers  registered with the SEC and members of the
NASD.

                                      -9-

<PAGE>

     Our broker-dealers are also subject to regulation under state law. vFinance
Investments and EquityStation are currently  registered as broker-dealers in all
50  states  and the  District  of  Columbia.  The NASD  approved  the  change of
ownership to us of (i) Union Atlantic Capital, L.C. from Pinnacle Capital Group,
L.C., (ii) First Level Capital,  Inc. from NWH, (iii) First Colonial  Securities
Group, Inc., (iv) Global Partners and EquityStation; and (v) Sterling Financial.
A recent  amendment to the federal  securities  laws  prohibits  the states from
imposing  substantive  requirements on broker-dealers  that exceed those imposed
under  federal law. The  amendment,  however,  does not preclude the states from
imposing  registration  requirements on broker-dealers that operate within their
jurisdiction  or from  sanctioning  these  broker-dealers  who have  engaged  in
misconduct.

     The  SEC,  self-regulatory   organizations  such  as  the  NASD  and  state
securities commissions may conduct  administrative  proceedings which can result
in censure, fine, the issuance of cease-and-desist  orders, or the suspension or
expulsion  of a  broker-dealer,  its  officers,  or its  employees.  The SEC and
self-regulatory  organization  rules  cover many  aspects  of a  broker-dealer's
business,  including  capital  structure and withdrawals,  sales methods,  trade
practices among  broker-dealers,  use, and  safekeeping of customers'  funds and
securities, record-keeping, the financing of customers' purchases, broker-dealer
and  employee  registration,   and  the  conduct  of  directors,  officers,  and
employees.  Additional legislation,  changes in rules promulgated by the SEC and
self-regulatory  organizations,  or changes in the interpretation or enforcement
of  existing  laws and rules,  may  directly  affect the mode of  operation  and
profitability of broker-dealers.

     The Uniform Net Capital Rule and NASD rules require prior notice to the SEC
and the NASD for certain  withdrawals  of capital and also  provide that the SEC
may restrict for up to 20 business  days any  withdrawal of equity  capital,  or
unsecured  loans or advances to  shareholders,  employees or  affiliates  if the
capital  withdrawal,  together with all other net capital  withdrawals  during a
30-day period,  exceeds 30% of excess net capital and the SEC concludes that the
capital  withdrawal  may  be  detrimental  to  the  financial  integrity  of the
broker-dealer.

     In  addition,  the  Uniform  Net  Capital  Rule  provides  that  the  total
outstanding  principal amount of a  broker-dealer's  indebtedness  under certain
subordination agreements, the proceeds of which are included in its net capital,
may  not  exceed  70% of the  sum of the  outstanding  principal  amount  of all
subordinated  indebtedness  included  in net  capital,  par or  stated  value of
capital  stock,  paid in capital in excess of par,  retained  earnings and other
capital  accounts for a period in excess of 90 days. A change in the Uniform Net
Capital Rule, the imposition of new rules or any unusually  large charge against
net capital could limit those parts of our operations that require the intensive
use of capital and also could restrict our ability to pay dividends,  repay debt
and repurchase shares of our outstanding stock.

                                      -10-

<PAGE>

     As of the date of this Annual  Report on Form 10-K,  the minimum  amount of
net capital required to be maintained by vFinance Investments was $1,000,000 and
the minimum amount of net capital  required to be maintained by our wholly owned
subsidiary,  EquityStation  was $100,000.  A significant  operating  loss or any
unusually large charge against net capital could adversely affect our ability to
expand or even  maintain  our  present  levels of  business,  which could have a
material adverse affect on our business and operations. vFinance Investments and
EquityStation  are  members  of  SIPC  which  provides,  in  the  event  of  the
liquidation of a broker-dealer, protection for clients' accounts up to $500,000,
subject to a  limitation  of  $100,000  for claims for cash  balances.  vFinance
Investments'  retail  clients'  accounts are carried on the books and records of
NFS and Legent Clearing.  NFS has obtained  additional  insurance from a private
insurer,  Customer  Asset  Protection  Co.  (CAPCO),  for the full  value of the
customer's account in excess of the standard SIPC coverage.  The client accounts
for EquityStation are carried on the books and records of Merrill Lynch, Pierce,
Fenner & Smith.

Application of Laws and Rules to Internet Business and Other Online Services

     Due to the  increasing  popularity and use of the Internet and other online
services, various regulatory authorities are considering laws and/or regulations
with respect to the Internet or other online  services  covering  issues such as
user privacy,  pricing, content copyrights and quality of services. In addition,
the growth and  development  of the market for online  commerce  may prompt more
stringent  consumer  protection laws that may impose additional burdens on those
companies  conducting  business  online.  When the  Securities  Act of 1933,  as
amended ("the "Securities Act"), which governs the offer and sale of securities,
and the Exchange Act,  which governs,  among other things,  the operation of the
securities  markets  and  broker-dealers,   were  enacted,  such  acts  did  not
contemplate the conduct of a securities  business through the Internet and other
online  services.  The recent  increase  in the number of  complaints  by online
traders could lead to more  stringent  regulations  of online  trading firms and
their practices by the SEC, NASD and other regulatory agencies.

     Although the SEC, in releases and no-action letters,  has provided guidance
on various issues related to the offer and sale of securities and the conduct of
a securities  business through the Internet,  the application of the laws to the
conduct of a  securities  business  through the  Internet  continues  to evolve.
Furthermore,  the  applicability  to the Internet  and other online  services of
existing  laws in  various  jurisdictions  governing  issues  such  as  property
ownership,  sales and other taxes and personal privacy is uncertain and may take
years to resolve.  Uncertainty  regarding these issues may adversely  affect the
viability and profitability of our business.

     As our services, through our subsidiaries,  are available over the Internet
in multiple  jurisdictions,  and as we, through our subsidiaries,  have numerous
clients residing in these jurisdictions,  these jurisdictions may claim that our
subsidiaries are required to qualify to do business as a foreign  corporation in
each  such  jurisdiction.  While  vFinance  Investments  and  EquityStation  are
currently  registered as broker-dealers  in the jurisdictions  described in this
report,   vFinance   Investments,   EquityStation   and  our  non-broker  dealer
subsidiaries  are  qualified  to do  business  as  corporations  in  only  a few
jurisdictions. Failure to qualify as an out-of-state or foreign corporation in a
jurisdiction  where we are  required  to do so  could  subject  us to taxes  and
penalties for the failure to qualify. Intellectual Property

     We  own  the  following  federally  registered  marks:  vFinance,  Inc.(R),
vFinance.com,   Inc.(R),   AngelSearch(R),   Direct2Desk(R)   and   Hedge   Fund
Accelerator(R).

                                      -11-

<PAGE>

Employees

     At December 31, 2006, we employed the following personnel:

          Position               Salaried        Contract         Total
----------------------------  --------------  ---------------  -----------

 Officers                                12                -           12
 Administration                          28               20           48
 Brokers                                 28              119          147
 Traders                                 21                3           24
 Investment Bankers                       6               14           20
 Web Operations                           3                -            3
                              --------------  ---------------  -----------
 Totals                                  98              156          254
                              ==============  ===============  ===========

     None of our personnel are covered by a collective bargaining agreement.  We
consider our relationships with our employees to be good. Any future increase in
the  number of  employees  will  depend  upon the  growth of our  business.  Our
registered representatives are required to take examinations administered by the
NASD and state  authorities  in order to qualify to  transact  business  and are
required to enter into agreements with us obligating  them,  among other things,
to adhere to industry rules and regulations,  our supervisory procedures and not
to solicit customers in the event of termination.

Seasonality and Backlog

     Our business is not subject to significant seasonal fluctuations, and there
are no material backlogs in our business.

Research and Development and Environmental Matters

     We did not incur any  research  and  development  expenses  during the last
three fiscal years.  We do not incur any  significant  costs or  experience  any
significant  effects as a result of  compliance  with  federal,  state and local
environmental laws.

Available Information

     Our web site address is  www.vfinance.com.  You may obtain free  electronic
copies of our  annual  reports  on Form  10-K,  quarterly  reports on Form 10-Q,
current  reports  of Form  8-K,  and all  amendments  to  those  reports  on the
"Investor  Relations"  portion of our web site, under the heading "SEC Filings."
These  reports are  available on our website as soon as  reasonably  practicable
after we electronically  file them with the SEC. We are providing the address to
our Internet site solely for the information of investors.  We do not intend the
address  to be an  active  link nor are we  incorporating  the  contents  of the
website into this report.

                                      -12-

<PAGE>

ITEM 1A.          RISK FACTORS.

     In addition to other information in this report, the following risks should
be considered in evaluating our condition and prospects.  These risks may have a
material effect on our operating results.

Risks Related to Our Company

We have a limited  operating  history and as a result,  it may be  difficult  to
evaluate our business and prospects.

     We have a limited  operating history despite the fact that we commenced our
broker-dealer operations in 1999. As a result of acquisitions of Colonial Direct
Financial Group Inc. and First Level Capital,  now know as vFinance  Investments
in 2001, EquityStation and select assets of Global in 2004, and select assets of
Sterling  Financial in 2006, our business has remained in flux. Our business and
prospects  must be considered in light of the risks,  expenses and  difficulties
frequently  encountered by companies in the early stages of  development.  These
risks are  particularly  severe  among  companies  in new and  rapidly  evolving
markets  such as online  business  development  services  and those in regulated
industries such as the securities industry. It may be difficult or impossible to
accurately  forecast  our  operating  results and to evaluate  our  business and
prospects based on our historical results.

We have had substantial losses since inception.

     Prior to 2004, we had sustained  substantial  losses in each year since our
inception due to ongoing operating expenses and a lack of revenues sufficient to
offset  those  operating  expenses.  We have  raised  capital  to  fund  ongoing
operations  by private  sales of our  securities,  some of which sales have been
highly dilutive and involved  considerable  expense. For the year ended December
31, 2004, when we earned a substantial profit for the first time in our history,
our results  amounted to net income of $2.6  million,  including a $1.5  million
non-cash  gain on debt  forgiveness.  For the years ended  December 31, 2006 and
2005,  however,  our  results  amounted  to net losses of $2.1  million and $1.0
million, respectively.

     The net losses generated in 2006 and 2005 resulted primarily from increased
costs from  expanded  facilities  and  staff,  as well as  amortization  expense
associated  with  the  Global   Acquisition  and  the  acquisition  of  Sterling
Financial, non-cash impairment charges in 2005 and stock option expense in 2006.
We expect to continue to make  significant  capital  expenditures to enhance our
products and technologies,  and to expand domestic and  international  sales and
operations.  As a  result,  we will need to  continue  to  generate  significant
additional  revenue to achieve  profitability  and generate  sufficient  working
capital to fund our planned spending.  Even if we do achieve  profitability,  we
may not be able to maintain or increase  profitability  on a quarterly or annual
basis. If we do not achieve, maintain or increase our profitability,  the market
price for our common stock may further decline.

                                      -13-

<PAGE>

Obtaining  future  financing  may be costly and could be  dilutive  to  existing
stockholders.  If we are not able to obtain  financing  when and in the  amounts
needed, and on terms that are acceptable,  our operations,  financial  condition
and prospects could be materially adversely affected,  and we could be forced to
curtail our operations or sell part or all of our assets.

We may need to raise additional  funds,  which may not be available when we need
them.

Based on our  current  spending  plans and our  projected  working  capital,  we
believe that our cash on hand and cash  generated  from our  operations  will be
sufficient to fund our operations for at least the next 12 months.  However,  we
may  attempt  to raise  additional  capital  to operate  the  business,  support
expansion  plans,  develop new or enhanced  services  and  products,  respond to
competitive  pressures,  acquire  complementary  businesses or  technologies  or
respond to  unanticipated  events.  We can provide no assurances that additional
financing will be available when needed on favorable  terms, if at all. If these
funds are not  available  when we need them,  we may need to change our business
strategy or reduce our  operations or investment  activities.  In addition,  any
issuance of additional equity  securities will dilute the ownership  interest of
our existing  stockholders  and the issuance of additional  debt  securities may
increase the perceived risk of investing in us.

If we do not secure substantial additional funding to meet our capital needs, we
may have to issue  additional  shares of common stock.  If additional  funds are
raised  through  the  issuance of equity or  convertible  debt  securities,  the
percentage  ownership  of our  current  stockholders  will be reduced  and these
securities  may have  rights and  preferences  superior  to those of our current
stockholders.  If we raise capital through debt  financing,  we may be forced to
accept  restrictions  affecting our  liquidity,  including  restrictions  on our
ability to incur additional indebtedness or pay dividends.

We are currently subject to extensive  securities  regulation and the failure to
comply with these regulations could subject us to penalties or sanctions.

     The  securities   industry  and  our  business  are  subject  to  extensive
regulation  by the SEC,  state  securities  regulators  and  other  governmental
regulatory  authorities.  We are  also  regulated  by  industry  self-regulatory
organizations,  including  the  NYSE,  the  NASD,  the  NFA  and  the  Municipal
Securities  Rulemaking  Board.  The  regulatory  environment  is also subject to
change,  and  we  may be  adversely  affected  as a  result  of  new or  revised
legislation  or  regulations   imposed  by  the  SEC,  other  federal  or  state
governmental regulatory authorities, or self-regulatory  organizations.  We also
may be adversely  affected by changes in the  interpretation  or  enforcement of
existing laws and rules by these  governmental  authorities and  self-regulatory
organizations.

vFinance  Investments and EquityStation are registered  broker-dealers  with the
SEC and members of the NASD.  Broker-dealers  are subject to  regulations  which
cover all aspects of the securities business, including:

o        sales methods and supervision;
o        trading practices among broker-dealers;
o        use and safekeeping of customers' funds and securities;
o        capital structure of securities firms;
o        record keeping; and
o        the conduct of directors, officers and employees.

                                      -14-

<PAGE>

Compliance  with many of the  regulations  applicable to us involves a number of
risks,  particularly  in areas where  applicable  regulations  may be subject to
varying  interpretation.  The  requirements  imposed  by  these  regulators  are
designed  to ensure  the  integrity  of the  financial  markets  and to  protect
customers  and  other  third  parties  who  deal  with us.  Consequently,  these
regulations often serve to limit our activities,  including through net capital,
customer protection and market conduct  requirements.  Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations,  principally
NASD Regulation,  Inc., the regulatory arm of the NASD, NYSE  Regulation,  which
will soon  undergo  a merger,  both of which  are  overseen  by the SEC.  We are
primarily regulated by the NASD and SEC. NASD Regulation Inc. and the NYSE adopt
rules,  subject to approval by the SEC,  that govern  their  members and conduct
periodic examinations of member firms' operations.

If  we  are  found  to  have   violated  any   applicable   regulation,   formal
administrative  or judicial  proceedings  may be  initiated  against us that may
result in:

o        censure;
o        fine;
o        civil penalties, including treble damages in the case of insider
         trading violations;
o        the issuance of cease-and-desist orders; o the deregistration or
         suspension of our broker-dealer activities;
o        the suspension or disqualification of our officers or employees; and/or
o        other adverse consequences.

The imposition of any of these or other penalties could have a material  adverse
effect on our operating results and financial condition.

We are subject to various risks associated with the securities industry.

As securities broker-dealers, we are subject to uncertainties that are common in
the securities industry. These uncertainties include:

o    the volatility of domestic and international financial, bond and
     stock markets, as demonstrated by past disruptions in the financial
     markets;
o    extensive governmental regulation;
o    litigation;
o    intense competition;
o    substantial fluctuations in the volume and price level of securities; and
o    dependence on the solvency of various third parties.

     As a result of these risks,  revenues  and earnings may vary  significantly
from quarter to quarter and from year to year. We are much smaller and have much
less  capital  than  many  of  our  competitors  in  the  securities   industry.
Accordingly,  we could be  impacted by these  risks to a larger  degree.  In the
event of a market  downturn,  our revenues  would likely decline and, if we were
unable to reduce  expenses at the same pace,  our profit  margins  would quickly
erode.

                                      -15-

<PAGE>

Our  business  could be  adversely  affected  by a  breakdown  in the  financial
markets.

As a securities broker-dealer, our business is materially affected by conditions
in the financial markets and economic conditions in general,  both in the United
States and  elsewhere  around the world.  Many factors or events could lead to a
breakdown  in  the  financial   markets   including  war,   terrorism,   natural
catastrophes  and other types of  disasters.  These types of events  could cause
people to begin to lose confidence in the financial markets and their ability to
function effectively. If the financial markets are unable to effectively prepare
for these  types of  events  and ease  public  concern  over  their  ability  to
function,  our  revenues  may  decline  and our  operations  could be  adversely
affected.

We have incurred,  and may in the future incur,  significant losses from trading
and investment activities due to market fluctuations and volatility.

We generally maintain trading and investment positions in the equity markets. To
the extent that we own assets,  i.e., have long  positions,  a downturn in those
markets  could  result  in  losses  from a  decline  in the  value of such  long
positions.  Conversely,  to the extent  that we have sold  assets that we do not
own, i.e., have short positions in any of those markets,  an upturn could expose
us to potentially unlimited losses as we attempt to cover our short positions by
acquiring assets in a rising market.

We may, from time to time, have a trading strategy  consisting of holding a long
position in one asset and a short  position  in another  from which we expect to
earn  revenues  based on changes in the  relative  value of the two assets.  If,
however,  the relative  value of the two assets changes in a direction or manner
that we did not anticipate or against which we are not hedged,  we might realize
a loss in those paired  positions.  In addition,  we maintain trading  positions
that can be  adversely  affected  by the level of  volatility  in the  financial
markets,  i.e., the degree to which trading  prices  fluctuate over a particular
period, in a particular market, regardless of market levels.

Our revenues may decline in adverse market or economic conditions.

Unfavorable  financial or economic  conditions may reduce the number and size of
the  transactions  in  which  we  provide  underwriting  services,   merger  and
acquisition  consulting and other services.  Our investment banking revenues, in
the form of financial  advisory and  underwriting  fees, are directly related to
the  number  and size of the  transactions  in which we  participate  and  would
therefore be adversely affected by a sustained market downturn.  Additionally, a
downturn  in  market  conditions  could  lead  to a  decline  in the  volume  of
transactions that we execute for our customers and,  therefore,  to a decline in
the revenues we receive from commissions and spreads.

Customer relationship intangible assets comprised approximately 35% of our total
assets as of December  31,  2006.  We must  review  customer  relationships  for
impairment  whenever  events or  circumstances  indicate that  impairment may be
present,  which may  result  in a  material,  non-cash  write  down of  customer
relationships.

A significant  decrease in revenues or cash flows derived from acquired customer
relationships  could  result in a  material,  non-cash  write-down  of  customer
relationships.  Such  impairment  would  have a material  adverse  impact on our
results of operations and shareholders' equity.

                                      -16-

<PAGE>

Our risk management policies and procedures may leave us exposed to unidentified
risks or an unanticipated level of risk.

The policies and procedures we employ to identify,  monitor and manage risks may
not be fully effective.  Some methods of risk management are based on the use of
observed  historical  market  behavior.  As a  result,  these  methods  may  not
accurately predict future risk exposures,  which could be significantly  greater
than the historical  measures indicate.  Other risk management methods depend on
evaluation of information  regarding markets,  clients or other matters that are
publicly  available or otherwise  accessible by us. This  information may not be
accurate, complete, up-to-date or properly evaluated. Management of operational,
legal and regulatory risks requires, among other things, policies and procedures
to properly  record and verify a large  number of  transactions  and events.  We
cannot  be  assured  that our  policies  and  procedures  will  effectively  and
accurately record and verify this information.

     We seek to  monitor  and  control  our risk  exposure  through a variety of
separate, but complementary financial,  credit,  operational and legal reporting
systems.  We believe that we are able to evaluate and manage the market,  credit
and other risks to which we are exposed. Nonetheless, our ability to manage risk
exposure can never be completely or accurately  predicted or fully assured.  For
example,  unexpectedly  large or rapid  movements or  disruptions in one or more
markets or other  unforeseen  developments can have a material adverse effect on
our results of operations and financial  condition.  The  consequences  of these
developments  can include  losses due to adverse  changes in  inventory  values,
decreases in the liquidity of trading positions,  higher volatility in earnings,
increases  in our  credit  risk to  customers  as well as to third  parties  and
increases in general systemic risk.

Credit  risk  exposes  us to  losses  caused  by  financial  or  other  problems
experienced by third parties.

We are exposed to the risk that third  parties that owe us money,  securities or
other assets will not perform their obligations. These parties include:

o   trading counterparties;
o   customers;
o   clearing agents;
o   exchanges;
o   clearing houses; and
o   other financial intermediaries as well as issuers whose securities we hold.

These parties may default on their obligations owed to us due to bankruptcy,
lack of liquidity, operational failure or other reasons. This risk may arise,
for example, from:

o   holding securities of third parties;
o   executing securities trades that fail to settle at the required
    time due to non-delivery by the counterparty or systems failure by
    clearing agents, exchanges, clearing houses or other financial
    intermediaries; and
o   extending credit to clients through bridge or margin loans or other
    arrangements.

Significant  failures by third parties to perform their  obligations  owed to us
could  adversely  affect our  revenues  and perhaps our ability to borrow in the
credit markets.

                                      -17-

<PAGE>

We may have difficulty retaining or recruiting our independent contractors.

We are dependent upon the independent  contractor model for our retail brokerage
business.  As such,  approximately 81% of our retail registered  representatives
are  independent  contractors.  We are exposed to the risk that a large group of
independent  contractors leave the firm or decide to affiliate with another firm
and that we are unable to recruit suitable replacements. A loss of a large group
of our  independent  contractors  could  have a material  adverse  impact on our
ability to generate revenue in the retail brokerage business.

We may have difficulty effectively managing our growth.

Over the past  several  years,  we have  experienced  significant  growth in our
business activities through a variety of transactions. We expect our business to
continue to grow through similar  transactions  as well as  organically.  Future
growth  through  mergers,  acquisitions  and other  such  transactions  involves
numerous risks such as:

o        difficulties and expenses incurred in connection with the
         subsequent assimilation of the operations and services or products
         of the acquired company;
o        the potential loss of key employees of the acquired company; and
o        the diversion of management's attention from other business concerns.

If we are unable to  effectively  address  these  risks,  we may be  required to
restructure  the acquired  business or write off the value of some or all of the
assets of the acquired business. Further, this type of growth requires increased
investments  in  management  personnel,  financial  and  management  systems and
controls as well as  facilities.  We cannot be assured  that we will  experience
parallel growth in these areas. If these areas do not grow at the same time, our
operating margins may decline from current levels.

Additionally,  as is common in the securities  industry,  we will continue to be
highly dependent on the effective and reliable  operation of our  communications
and  information  systems.  We believe that our current and  anticipated  future
growth  will  require  implementation  of new and  enhanced  communications  and
information  systems and training of our personnel to operate such systems.  Any
difficulty or significant  delay in the  implementation or operation of existing
or new systems or the training of personnel could  adversely  affect our ability
to manage our growth.

Intense  competition  from  existing and new entities may  adversely  affect our
revenues and profitability.

The securities industry is rapidly evolving,  intensely  competitive and has few
barriers to entry. We expect competition to continue to intensify in the future.
Many  of  our  competitors  have  significantly  greater  financial,  technical,
marketing and other  resources  than we do. They may also offer a wider range of
services and financial  products and have greater name  recognition and a larger
client base than we do. These competitors may be able to respond more quickly to
new or changing  opportunities,  technologies and client requirements.  They may
also be able to undertake  more  extensive  promotional  activities,  offer more
attractive terms to clients, and adopt more aggressive pricing policies.  We may
not be able to  compete  effectively  with  current  or future  competitors  and
competitive pressures faced by us may harm our business.

                                      -18-

<PAGE>

The  precautions  we take to prevent and detect  employee  misconduct may not be
effective, and we could be exposed to unknown and unmanaged risks or losses.

We run the risk that employee  misconduct  could occur.  Misconduct by employees
could include:

o employees binding us to transactions that exceed authorized limits or present
  unacceptable risks to us;
o employees hiding unauthorized or unsuccessful activities from us; or
o the improper use of confidential information.

These types of misconduct  could result in unknown and unmanaged risks or losses
to us including  regulatory  sanctions and serious harm to our  reputation.  The
precautions we take to prevent and detect these activities may not be effective.
If employee  misconduct does occur, our business  operations could be materially
adversely affected.

We  may  experience  losses  associated  with  securities  laws  violations  and
litigation.

Many  aspects  of our  business  involve  substantial  risks  of  liability.  An
underwriter  is  exposed  to  substantial  liability  under  federal  and  state
securities laws,  other federal and state laws, and court  decisions,  including
decisions   with  respect  to   underwriters'   liability  and   limitations  on
indemnification of underwriters by issuers.  For example, a firm that acts as an
underwriter may be held liable for material  misstatements  or omissions of fact
in a prospectus  used in  connection  with the  securities  being offered or for
statements made by its securities analysts or other personnel.  In recent years,
there has been an increasing  incidence of litigation  involving the  securities
industry,   including  class  actions  that  seek   substantial   damages.   Our
underwriting  activities  will usually  involve  offerings of the  securities of
smaller  companies,  which  often  involve a higher  degree of risk and are more
volatile than the securities of more established  companies.  In comparison with
more  established  companies,  smaller  companies are also more likely to be the
subject of  securities  class  actions,  not to carry  directors  and  officer's
liability insurance or policies with lower limits, and to become insolvent. Each
of these  factors  increases  the  likelihood  that an  underwriter  of  smaller
companies'  securities will be required to contribute to an adverse  judgment or
settlement of a securities lawsuit.

     In the normal course of business,  our operating subsidiaries have been and
continue to be the subject of numerous  civil actions and  arbitrations  arising
out of customer  complaints relating to our activities as a broker-dealer and as
a result of other business  activities.  In general,  the cases involve  various
allegations that our employees  mishandled  customer accounts.  We believe that,
based on our  historical  experience  and the  reserves  established  by us, the
resolution  of the claims  presently  pending  will not have a material  adverse
effect on our financial  condition.  However,  although we typically  reserve an
amount we believe will be sufficient to cover any damages  assessed  against us,
we have in the past been  assessed  damages that  exceeded our  reserves.  If we
misjudged the amount of damages that may be assessed  against us from pending or
threatened  claims or if we are  unable to  adequately  estimate  the  amount of
damages  that will be  assessed  against us from claims that arise in the future
and fail to  appropriately  reserve,  our financial  condition may be materially
adversely affected.

                                      -19-

<PAGE>

Our directors,  executive  officers and senior managers  control over 60% of our
common stock voting rights and may have interests  differing from those of other
stockholders.

     Our directors,  executive  officers and senior managers control over 60% of
our outstanding  common stock,  directly as stockholders and indirectly  through
control  relationships with other  stockholders.  There is no supermajority vote
required by our Certificate of  Incorporation  with regard to matters  requiring
stockholder  approval.   These  directors  and  executive  officers,  if  acting
together,  would  be able  to  significantly  influence  all  matters  requiring
approval by our  stockholders,  including the election of directors and approval
of significant corporate transactions including mergers,  consolidations and the
sale of substantially  all of our assets.  This control could have the effect of
delaying or  preventing  a third party from  acquiring or merging with us, which
could hinder stockholders' ability to receive a premium for their shares.

Our "vFinance" brand may not achieve the broad recognition necessary to succeed.

We believe that broader  recognition  and positive  perception of the "vFinance"
brand is essential to our future success.  Accordingly, we intend to continue to
pursue an aggressive brand enhancement  strategy,  which will include multimedia
advertising,   promotional  programs  and  public  relations  activities.  These
initiatives  will require  significant  expenditures.  If our brand  enhancement
strategy is  unsuccessful,  these  expenses may never be recovered and we may be
unable to increase  future  revenues.  Successful  positioning of our brand will
depend in a large part on:

o   the success of our advertising and promotional  efforts;
o   an increase in the number of users and page views of our website; and
o   the ability to continue to provide a website and services useful to our
    clients.

If we do not  continue to develop and enhance our  services in a timely  manner,
our business may be harmed.

Our  future  success  will  depend on our  ability to develop  and  enhance  our
services  and add new  services.  We operate in a very  competitive  industry in
which the ability to develop and deliver advanced  services through the Internet
and other channels is a key competitive  factor.  There are significant risks in
the development of new or enhanced services, including the risks that we will be
unable to:

o        effectively use new technologies;
o        adapt our services to emerging industry or regulatory standards; or
o        market new or enhanced services.

If we are unable to develop  and  introduce  new or  enhanced  services  quickly
enough to respond to market or customer  requirements or to comply with emerging
industry standards,  or if these services do not achieve market acceptance,  our
business could be seriously harmed.

                                      -20-

<PAGE>

Internet and internal  computer system failures or compromises of our systems or
security could damage our reputation and harm our business.

Although a significant  portion of our business is conducted  using  traditional
methods of contact and communications such as face-to-face  meetings,  a portion
of our business is conducted  through the Internet.  We could experience  system
failures and  degradations  in the future.  We cannot assure you that we will be
able to prevent an extended system failure if any of the following events occur:

o        human error;
o        subsystem, component, or software failure;
o        a power or telecommunications failure;
o        an earthquake, fire, or other natural disaster or act of God;
o        hacker attacks or other intentional acts of vandalism; or
o        terrorists acts or war.

Failure  to  adequately  protect  the  integrity  of our  computer  systems  and
safeguard the transmission of confidential information could harm our business.

The secure  transmission of confidential  information  over public networks is a
critical  element of our  operations.  We rely on encryption and  authentication
technology to provide the security and authentication necessary to effect secure
transmission of confidential  information over the Internet.  To the best of our
knowledge,  to date,  we have  not  experienced  any  security  breaches  in the
transmission  of confidential  information.  Moreover,  we continually  evaluate
advanced encryption technology to ensure the continued integrity of our systems.
However,  we cannot  assure you that  advances  in  computer  capabilities,  new
discoveries in the field of cryptography  or other events or  developments  will
not result in a compromise  of the  technology or other  algorithms  used by our
vendors and us to protect client  transaction  and other data. Any compromise of
our systems or security could harm our business.

We depend  on a  limited  number of key  executives  who would be  difficult  to
replace.

Our  success  depends  significantly  on the  continued  services  of our senior
management,  especially  Leonard J.  Sokolow,  our Chairman and Chief  Executive
Officer.  Losing Mr.  Sokolow or any of our  subsidiaries'  other key executives
could seriously harm our business.  We cannot assure you that we will be able to
retain our key  executives  or that we would be able to  replace  any of our key
executives  if we were to lose their  services for any reason.  Competition  for
these  executives is intense.  If we had to replace any of these key executives,
we would not be able to replace the  significant  amount of knowledge that these
key  executives  have about our  operations.  We do not  maintain  "key  person"
insurance policies on any of our executives.

                                      -21-

<PAGE>

Our operating broker-dealer  subsidiaries extend credit to their clients and are
subject to risks as a result.

     Our  broker-dealers,  vFinance  Investments  and  EquityStation,  clear all
transactions  for  customers  on a  fully-disclosed  basis with  their  clearing
brokers,  NFS,  Jefferies,  Merrill  Lynch  Pierce  Fenner  & Smith  (Broadcoart
Clearing Division, Fortis Clearing, Legent Clearing and North American Clearing.
These  clearing  brokers  carry and clear all customer  securities  accounts.  A
limited portion of the customer  securities  activities for both  broker-dealers
are  transacted  on a "margin"  basis,  pursuant to which  credit is extended to
customer. The credit extended to customers (a) is secured by cash and securities
in customer  accounts,  or (b) involves  (i) "short  sales"  (i.e.,  the sale of
securities not yet purchased) or (ii) the purchase and sale of commodity futures
contracts,  substantially  all of which are transacted on a margin basis.  These
risks are increased during periods of volatile markets in which the value of the
collateral  held  could fall below the amount  borrowed  by  clients.  If margin
requirements  are not  sufficient to cover  losses,  our  broker-dealers  may be
required to sell or buy securities at prevailing  market prices and incur losses
to satisfy their client obligations.

We may underwrite  securities  through  vFinance  Investments and are subject to
losses  relating to a decline in the market value of securities  that we hold in
inventory and to potential liability for engaging in underwriting activities.

The underwriting  activities of vFinance Investments involve the purchase,  sale
or  short  sale  of  securities  as a  principal.  As an  underwriter,  vFinance
Investments  purchases securities on a "firm commitment" basis and is subject to
risk that it may be unable to resell  securities  or be  required  to dispose of
securities at a loss. In connection  with our  investment-banking  activities in
which vFinance  Investments  acts as a manager or co-manager of public offerings
of  securities,  we  expect  to  make  increased  commitments  through  vFinance
Investments  of capital  to  market-making  activities  in  securities  of those
issuers.  Any  additional  concentration  of capital in the  securities of those
issuers held in inventory will increase the risk of loss from possible  declines
in the market price of those securities.  In addition,  under federal securities
laws, other laws and court decisions with respect to  underwriters'  liabilities
and  limitations  on  the   indemnification  of  underwriters  by  issuers,   an
underwriter is subject to substantial  potential  liability for misstatements or
omissions  of  material  facts in  prospectuses  and other  communications  with
respect to  securities  offerings.  Our  potential  liability  through  vFinance
Investments as an  underwriter is generally not covered by insurance.  Moreover,
underwriting commitments constitute a charge against net capital and the ability
of vFinance  Investments to make underwriting  commitments may be limited by the
requirement  that it must at all  times be in  compliance  with the net  capital
rule.

Our  success  and  ability  to  compete  depend to a  significant  degree on our
intellectual property.

We rely on copyright and trademark law, as well as confidentiality arrangements,
to protect our intellectual  property. We own the following federally registered
marks: vFinance, Inc.(R), vFinance.com, Inc.(R), AngelSearch(R),  Direct2Desk(R)
and  Hedge  Fund  Accelerator(R).  We  currently  do not have any  patents.  The
concepts and  technologies  we use may not be  patentable.  Our  competitors  or
others may adopt  product or service names  similar to  "vFinance.com,"  thereby
impeding  our ability to build brand  identity  and  possibly  leading to client
confusion.  Our inability to adequately  protect the name  "vFinance.com"  would
seriously  harm our  business.  Policing  unauthorized  use of our  intellectual
property is made  especially  difficult by the global nature of the Internet and
the inherent  difficulty in controlling the ultimate  destination or security of
software or other data transmitted on it.

                                      -22-

<PAGE>

The laws of other countries may afford us little or no effective  protection for
our  intellectual  property.  We cannot  assure  you that the steps we take will
prevent misappropriation of our intellectual property or that agreements entered
into for that  purpose  will be  enforceable.  In  addition,  litigation  may be
necessary in the future to:

o   enforce our intellectual property rights;
o   determine the validity and scope of the proprietary rights of others; or
o   defend against claims of infringement or invalidity.

Such litigation, whether successful or unsuccessful, could result in substantial
costs and  diversions of  resources,  either of which could  seriously  harm our
business.

Our Board of Directors can issue shares of "blank check" preferred stock without
further action by our stockholders.

Our  Board  of  Directors  has the  authority,  without  further  action  by the
stockholders,  to issue up to 2.5 million  shares of  preferred  stock in one or
more series and to fix the rights,  preferences,  privileges and restrictions in
each series of the preferred stock, including:

o        dividend rights;
o        conversion rights;
o        voting rights, which may be greater or lesser than the voting rights
         of the common stock;
o        rights and terms of redemption;
o        liquidation preferences; and
o        sinking fund terms.

The  issuance of shares of  preferred  stock could  adversely  affect the voting
power of holders of our common stock and the likelihood  that these holders will
receive dividends and payments upon our liquidation and could have the effect of
delaying, deferring or preventing a change in control of the Company. We have no
current plans to issue any additional preferred stock in the next twelve months.
Although  the  issuance of  preferred  stock may be  necessary in order to raise
additional capital.

Our stock price has been and continues to be volatile.

The market price for our common stock could  fluctuate  due to various  factors.
These factors include:

o   announcements regarding developments in our business, acquisitions and
    financing transactions;
o   announcements by us or our competitors of new contracts, technological
    innovations or new products;
o   changes in government regulations;
o   fluctuations in our quarterly and annual operating results; and
o   general market conditions.

In addition,  the stock markets have, in recent years,  experienced  significant
price  fluctuations.  These  fluctuations  often  have  been  unrelated  to  the
operating  performance of the specific  companies whose stock is traded.  Market
fluctuations,  as well as economic conditions,  have adversely affected, and may
continue to adversely affect, the market price of our common stock.

                                      -23-

<PAGE>

There are risks  associated  with our stock  trading on the OTC  Bulletin  Board
rather than a national exchange.

There are significant  consequences associated with our stock trading on the OTC
Bulletin Board rather than a national exchange. The effects of not being able to
list our securities on a national exchange include:

o        limited release of the market prices of our securities;
o        limited news coverage;
o        limited interest by investors in our securities;
o        volatility of our stock price due to low trading volume;
o        increased difficulty in selling our securities in certain states due
         to "blue sky" restrictions; and
o        limited ability to issue additional securities or to secure additional
         financing.

Because our common stock is subject to penny stock rules, a stockholder may have
greater difficulty selling shares.

     The  Securities  Enforcement  and Penny Stock Reform Act of 1990 applies to
stocks  characterized  as "penny  stocks,"  and requires  additional  disclosure
relating to the market for penny stocks in  connection  with trades in any stock
defined as a penny stock. The SEC has adopted  regulations that generally define
a penny  stock to be any equity  security  that has a market  price of less than
$5.00 per share, subject to certain exceptions.

The exceptions include exchange-listed equity securities and any equity security
issued by an issuer that has:

o   net tangible assets of at least $2.0 million, if the issuer has been in
    continuous operation for at least three years;
o   net tangible assets of at least $5.0 million, if the issuer has been in
    continuous operation for less than three years; or
o   average annual revenue of at least $6.0 million for the last three years.

Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the associated risks.

If our financial  condition  does not meet the above tests,  then trading in the
common stock will be covered by Rules 15g-1 through 15g-6 and 15g-9  promulgated
under the  Securities  Exchange  Act.  Under  those  rules,  broker-dealers  who
recommend such securities to persons other than their established  customers and
institutional  accredited  investors  must  make a special  written  suitability
determination  for the purchaser and must have received the purchaser's  written
agreement to a transaction  prior to sale. These  regulations would likely limit
the ability of  broker-dealers  to trade in our common stock and thus would make
it more difficult for purchasers of common stock to sell their securities in the
secondary  market.  The market  liquidity for the common stock could be severely
affected.

                                      -24-

<PAGE>

Stockholders holdings may be diluted as a result of additional stock issuances.

     As of March 26, 2006, we had outstanding  approximately 54.4 million shares
of common stock, options to purchase an approximate total of 15.6 million shares
of common  stock and  warrants to purchase an  approximate  total of 3.9 million
shares of common stock. We are authorized to issue up to 100.0 million shares of
common stock and are therefore  able to issue  additional  shares  without being
required to obtain  stockholder  approval.  If we issue additional shares, or if
our  existing  stockholders  exercise or convert  their  outstanding  options or
notes, our other stockholders may own a smaller percentage of the Company.

ITEM 2.   PROPERTIES.

     Our  corporate  headquarters  are  located  in Boca  Raton,  Florida.  This
property and our other three  locations in New York, New York,  Mt. Laurel,  New
Jersey and Boca Raton,  Florida are leased.  We consider these  facilities to be
reasonably insured and adequate for the foreseeable needs of our Company.

ITEM 3.   LEGAL PROCEEDINGS.

     From time to time we, and/or one of our subsidiaries,  are named as a party
to a lawsuit that has arisen in the ordinary course of business.  Although it is
possible that losses  exceeding  amounts  already  recorded may be incurred upon
ultimate  resolution of these existing legal  proceedings,  we believe that such
losses, if any, will not have a material adverse effect on our business, results
of operations or financial  position;  however,  unfavorable  resolution of each
matter individually or in the aggregate could affect the consolidated results of
operations for the quarterly and annual periods in which they are resolved.

     The  businesses  of  vFinance   Investments   and   EquityStation   involve
substantial  risks of liability,  including  exposure to liability under federal
and state securities laws in connection with the underwriting or distribution of
securities and claims by dissatisfied customers for fraud, unauthorized trading,
churning, mismanagement and breach of fiduciary duty. In recent years, there has
been an increasing  incidence of litigation  involving the securities  industry,
including class actions that generally seek rescission and substantial damages.

     In the  ordinary  course of  business,  we and/or our  subsidiaries  may be
parties to other legal  proceedings  and  regulatory  inquiries,  the outcome of
which,  either  singularly or in the aggregate,  is not expected to be material.
There can be no assurance  however that any  sanctions  will not have a material
adverse  effect on our financial  condition or results of operations  and/or our
subsidiaries.  The  following  is a brief  summary  of certain  matters  pending
against or involving us and our subsidiaries.

                                      -25-

<PAGE>

     On or about February 28, 2005,  Knight Equity Markets,  LP ("Knight") filed
an arbitration  action (NASD Case No.  05-01069)  against  vFinance  Investments
claiming that vFinance  Investments  received  roughly $6.5 million in dividends
that  rightfully  belong  to  Knight.  vFinance  Investments  asserted  that the
dividends  actually  went to two of its clients,  Pearl  Securities  LLC ("Pearl
Securities") and Michael Balog, and that vFinance  Investments has no liability.
vFinance  Investments  filed third party claims  against  Pearl  Securities  and
Michael  Balog to bring all of the parties  into the  action.  Knight is seeking
approximately  $6.5  million in damages plus costs,  attorney  fees and punitive
damages.  vFinance  Investments  denies any  liability  to Knight and intends to
vigorously defend against Knight's claims.

     On or about  September  27, 2005,  John S.  Matthews  filed an  arbitration
action  (NASD  Case No.  05-014991)  against  us,  claiming  that we  wrongfully
terminated his independent  contractor agreement with us and that we "stole" his
clients and brokers. Mr. Matthews has obtained a temporary restraining order and
an agreed upon  injunction  was issued by the NASD panel.  Mr.  Matthews and JMS
Capital  Holding Corp.  ("JMS"),  a plaintiff in the  arbitration  action,  also
request  unspecified  damages resulting from our alleged improper activity.  The
full hearing on the merits was  postponed and has not yet been  rescheduled.  We
intend to vigorously defend this matter. In addition to contesting and defending
against JSM's and Mr.  Matthews  claims,  we filed a counterclaim  for indemnity
based upon the contractual agreement between the parties.

     On or about April 2005 Gregory F. and Ruth A. Whitten filed an  arbitration
action (NASD Case No. 05-02103) with NASD naming vFinance Investments,  Inc., as
a Co-Respondent.  The Statement of Claim filed in this action alleges, negligent
and  intentional  misrepresentations,  breach of  fiduciary  duty,  violation of
Washington  State  Securities  Act,  and  violation of the  Washington  Consumer
Protection  Act , in  connection  with  the  handling  of  claimants'  brokerage
accounts by Robert  Agriogianis.  The  Statement of Claim  alleges  compensatory
damages  in excess of  $445,000  plus  interest,  costs,  and  attorney's  fees.
vFinance has filed an Answer and Affirmative Defenses with NASD and discovery is
substantially  complete.  The  Final  Hearing  is set for  May 2, 3, & 4,  2007.
vFinance  Investments denies any liability to Gregory F. and Ruth A. Whitten and
intends to vigorously defend against their claim.

     We are engaged in a number of other  legal  proceedings  incidental  to the
conduct of our business.  These claims aggregate withing the range of $50,000 to
$260,000.

                                      -26-

<PAGE>

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

     At our annual  meeting of  shareholders  held on  November  28,  2006,  our
shareholders voted on the following three matters:

1. The election of two directors to serve for a term expiring at the next annual
meeting  or until  their  respective  successors  have  been  duly  elected  and
qualified.

     2. To approve an amendment to our Certificate of  Incorporation to increase
the number of authorized shares from 75 million to 100 million.

3. The ratification of the appointment of our independent  registered accounting
firm for the year ending December 31, 2006.

     Both of the director nominees were elected based on the following votes:

           Name                Votes Cast For           Votes Withheld

     Leonard J. Sokolow         35,262,875                 336,434

     Timothy E. Mahoney         34,523,875               1,075,434

     On December 29,  2006,  we entered into a  resignation  agreement  with Mr.
Mahoney,  pursuant  to which Mr.  Mahoney  resigned  from his  positions  as the
Chairman  of our Board of  Directors  and  Chief  Operating  Officer,  effective
January 4, 2007. See "Directors, Executive Officers and Corporate Governance" in
Part III, Item 10 of this Annual Report of Form 10-K.

     The  approval  of an  amendment  to our  Certificate  of  Incorporation  to
increase  the number of  authorized  shares  from 75 million to 100  million was
ratified based on the following votes.

  Votes Cast For              Votes Cast Against            Votes Abstained

  34,318,462                       1,178,844                     102,003

     The  approval  of Sherb & Co.,  LLP as our  independent  registered  public
accounting  firm for the year ending December 31, 2006 was ratified based on the
following votes.

Votes Cast For                 Votes Cast Against            Votes Abstained

 35,278,547                          320,762                         -


                                      -27-
<PAGE>

                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information, Holders and Dividends

     Our common stock,  par value $0.01 per share, is traded on the OTC Bulletin
Board of the National  Association of Securities Dealers,  Inc. under the symbol
"VFIN."

     The following  table sets forth the closing high and low price  information
for our  common  stock for the  periods  indicated  below,  as  reported  by the
National Quotation Bureau during such periods:


                                 High           Low
                           ------------   ------------
2006:
   Fourth Quarter               $ 0.27         $ 0.18
   Third Quarter                $ 0.25         $ 0.18
   Second Quarter               $ 0.31         $ 0.18
   First Quarter                $ 0.28         $ 0.16

2005:
   Fourth Quarter               $ 0.21         $ 0.15
   Third Quarter                $ 0.22         $ 0.15
   Second Quarter               $ 0.33         $ 0.17
   First Quarter                $ 0.37         $ 0.23


     The foregoing quotations supplied by the National Quotations Bureau reflect
inter-dealer prices, without retail mark-up,  markdown or commission and may not
represent actual transactions.

     On March 26,  2007,  the closing  price of our common  stock was $0.19,  as
reported on the OTC Bulletin  Board of the NASD. The number of  stockholders  of
record for the common stock as of March 26, 2007 was 293.

     We are  authorized to issue 100 million  shares of common  stock,  of which
54.4 million  shares were issued and  outstanding  as of March 26, 2007.  We are
authorized to issue up to 2.5 million shares of preferred  stock,  none of which
are currently issued or outstanding.

     We  have  not  paid  any  cash  dividends  since  inception,  and we do not
anticipate paying any cash dividends in the foreseeable future.

     Our transfer agent is Continental Stock Transfer & Trust Company, New York,
New York 10004.

                                      -28-

<PAGE>

Recent Sales of Unregistered Securities

     On October 16, 2006, we entered into a settlement  agreement  with Henry S.
Snow, Sandra L. Snow,  Michael Golden and Ben Lichtenberg to settle a suit filed
against us alleging breach of contract and unjust enrichment and seeking damages
of $250,000  plus  interest  and court  costs.  Pursuant to the terms of the now
settlement agreement, we issued 1,000,000 shares of our common stock to Henry S.
Snow and Sandra L. Snow.  The closing  price of our common  stock on October 16,
2006 was $0.20 per share.  The  transaction was exempt from  registration  under
Section 4(2) of the Securities Act.

     In November  2004, in accordance  with the terms of the Global  Acquisition
agreements,  we delivered into escrow  8,324,690 shares of our common stock, and
warrants to purchase  3,299,728  shares of our common  stock at a price of $0.11
per share.  After the shares and warrants  were  deposited in escrow,  a dispute
arose among the  parties  over the amount of the shares and  warrants  that were
deposited in escrow and the value of such  securities.  On November 7, 2006,  we
and vFinance Investments entered into a settlement and escrow release agreement,
pursuant  to which the  securities  issued in the name of Global and Level2 were
cancelled.  In lieu thereof,  we issued  3,288,253  and 3,288,252  shares of our
common  stock to Global and Level2,  respectively.  We also  issued  warrants to
purchase  1,303,393 and 1,303,392 shares of our common stock at a price of $0.11
per share to Global and Level2,  respectively.  The closing  price of our common
stock on November 7, 2006 was $0.22 per share. We issued the shares and warrants
to Global and Level2 pursuant to the transactional  exemption under Section 4(2)
of the Securities Act of 1933.

     On May 11,  2006,  under  the terms of the asset  purchase  agreement  with
Sterling  Financial,  we issued 13 million shares of our common stock to SFGC in
exchange for the acquired  assets.  The closing price of our common stock on May
11,  2006 was $0.25 per  share.  Such  securities  were  issued  pursuant  to an
exemption provided by Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D promulgated thereunder.

Issuer Purchases of Equity Securities

     None.

Performance Graph

         The following graph and table compare the cumulative total stockholder
return on our common stock from December 31, 2001 through December 31, 2006 with
the performance of: (i) the Russell 2000 Index and (ii) the DJ Select Microcap
indices. We have created these comparisons using data derived from Yahoo!
Finance. The comparisons reflected in the graph and table are not intended to
forecast the future performance of our stock and may not be indicative of future
performance. The graph and table assume investments of $100 in our stock and
each index on December 31, 2001.




                                [GRAPHIC OMITTED]




                                            Cumulative Total Return
<TABLE>
<CAPTION>

                            2001       2002       2003         2004        2005        2006
                         ----------- --------- -----------  ----------- ----------- -----------
<S>                          <C>        <C>         <C>          <C>         <C>         <C>
vFinance, Inc.               100.00     15.79       33.33        43.86       29.82       36.84
Russell 2000                 100.00     78.42      114.00       133.38      137.81      161.24
DJ Select Microcap           100.00     97.28      153.90       178.56      192.42      221.98

</TABLE>

                                      -29-

<PAGE>

ITEM 6.                  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>

                                                               As of and for the Years Ended December 31,
                                          ------------------------------------------------------------------------------------------
                                                2006                2005            2004                2003              2002
                                                                 (Restated        (Restated          (Restated         (Restated
                                                                and Revised)      and Revised)      and Revised)       and Revised)
                                          ----------------   ----------------   -----------------  -----------------  --------------
(In thousands, except per share data)

<S>                                            <C>                <C>            <C>                <C>                <C>
Net revenues                                   $ 38,594.9         $ 26,070.7     $ 26,500.0         $ 24,601.8         $ 19,399.7
Income (loss) from operations                    (2,258.4)          (1,162.2)       1,517.8              493.5           (1,796.5)
Gain on forgiveness of debt                             -                  -        1,500.0                  -                  -
Net income (loss)                              $ (2,133.5)        $   (999.6)    $  2,454.8         $    320.4         $ (2,431.9)

Net income (loss) per share: basic             $    (0.04)        $    (0.02)    $     0.07         $     0.01         $    (0.09)
Wt. avg. shares outstanding: basic               48,714.8           40,049.7       33,773.3           29,609.1           26,716.4

Net income (loss) per share: diluted           $    (0.04)        $    (0.02)    $     0.07         $     0.01         $    (0.09)
Wt. avg. shares outstanding: diluted             48,714.8           40,049.7       35,840.2           29,963.4           26,716.4

Total assets                                   $ 11,643.2         $  8,897.0     $  9,814.1         $  6,378.5         $  5,129.2
Long-term debt including capital lease,             125.6         $    225.1     $        -         $  1,889.6         $  1,701.6
obligations, net of current portion
Shareholders' equity                           $  6,899.7         $  4,974.5     $  6,085.7         $  1,273.9         $    849.4

</TABLE>

     See Notes 1, 4, 8 and 9 to our  Consolidated  Financial  Statements in Part
II, Item 8 of this Annual Report of Form 10-K for  discussions  of the effect of
restating and revising  certain items in our  historical  financial  statements,
acquisitions,  shareholders' equity and stock options,  respectively,  and their
effect on  comparability  of  year-to-year  data.  See "Item 5.  Market  for the
Registrant's Common Equity,  Related Stockholder Matters and Issuer Purchases of
Equity Securities" for a discussion of our dividend policy.

                                      -30-

<PAGE>


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

     You  should  read the  following  discussion  in  conjunction  with Part I,
including matters set forth in the "Risk Factors" section of this Form 10-K, and
our Consolidated  Financial  Statements and notes thereto included  elsewhere in
this Form 10-K.

     We  have  restated  and  revised  certain  amounts  in our  2005  and  2004
Consolidated  Financial  Statements as a result of comments we received from the
staff  of  the  Securities  and  Exchange  Commission.  As  a  result  of  these
restatements and revisions, our total revenues and income (loss) from operations
increased  (decreased)  from previously  reported amounts by $244.4 thousand and
$(137.7)  thousand,  respectively,  in 2005  and  $170.7  thousand  and  $(17.6)
thousand,  respectively, in 2004. Additionally,  our net income (loss) increased
(decreased)  from  previously  reported  amounts by $137.7  thousand  ($0.01 per
share) and $(128.0)  thousand ($0.01 per share) in 2005 and 2004,  respectively.
See Note 1 to our Consolidated  Financial  Statements included in Item 8 of this
Annual  Report on Form 10-K for  additional  discussion of the  restatement  and
revision.

     In  addition  to  the  aforementioned  restatement  and  revision,  certain
reclassifications   of  amounts  previously  reported  have  been  made  to  the
accompanying  Consolidated Financial Statements in order to maintain consistency
and comparability between periods presented.

     Overview

     We are a global financial services company which specializes in high growth
opportunities.  Our insight  into this  marketplace  flows from three  principal
lines of business:  providing investment banking and advisory services to micro,
small and mid-cap high growth companies;  making markets in over 3,000 micro and
small cap stocks;  and offering  information  services on our website, a leading
destination  for  emerging  companies  seeking  capital  and  investors  seeking
opportunities.  Due to our focus, we believe we are uniquely positioned to offer
alternative investments to institutional and high net-worth investors seeking to
outperform  market  indices in addition  to offering a full range of  investment
options. With over 40 offices in the U.S. and other parts of the world, we serve
more than 12,000 corporate,  institutional and high net worth clients.  vFinance
Investments,  Inc.  ("vFinance  Investments,  Inc.")  and  EquityStation,   Inc.
("EquityStation"), both our subsidiaries, are broker-dealers registered with the
Securities and Exchange Commission ("SEC"),  and members of National Association
of Securities Dealers ("NASD") and Securities  Investor  Protection  Corporation
("SIPC").  vFinance  Investments  is  also  a  member  of the  National  Futures
Association ("NFA").

     In May 2006,  we completed  the  acquisition  of select  assets of Sterling
Financial   Group  (the  "Sterling   Financial   Acquisition"),   following  the
acquisition of certain assets of Global Partners Securities, Inc. ("Global") and
100% of the  issued  and  outstanding  equity  securities  of  EquityStation  in
November 2004 (the "Global  Acquisition").  These  acquisitions are reflected in
our financial statements from their respective  transaction dates, affecting the
comparability of our results of operations in the years ended December 31, 2006,
2005  and  2004,  as  discussed  in  the  sections  that  follow.  See  Note  4,
"Acquisitions,"  to our  Consolidated  Financial  Statements  included in Item 8
contained in this Annual Report on Form 10-K for further  information  about the
Sterling Financial and Global Acquisitions.

                                      -31-

<PAGE>

     The largest  portion of our  revenues,  62%, 72% and 65% in 2006,  2005 and
2004,  respectively,  was attributable to retail brokerage commissions and other
brokerage-related   income   generated   by  our  wholly   owned   broker-dealer
subsidiaries,  vFinance  Investments  and  EquityStation.  Our retail  brokerage
operations  buy and sell  securities  for our customers from other dealers on an
agency  basis,  and charge our  customers a commission  for our  services.  Such
commission  revenue  is  derived  from  brokerage  transactions  in  listed  and
over-the-counter  securities and mutual fund securities.  We also generated 25%,
16% and 19% of our  revenues  through  trading  profits  generated in our market
making  activities  in 2006,  2005 and 2004,  respectively.  The majority of our
remaining revenues are derived primarily from investment banking-related success
and consulting fees.

     We reported a net loss of $2.1 million  ($0.04 per basic and diluted share)
in 2006,  compared to $1.0 million  ($0.02 per basic and diluted share) in 2005.
Our revenues increased $12.5 million in 2006, or 48%, principally as a result of
the Sterling  Financial  Acquisition  and  improved  market  conditions  for our
investment   banking  and  trading   businesses.   Increases  in   compensation,
commissions and benefit  expenses,  clearing and transaction costs and occupancy
and equipment costs related to the increased revenues and the Sterling Financial
Acquisition offset these increased  revenues.  Additionally,  we recorded $448.2
thousand of stock-based  compensation expense in 2006 compared to $19.4 thousand
in 2005, as a result of the implementation of Statement of Financial  Accounting
Standards No. 123 (revised 2004),  "Share Based Payment" ("SFAS No. 123R").  Our
depreciation and amortization expense also increased by $512.4 thousand in 2006,
primarily as a result of  amortization  expense  recorded in connection with the
Sterling Financial Acquisition.

     We reported a net loss of $1.0 million  ($0.02 per basic and diluted share)
in 2005,  compared  to net income of $2.4  million  ($0.07 per basic and diluted
share) in 2004.  During 2005, our revenues  decreased  $429.3  thousand,  or 2%,
primarily as a result of less  favorable  market  conditions  for the investment
banking and trading  businesses  in 2005 than in 2004,  while our  clearing  and
transaction costs increased $737.9 thousand in 2005,  principally as a result of
the addition of the  EquityStation  platform business and increases in execution
fees for wholesale  trading.  Additionally,  our  depreciation  and amortization
expense  increased $280.2 thousand in 2005,  primarily as a result of the Global
Acquisition,  and we recorded a goodwill  impairment  charge of $420.0 thousand.
During  2004,  we  recorded  a $1.5  million  gain on  forgiveness  of debt,  in
connection with the termination of a credit agreement.

                                      -32-

<PAGE>

Results of Operations

     The  following  table and  discussion  summarizes  the changes in the major
revenue  and expense  categories  for the past three  years,  with 2005 and 2004
having been restated:

<TABLE>
<CAPTION>
                                                                  As of and for the Years Ended December 31,
                                         ------------------------------------------------------------------------------------------
                                            2006         2005         Change      % Change      2004         Change      % Change
                                         ------------ ------------  -----------  ----------------------- ------------- ------------
 Revenues:
<S>                                       <C>          <C>           <C>             <C>     <C>            <C>             <C>
    Commissions - agency                  $ 20,323.7   $ 15,941.2    $ 4,382.5       27 %    $ 14,571.9     $ 1,369.3         9 %
    Trading profits                          9,606.0      4,177.4      5,428.6      130 %       5,156.8        (979.4)      (19)%
    Success fees                             4,523.5      2,250.5      2,273.0      101 %       3,395.6      (1,145.1)      (34)%
    Other brokerage related income           3,546.0      2,837.6        708.4       25 %       2,567.5         270.1        11 %
    Consulting fees                            375.4        523.6       (148.2)     (28)%         370.8         152.8        41 %
    Other                                      220.3        340.4       (120.1)     (35)%         437.4         (97.0)      (22)%
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
         Total revenues                     38,594.9     26,070.7     12,524.2       48 %      26,500.0        (429.3)       (2)%
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------

 Compensation, commissions and benefits     31,232.0     20,313.3     10,918.7       54 %      19,791.0         522.3         3 %
 Clearing and transaction costs              4,337.2      2,977.2      1,360.0       46 %       2,239.3         737.9        33 %
 General and administrative costs            3,158.8      2,332.8        826.0       35 %       2,310.2          22.6         1 %
 Occupancy and equipment costs               1,166.6        743.3        423.3       57 %         475.6         267.7        56 %
 Depreciation and amortization                 958.7        446.3        512.4      115 %         166.1         280.2       169 %
 Goodwill impairment                               -        420.0       (420.0)     100 %             -         420.0        nm
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
         Total operating costs              40,853.3     27,232.9     13,620.4       50 %      24,982.2       2,250.7         9 %
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
    Income (loss) from operations           (2,258.4)    (1,162.2)    (1,096.2)      94 %       1,517.8      (2,680.0)     (177)%
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
 Other income (expenses):
    Gain on forgiveness of debt                    -            -            -        0 %       1,500.0      (1,500.0)     (100)%
    Interest income                             85.3         82.6          2.7        3 %          35.1          47.5       135 %
    Interest expense                           (59.7)       (30.7)       (29.0)      94 %        (394.4)        363.7       (92)%
    Dividend income                             22.5          5.9         16.6      281 %          27.3         (21.4)      (78)%
    Other income (expense), net                 76.8        104.8        (28.0)     (27)%        (231.0)        335.8        nm
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
         Total other income (expense)          124.9        162.6        (37.7)     (23)%         937.0        (774.4)      (83)%
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
 Income (loss) before income taxes          (2,133.5)      (999.6)    (1,133.9)     113 %       2,454.8      (3,454.4)     (141)%
 Income tax benefit (provision)                    -            -            -       nm           (40.0)         40.0      (100)%
                                         ------------ ------------  -----------  --------- ------------- ------------- -----------
    Net income (loss)                     $ (2,133.5)    $ (999.6)  $ (1,133.9)     113 %     $ 2,414.8    $ (3,414.4)     (141)%
                                         ============ ============  ===========  ========= ============= ============= ===========

    nm - not meaningful

</TABLE>
                                                                           -33-

<PAGE>

     Revenues
<TABLE>
<CAPTION>
                                                            As of and for the Years Ended December 31,
                                         -------------------------------------------------------------------------------------
                                            2006          2005       Change      % Change     2004       Change     % Change
                                                       (Restated                           (Restated
                                                      and Revised)                        and Revised)
                                         ------------ -----------  ------------  -------- ------------ -----------  ----------
 Revenues:
<S>                                       <C>         <C>            <C>            <C>    <C>          <C>             <C>
   Commissions - agency                   $ 20,323.7  $ 15,941.2     $ 4,382.5      27 %   $ 14,571.9   $ 1.369.3        9 %
   Trading profits                           9,606.0     4,177.4       5,428.6     130 %      5,156.8      (979.4)     (19)%
   Success fees                              4,523.5     2,250.5       2,273.0     101 %      3,395.6    (1,145.1)     (34)%
   Other brokerage related income            3,546.0     2,837.6         708.4      25 %      2,567.5       270.1       11 %
   Consulting fees                             375.4       523.6       (148.2)     (28)%        370.8       152.8       41 %
   Other                                       220.3       340.4       (120.1)     (35)%        437.4       (97.0)     (22)%
                                         ------------ -----------  ------------  -------- ------------ -----------  --------
        Total revenues                    $ 38,594.9   $26,070.7    $ 12,524.2      48 %   $ 26,500.0      (429.3)      (2)%
                                         ============ ===========  ============  ======== ============ ===========  ========

</TABLE>

     In 2006,  total revenues  increased $12.5 million,  or 48%,  primarily as a
result  of  the  Sterling  Financial   Acquisition  and  more  favorable  market
conditions.  Approximately  43% of the $12.5 million increase is attributable to
increased trading profits, derived from the customer relationships acquired from
Sterling  Financial in May 2006 and generally more favorable trading  conditions
in our market making activities.  An additional 35% of the 2006 revenue increase
resulted from higher  agency  commissions,  attributable  to the addition of new
brokers, through both the Sterling Financial Acquisition and other brokers hired
independently. The majority of the remaining increase was due to higher revenues
from  success  fees  relating  to  investment  banking  transactions,  resulting
primarily  from more  favorable  market  conditions in 2006.  Non-cash  revenues
derived from success fees increased to $2.0 million in 2006 from $487.5 thousand
in 2005.

     Total revenues decreased 2% in 2005 compared to 2004, primarily as a result
of 19% and 34%  decreases  in trading  profits and success  fees,  respectively,
resulting  from less  favorable  market  conditions in 2005 than in 2004 for the
trading and investment banking businesses,  respectively.  Partially  offsetting
these factors, was a 9% increase in retail agency commissions, attributable to a
$1.6 million  increase in revenues from the customer  relationships  recorded in
the Global  Acquisition,  derived from having a full year of operations in 2005,
compared to two months in 2004.



                                      -34-

<PAGE>

Operating Expenses
<TABLE>
<CAPTION>
                                                             As of and for the Years Ended December 31,
                                         ----------------------------------------------------------------------------------------
                                                         2005                                     2004
                                                       (Restated                    %          (Restated                    %
                                              2006    and Revised)     Change    Change      and Revised)     Change      Change
                                         ------------ -----------  ------------ --------- ----------------- -----------  --------

<S>                                       <C>         <C>           <C>             <C>         <C>            <C>           <C>
 Compensation, commissions and benefits   $ 31,232.0  $ 20,313.3    $ 10,918.7      54 %        $ 19,791.0     $ 522.3       3 %
 Clearing and transaction costs              4,337.2     2,977.2       1,360.0      46 %           2,239.3       737.9      33 %
 General and administrative costs            3,158.8     2,332.8         826.0      35 %           2,310.2        22.6       1 %
 Occupancy and equipment costs               1,166.6       743.3         423.3      57 %             475.6       267.7      56 %
 Depreciation and amortization                 958.7       446.3         512.4     115 %             166.1       280.2     169 %
 Goodwill impairment                               -       420.0        (420.0)   (100)%                 -       420.0      nm
                                         ------------ -----------  ------------ --------- ----------------- -----------  --------
        Total operating costs             $ 40,853.3  $ 27,232.9    $ 13,620.4      50 %        $ 24,982.2   $ 2,250.7       9 %
                                         ============ ===========  ============ ========= ================= ===========  ========
   nm - not meaningful
</TABLE>

     Compensation, commissions and benefits.

     Compensation,  commissions and benefits increased $10.9 million, or 54%, in
2006.  Compensation,  commissions  and  benefits  are  correlated  with  to  our
revenues,  which  increased  48% in 2006,  primarily as a result of the Sterling
Financial Acquisition.  We also recorded $448.2 thousand of compensation expense
in  connection  with the adoption of SFAS No. 123R,  effective  January 1, 2006.
Additional increases in compensation,  commissions and benefits are attributable
to increased benefit costs,  particularly  health insurance  premiums.  Non-cash
compensation  paid  increased  to $1.4  million in 2006 from $158.1  thousand in
2005.

     Compensation, commissions and benefits increased $522.3 thousand, or 3%, in
2005,  primarily  as a result of  increased  personnel  to  support  our  growth
resulting, in part, from the Global Acquisition, including the addition of a new
senior management positions and new staff positions.

     Clearing and transaction costs.

     Clearing and  transaction  costs  increased  $1.4 million in 2006,  or 46%,
primarily  as a result of an  increase in  transaction  volume  attributable  to
customer  relationships  acquired in the Sterling Financial  Acquisition and the
addition of other independent brokers.

     Clearing and transaction  costs increased  $737.9 thousand in 2005, or 33%,
primarily  as a result of the  addition of the  EquityStation  trading  platform
business and  increases in execution  fees for wholesale  trading,  resulting in
higher average transaction costs associated with trading activities.

     General and administrative costs.

     General and  administrative  expenses increased $826.0 thousand in 2006, or
35%,  primarily  as a result of (i) a $303.0  thousand  increase  in legal fees,
primarily  associated  with  litigation  and  arbitration  matters,  (ii) $261.3
thousand of non-cash costs  associated with the issuance of equity in connection
with arbitration  settlements,  and (iii) the forgiveness of $215.0 thousand due
from an unconsolidated affiliate.

     General and  administrative  expenses  increased $22.6 thousand in 2005, or
1%,  primarily  as a result of the addition of a disaster  recovery  site in Mt.
Laurel, New Jersey. In addition,  we incurred non-cash expenses in 2005 of $80.0
thousand for the impairment of our investment in an unconsolidated affiliate.

                                      -35-

<PAGE>

     Occupancy and equipment costs.

     Occupancy and equipment expenses increased $423.3 thousand in 2006, or 57%,
primarily as a result of the occupancy and equipment  costs  associated with the
Sterling Financial Acquisition.

     In 2005,  occupancy and equipment  expenses  increased $267.7 thousand,  or
56%,  primarily  as a result of  increased  rent expense due to expansion of our
leased  facilities at the corporate  offices in Boca Raton and New York City and
the addition of a disaster recovery leased location in Mt. Laurel, New Jersey.

     Depreciation and amortization.

     Depreciation and  amortization  increased $512.4 thousand in 2006, or 115%,
primarily as a result of the amortization  expense  associated with the customer
relationships from the Sterling Acquisition.

     In 2005,  depreciation and amortization increased $280.2 thousand, or 169%,
primarily as a result of the amortization  expense  associated with the customer
relationships from the EquityStation Acquisition.

     Goodwill impairment.

     In 2005,  we recorded  goodwill  impairment  charges of $420.0  thousand to
write-off  goodwill from a prior period  acquisition,  when certain brokers left
the firm and we determined  there was no longer value  remaining in the goodwill
recorded in connection  with the  acquisition.  We had no goodwill  remaining at
December 31, 2006 or 2005.

Other Income (Expense)
<TABLE>
<CAPTION>
                                                              As of and for the Years Ended December 31,
                                          -----------------------------------------------------------------------------------------
                                                          2005                                   2004
                                                        (Restated                    %         (Restated                      %
                                               2006    and Revised)     Change    Change      and Revised)     Change      Change
 Other income (expenses):                 ------------ -----------  ------------ --------- ----------------- -----------  ---------
<S>                                            <C>         <C>           <C>          <C>         <C>             <C>        <C>
   Gain on forgiveness of debt              $     -     $     -      $     -         nm      $ 1,500.0       $(1,500.0)     (100)%
   Interest income                             85.3        82.6          2.7          3 %         35.1            47.5       135 %
   Interest expense                           (59.7)      (30.7)       (29.0)        94 %       (394.4)          363.7       (92)%
   Dividend income                             22.5         5.9         16.6        281 %         27.3           (21.4)      (78)%
   Other income (expense), net                 76.8       104.8        (28.0)       (27)%       (231.0)          335.8        nm
                                         ------------ -----------  ------------ --------- ----------------- -----------  ----------
        Total other income (expense)        $ 124.9     $ 162.6      $ (37.7)       (23)%    $   937.0       $ (774.4)       (83)%
                                         ============ ===========  ============ ========= ================ ============  ==========
   nm - not meaningful
</TABLE>


     During 2004,  we recorded a $1.5 million gain on  forgiveness  of debt as a
result of an agreement between us and our clearing broker, pursuant to which our
clearing  broker  agreed  to repay a credit  facility  under  which we owed $1.5
million. See Note 11 to the Consolidated  Financial Statements contained in Item
8 to this Annual Report on Form 10-K for additional discussion on this gain.

     Interest  expense  increased  $29.0 thousand in 2006, or 94% primarily as a
result of an increase in capital lease obligations  arising from acquisitions of
computer equipment.  Interest expense decreased $363.7 thousand in 2005, or 92%,
primarily as a result of the  elimination of interest  expenses  associated with
the $1.5 million of debt forgiven in 2004.

                                      -36-

<PAGE>

     Other income,  net  decreased  $28.0  thousand in 2006,  or 27%,  primarily
because 2005 results included income from an arbitration  settlement,  which did
not recur in 2006, Partially offseting this factor was by sublease rental income
recorded in connection with the sublease of property  assumed in connection with
the Sterling Financial Acquisition.

     We recorded other income, net of $104.8 thousand in 2005, compared to other
expense, net of $231.0 thousand in 2004. Other income, net included $62.5
thousand received in the settlement of a legal matter in 2005. Other expenses,
net, were comprised primarily of $231.6 thousand of conversion premium expense
recorded in connection with a note conversion in 2004.

Income Tax Provision (Benefit)

     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,  2006 and 2005 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.

     We did not record a provision  for income taxes in 2006 or 2005 as a result
of the net loss we recorded in those periods.

     We recorded a  provision  for income  taxes of $40.0  thousand in 2004 as a
result of Alternative Minimum Taxes under the Internal Revenue Service Code.

Liquidity and Capital Resources

     Historically,  we have satisfied our liquidity and regulatory capital needs
through the  issuance of equity and debt  securities.  As of December  31, 2006,
liquid assets  consisted  primarily of cash and cash equivalents of $4.2 million
and marketable securities of $1.4 million, for a total of $5.6 million, which is
approximately  $300.0  thousand  higher than $5.3 million in liquid assets as of
December 31,  2005.  As of December 31, 2006,  we had  long-term  capital  lease
obligations of $125.6 thousand, net of current obligations of $210.8 thousand.

     Both vFinance  Investments and EquityStation are subject to the SEC Uniform
Net Capital Rule (rule 15c3-1),  which  requires the  maintenance of minimum net
capital and requires  that the ratio of aggregate  indebtedness  to net capital,
both as  defined,  shall not  exceed  15 to 1 (and the rule of the  "applicable"
exchange  also  provides  that  equity  capital  may  not be  withdrawn  or cash
dividends  paid if the  resulting  net capital  ratio would  exceed 10 to 1). At
December 31, 2006, vFinance  Investments had net capital of $1.5 million,  which
was $514.5  thousand  in excess of its  required  net  capital of $1.0  million.
EquityStation  had net capital of $427.3  thousand  that was $327.3  thousand in
excess of its required net capital of $100.0 thousand.

                                      -37-

<PAGE>

     For the periods ended December 31, 2006 and 2005, we had gross deferred tax
assets of $5.3 million and $4.6 million, respectively, which were offset by 100%
valuation  allowances.  The valuation  allowances were recorded  against certain
deferred tax assets that were generated from net operating losses. In evaluating
whether we would  recover  these  deferred  tax assets,  we have not assumed any
future taxable income in the jurisdictions associated with these carry-forwards.
Based on our history of generating  operating  losses,  management  believes the
ability to realize the benefit of net operating  loss  carry-forwards  to offset
future taxable income is uncertain. However, future income generation and/or the
use of tax planning  strategies to recover these  deferred tax assets could lead
to the reversal of the valuation allowances and a reduction in future income tax
expense.  We  believe  that  our  estimates  for  the  valuation  allowance  are
appropriate, based on current facts and circumstances.

     Cash and cash  equivalents  increased  (decreased)  by  $(222.2)  thousand,
$(828.9) thousand and $1.5 million during 2006, 2005 and 2004, respectively. The
major components of these changes are discussed below.

     Cash provided by (used in)  operating  activities  was $(55.6)  thousand in
2006 compared to $(708.5)  thousand in 2005 and $1,409.8  thousand in 2004. Cash
provided by (used in)  operating  activities  includes  net income  adjusted for
non-cash items and the effects of changes in working capital  including  changes
in trading  securities.  Cash used in operating  activities  decreased by $652.9
million in 2006,  primarily as a result of a $405.2 thousand decrease in amounts
due from clearing brokers and accounts receivable and a $716.0 thousand increase
in  accrued  compensation,  partially  offset by a $413.4  increase  in  trading
securities.

     Cash used in operating  activities was $708.5 thousand in 2005, compared to
cash provided by operating  activities  of $1.4 million in 2004,  primarily as a
result of a $3.4 million reduction in net income, partially offset by the effect
of a $1.5 million non-cash gain on forgiveness of debt included in net income in
2004.

     Cash provided by (used in) investing  activities in 2006 was $41.9 thousand
compared to $(90.5)  thousand in 2005 and $79.0  thousand in 2004.  Cash used in
investing  activities included capital  expenditures of $222.7 thousand,  $125.7
thousand and $245.8  thousand in 2006,  2005 and 2004,  respectively,  excluding
non-cash  additions to property  and  equipment  through  capital  leases.  Cash
provided by investing  activities includes the proceeds from sales of securities
we received as success fees for investment  banking services of $426.5 thousand,
$35.2 thousand and $268.6  thousand in 2006, 2005 and 2004,  respectively.  Cash
used in investing  activities in 2006 also included a $161.9 thousand investment
in an unconsolidated affiliate.

     Cash used in financing  activities in 2006 was $208.5 thousand  compared to
$29.9  thousand  in 2005 and $16.3  thousand  in 2004.  Cash  used in  financing
activities  was comprised of repayments of capital lease  obligations  of $208.5
thousand,   $143.4   thousand  and  $16.3  thousand  in  2006,  2005  and  2004,
respectively, partially offset by proceeds from the exercise of stock options of
$113.5 thousand in 2005.  Repayments of capital lease  obligations  increased in
2006 as a result of new capital lease agreements for computer  equipment,  which
we entered into during 2005 and 2006 in connection  with the  implementation  of
our disaster recovery plan and growth.

                                      -38-

<PAGE>

     We  believe  cash  on hand  is  sufficient  to  meet  our  working  capital
requirements over the next twelve months.  However,  we may seek additional debt
or equity financing in order to carry out our long-term business strategy.  Such
funding may be a result of bank borrowings, public offerings, private placements
of equity or debt  securities,  or a combination  thereof.  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.

Contractual Obligations

     The following  table  summarizes our future  contractual  commitments as of
December 31, 2006,  consisting  of debt payments  related to capital  leases and
future  minimum lease payments under all  non-cancelable  operating  leases with
initial or remaining terms in excess of one year.
<TABLE>
<CAPTION>

(In thousands)                       Total           2007         2008 - 2009    2010 - 2011   2012 and later
                                   -------------  ------------   ------------   ------------  ----------------
<S>                                   <C>           <C>            <C>            <C>            <C>
Capital lease obligations             $   361.8     $   242.4      $   119.4      $       -      $       -
Operating lease obligations             5,864.1       1,356.4        1,974.9       1,246.2        1,286.6
                                   -------------  ------------   ------------   ------------  ----------------

Total                                 $ 6,225.9     $ 1,598.8      $ 2,094.3      $ 1,246.2      $ 1,286.6
                                   =============  ============   ============   ============  ================

</TABLE>

Off Balance-Sheet Arrangements

     We were not a party to any off-balance sheet arrangements  during the three
years ended  December 31, 2006.  In  particular,  we do not have any interest in
so-called limited purpose  entities,  which include special purpose entities and
structured finance entities.

Critical Accounting Policies and Estimates

     This  discussion  and  analysis  of  financial  condition  and  results  of
operations is based on our Consolidated  Financial  Statements,  which have been
prepared  in  accordance  with  United  States  generally  accepted   accounting
principles.   The  preparation  of  these  financial   statements  requires  our
management to make estimates and judgments  that affect the reported  amounts of
assets,  liabilities,  revenues, and expenses, as well as related disclosures of
contingent assets and liabilities. We evaluate our estimates on an ongoing basis
and we base our estimates on historical experience and various other assumptions
we deem reasonable to the situation.  These  estimates and assumptions  form the
basis for making  judgments  about the carrying values of assets and liabilities
that are not readily apparent from other sources. Changes in our estimates could
materially  impact our results of  operations  and  financial  condition  in any
particular period.  Note 1 to our Consolidated  Financial  Statements includes a
summary  of  the  significant  accounting  policies  and  methods  used  in  the
preparation of our Consolidated  Financial Statements.  Based on the high degree
of  judgment or  complexity  in their  application,  we  consider  our  critical
accounting policies and estimates to be:

                                      -39-

<PAGE>

     REVENUE  RECOGNITION.  We periodically  receive equity  instruments,  which
include stock purchase warrants and common and preferred stock from companies as
part of compensation for  investment-banking  services,  which are classified as
available-for-sale  securities in the accompanying  Consolidated Balance Sheets.
Primarily all such equity  instruments are received from small public  companies
and are typically  restricted  as to resale,  generally  receiving  registration
rights within one year. When we receive equity  instruments as compensation  for
investment  banking  services,  revenue is recognized based on the fair value of
these  instruments,  in  accordance  with SFAS No. 115  "Accounting  for Certain
Investments  in Debt and  Equity  Securities"  and EITF  00-8  "Accounting  by a
Grantee for an Equity  Instrument to be received in  Conjunction  with Providing
Goods or Services." We recognize  revenue for these stock purchase warrants when
received  based on the Black Scholes  valuation  model.  The revenue  recognized
related to other equity  instruments  is  determined  based on available  market
information,  discounted by a factor  reflective of the expected  holding period
for those  particular  equity  instruments.  The actual  amount of cash proceeds
realized from the disposition of these securities may differ materially from the
amount of revenue recorded,  as a result of changes in market values between the
date of receipt and the date the security is sold.

     Occasionally,  we receive equity  instruments in private  companies with no
readily available market value. Equity interests and warrants for which there is
not a public  market are  valued  based on factors  such as  significant  equity
financing by  sophisticated,  unrelated new investors,  history of positive cash
flow from operations,  the market value of comparable  publicly traded companies
(discounted  for  liquidity)  and  other  pertinent  factors.   Management  also
considers  recent offers to purchase a portfolio  company's  securities  and the
filings of  registration  statements  in connection  with a portfolio  company's
initial public offering when valuing warrants.

     CUSTOMER  CLAIMS.   In  the  normal  course  of  business,   our  operating
subsidiaries  have been and continue to be the subject of numerous civil actions
and arbitrations  arising out of customer complaints relating to activities as a
broker-dealer,  as an employer and as a result of other business activities.  In
general,  the cases involve various  allegations  that our employees  mishandled
customer  accounts.  Based on our historical  experience and  consultation  with
counsel,  we typically  reserve an amount we believe will be sufficient to cover
any damages  assessed  against us.  However,  we have in the past been  assessed
damages that exceeded our  reserves.  If we misjudged the amount of damages that
may be assessed against us from pending or threatened claims or if we are unable
to  adequately  estimate the amount of damages that will be assessed  against us
from  claims  that arise in the future and reserve  accordingly,  our  operating
income would be reduced.

     FAIR VALUE.  "Investments in trading  securities" and "Securities sold, not
yet purchased" on our  Consolidated  Balance Sheets are carried at fair value or
amounts that  approximate fair value,  with related  unrealized gains and losses
recognized  in our  results  of  operations.  The  estimates  of fair  value are
fundamental to our financial condition and results of operations and, in certain
circumstances,  require complex judgments.  vFinance Investments relies upon its
clearing firms to provide us with these fair values,  because the clearing firms
use market data services that provide fair values of securities based on current
market prices. In the case of restricted securities,  we further adjust the fair
values of securities received to reflect the restrictions.

                                      -40-

<PAGE>

     Fair values for certain  derivative  contracts  are  derived  from  pricing
models that consider  current market and  contractual  prices for the underlying
financial  instruments or commodities,  as well as time value and yield curve or
volatility factors underlying the positions. Pricing models and their underlying
assumptions  impact  the  amount  and  timing of  unrealized  gains  and  losses
recognized, and the use of different pricing models or assumptions could produce
different  financial  results.  Changes in fixed income and equity  markets will
impact  our  estimates  of  fair  value  in the  future,  potentially  affecting
principal  trading revenues.  The illiquid nature of certain  securities or debt
instruments  also requires a high degree of judgment in  determining  fair value
due to the  lack of  listed  market  prices  and  the  potential  impact  of the
liquidation of our position on market prices, among other factors.

New Accounting Pronouncements

     In December 2004, the Financial  Accounting Standards Board ("FASB") issued
SFAS No.  123R,  and in March  2005 the SEC  issued  Staff  Accounting  Bulletin
("SAB") 107 regarding its interpretation of SFAS No. 123R. The standard requires
companies  to  expense  the  grant-date  fair value of stock  options  and other
equity-based  compensation  issued to  employees  and is  effective  for  annual
periods  beginning  after June 15, 2005.  Effective  January 1, 2006, we adopted
SFAS No. 123R and related interpretive guidance issued by the FASB and SEC using
the modified  prospective  transition  method.  Under the  modified  prospective
transition method, SFAS No. 123R applies to new awards modified,  repurchased or
cancelled after the required effective date. Additionally, compensation cost for
the portion of the awards for which the  requisite  service  period has not been
rendered  as of the  required  effective  date is  recognized  as the  requisite
service is rendered on or after the required  effective date.  Accordingly,  our
Consolidated  Financial  Statements  have not been restated for prior periods to
reflect the adoption of SFAS No. 123R.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections -A Replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No. 154  requires  that a voluntary  change in  accounting  principle be applied
retroactively  with all prior period financial  statements  presented on the new
accounting  principle,  unless it is  impractical  to do so. This statement also
provides  that a change in method of  depreciating  or  amortizing  a long-lived
non-financial  asset be  accounted  for as a change in estimate  (prospectively)
that was effected by a change in accounting principle. Additionally,  correction
of  errors  in  previously  issued  financial  statements  should  be  termed  a
"restatement."  The  new  standard  is  effective  for  accounting  changes  and
corrections of errors made in fiscal years beginning after December 15, 2005. We
adopted SFAS No. 154  effective  January 1, 2006,  which did not have a material
impact  on our  Consolidated  Financial  Statements.  See  Notes  1 and 9 to our
Consolidated  Financial  Statements  included in Item 8 of this Annual Report on
Form 10-K for additional discussion of SFAS No. 123R.

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
SFAS No. 157 defines fair value,  establishes  a framework  for  measuring  fair
value under generally accepted  accounting  principles,  and expands disclosures
about fair  value  measurements.  This  statement  is  effective  for  financial
statements  issued for fiscal years  beginning  after  November  15,  2007,  and
interim  periods within those fiscal years.  The adoption of SFAS No. 157 is not
expected to have a material impact on our Consolidated Financial Statements.

     In September 2006, the SEC issued SAB 108 to address  diversity in practice
in quantifying financial statement misstatements and the potential for the build
up of improper  amounts on the balance  sheet.  SAB 108  identifies the approach
that  registrants   should  take  when  evaluating  the  effects  of  unadjusted
misstatements  on  each  financial  statement,  the  circumstances  under  which
corrections of misstatements should result in a revision to financial statements
and disclosures related to the correction of misstatements. SAB 108 is effective
for any report for an  interim  period of the first  fiscal  year  ending  after
November 16, 2006. The adoption of SAB 108 did not have a material impact on our
Consolidated Financial Statements.

                                      -41-

<PAGE>

     In September 2006, the SEC issued SAB 108, to address diversity in practice
in quantifying financial statement misstatements and the potential for the build
up of improper  amounts on the balance  sheet.  SAB 108  identifies the approach
that  registrants   should  take  when  evaluating  the  effects  of  unadjusted
misstatements  on  each  financial  statement,  the  circumstances  under  which
corrections  of   misstatements   should  result  in  a  revision  to  financial
statements, and disclosures related to the correction of misstatements.  SAB 108
is  effective  for any  report for an interim  period of the first  fiscal  year
ending after  November 16, 2006. The adoption of SAB 108 did not have a material
impact on our Consolidated Financial Statements.

     In  June  2006,  the  FASB  issued  FASB  Interpretation  No.  ("FIN")  48,
"Accounting for Uncertainty in Income Taxes." This interpretation applies to all
tax  positions  accounted for in accordance  with SFAS No. 109,  Accounting  for
Income Taxes.  FIN 48 clarifies  the  application  of FASB  Statement No. 109 by
defining the criteria that an individual tax position must meet in order for the
position to be  recognized  within the  financial  statements.  It also provides
guidance on measurement, de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition for tax positions. This
interpretation  is effective for fiscal years beginning after December 15, 2006,
with earlier adoption permitted.  The adoption of FIN 48 is not expected to have
a material impact on our Consolidated Financial Statements.

     In February  2006,  the FASB issued SFAS No. 155,  "Accounting  for Certain
Hybrid  Financial  Instruments"  which  amends  SFAS No.  133,  "Accounting  for
Derivative Instruments and Hedging Activities" and SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 155 simplifies the accounting for certain derivatives embedded in other
financial  instruments  by allowing  them to be accounted  for as a whole if the
holder elects to account for the whole  instrument  on a fair value basis.  SFAS
No. 155 also  clarifies and amends  certain other  provisions of SFAS No.133 and
SFAS No.140.  SFAS No.155 is effective for all financial  instruments  acquired,
issued or subject to a  remeasurement  event occurring in fiscal years beginning
after September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
material impact on our Consolidated Financial Statements.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We have exposure to market risk, and periodically  hedge against that risk.
We do not hold or issue any  derivative  financial  instruments  for  trading or
other  speculative  purposes.  We are  exposed to market  risk  associated  with
changes in the fair market value of the marketable  securities that we hold. Our
revenue and profitability may be adversely affected by declines in the volume of
securities transactions and in market liquidity, which generally result in lower
revenues from trading activities and commissions.  Lower securities price levels
may also  result in a reduced  volume of  transactions,  as well as losses  from
declines in the market  value of  securities  we hold in trading and  investment
positions.  Sudden sharp declines in market values of securities and the failure
of issuers and counterparts to perform their  obligations can result in illiquid
markets in which we may incur losses in its principal trading activities.

                                      -42-

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm .................... 44

Audited Financial Statements:

Consolidated Balance Sheets as of December 31, 2006 and 2005 ............... 45

Consolidated Statements of Operations for the years ended
     December 31, 2006, 2005 and 2004 ...................................... 46

Consolidated Statements of Shareholders' Equity for the years ended
     December 31, 2006, 2005 and 2004 ...................................... 47

Consolidated Statements of Cash Flows for the years ended
     December 31, 2006, 2005 and 2004 ...................................... 48

Notes to Consolidated Financial Statements ................................. 49


                                      -43-

<PAGE>

Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders vFinance Inc., & Subsidiaries

We have audited the accompanying  consolidated balance sheet of vFinance Inc., &
Subsidiaries,  as of December  31, 2006 and 2005 (as  restated)  and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the years ended  December 31, 2006,  2005 (as restated) and 2004 (as  restated).
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
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 consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of vFinance Inc., &
Subsidiaries,  at December 31, 2006 and 2005 (as  restated),  and the results of
its operations  and its cash flows for the years ended  December 31, 2006,  2005
(as restated) and 2004 (as restated),  in conformity with accounting  principles
generally accepted in the United States.


                                                    /s/ Sherb & Co., LLP
                                                    Certified Public Accountants


Boca Raton, Florida
March 23, 2007


                                      -44-

<PAGE>

                                 vFINANCE, INC.
                           CONSOLIDATED BALANCE SHEETS
                               AS OF DECEMBER 31,

                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                      2006        2005
                                                                              (Restated and
                                                                                 Revised)
                                                                -------------  -----------
 Assets:
     Current assets:
<S>                                                               <C>           <C>
      Cash and cash equivalents                                   $  4,205.2    $ 4,427.4
      Due from clearing broker                                         299.9        705.1
      Marketable investment securities:
        Trading securities                                           1,009.4        596.0
        Available-for-sale securities                                  414.6        274.3
      Accounts receivable                                              123.8        408.8
      Forgivable loans - employees, current portion                     58.8            -
      Notes receivable - employees                                     128.1         67.6
      Prepaid expenses and other current assets                        184.0        130.0
                                                                -------------  -----------
           Total current assets                                      6,423.8      6,609.2
                                                                -------------  -----------
    Property and equipment, net                                        661.0        692.6
    Customer relationships, net                                      4,115.4      1,281.8
    Other assets                                                       443.0        139.5
    Due to/from related parties                                            -        173.9
                                                                -------------  -----------
           Total assets                                           $ 11,643.2    $ 8,897.0
                                                                =============  ===========
Liabilities and stockholders' equity:
     Current liabilities:
      Accounts payable                                               $ 821.7    $   714.2
      Accrued compensation                                           2,394.6      1,678.6
      Other accrued liabilities                                        800.7        825.6
      Securities sold, not yet purchased                                41.6         42.4
      Capital lease obligations, current portion                       210.8        187.8
      Other                                                            348.5        248.8
                                                                -------------  -----------
           Total current liabilities                                 4,617.9      3,697.4
                                                                -------------  -----------
    Capital lease obligations, long term                               125.6        225.1
Shareholders' Equity:
    Series A Convertible Preferred Stock $0.01 par value,
      122,500 shares authorized, 0 shares issued and outstanding           -            -
    Series B Convertible Preferred Stock $0.01 par value,
      50,000 shares authorized, 0 shares issued and outstanding            -            -
    Common stock $0.01 par value, 100,000,000 shares authorized
      54,429,876 and 40,126,133 shares issued and outstanding          544.3        401.2
    Additional paid-in capital                                      31,147.4     27,175.0
    Accumulated deficit                                            (24,149.5)   (22,016.0)
    Accumulated other comprehensive income (loss)                     (642.5)      (585.7)
                                                                -------------  -----------
           Total shareholders' equity                                6,899.7      4,974.5
                                                                -------------  -----------
           Total liabilities and shareholders' equity             $ 11,643.2    $ 8,897.0
                                                                =============  ===========
</TABLE>

The accompanying notes are an integral component of these financial statements.

                                      -45-

<PAGE>

                                 vFINANCE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,

                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                    2006            2005         2004
                                                               (Restated and (Restated and
                                                                  Revised)      Revised)
                                                  ------------- ------------ ------------
 Revenues:
<S>                                                  <C>          <C>          <C>
    Commissions - agency                             $20,323.7    $15,941.2    $14,571.9
    Trading profits                                    9,606.0      4,177.4      5,156.8
    Success fees                                       4,523.5      2,250.5      3,395.6
    Other brokerage related income                     3,546.0      2,837.6      2,567.5
    Consulting fees                                      375.4        523.6        370.8
    Other                                                220.3        340.4        437.4
                                                  ------------- ------------ ------------
         Total revenues                               38,594.9     26,070.7     26,500.0
                                                  ------------- ------------ ------------
 Compensation, commissions and benefits               31,232.0     20,313.3     19,791.0
 Clearing and transaction costs                        4,337.2      2,977.2      2,239.3
 General and administrative costs                      3,158.8      2,332.8      2,310.2
 Occupancy and equipment costs                         1,166.6        743.3        475.6
 Depreciation and amortization                           958.7        446.3        166.1
 Goodwill impairment                                         -        420.0            -
                                                  ------------- ------------ ------------
         Total operating costs                        40,853.3     27,232.9     24,982.2
                                                  ------------- ------------ ------------
    Income (loss) from operations                     (2,258.4)    (1,162.2)     1,517.8
                                                  ------------- ------------ ------------
 Other income (expenses):
    Gain on forgiveness of debt                              -            -      1,500.0
    Interest income                                       85.3         82.6         35.1
    Interest expense                                     (59.7)       (30.7)      (394.4)
    Dividend income                                       22.5          5.9         27.3
    Other income (expense), net                           76.8        104.8       (231.0)
                                                  ------------- ------------ ------------
         Total other income (expense)                    124.9        162.6        937.0
                                                  ------------- ------------ ------------
 Income (loss) before income taxes                    (2,133.5)      (999.6)     2,454.8
 Income tax benefit (provision)                              -            -        (40.0)
                                                  ------------- ------------ ------------
    Net income (loss)                                $(2,133.5)   $  (999.6)   $ 2,414.8
                                                  ============= ============ ============
    Net income (loss) per share: basic               $   (0.04)   $   (0.02)   $    0.07
                                                  ============= ============ ============
    Weighted average number of shares
     outstanding: basic                               48,714.8     40,049.7     33,773.3
                                                  ============= ============ ============
    Net income (loss) per share: diluted             $   (0.04)   $   (0.02)   $    0.07
                                                  ============= ============ ============
    Weighted average number of shares
     outstanding: diluted                             48,714.8     40,049.7     35,840.2
                                                  ============= ============ ============
</TABLE>

 The accompanying notes are an integral component of these financial statements.

                                      -46-

<PAGE>
<TABLE>
<CAPTION>
                                                              vFINANCE, INC.
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                            FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004

                                                              (In thousands)

                                                           Common       Common     Additional      Deferred
                                                            Stock        Stock       Paid-In      Compensation      Accumulated
                                                           Shares        Amount      Capital                         Deficit
                                                          ----------- ----------- -------------- ----------- ---------------------
<S>                                                         <C>          <C>         <C>            <C>           <C>
Balance at December 31, 2003 (Restated and Revised)         29,851.6     $ 298.5     $ 24,601.8     $ (24.7)      $ (23,431.2)
Net income (Restated and Revised)                                  -           -              -           -           2,414.8
Other comprehensive income:
  Unrealized losses on available-for-sale
     marketable securities (Note 2)                                -           -              -           -                 -
  Comprehensive income

Issuance of shares in conjunction with acquisition
  of Global Partners and EquityStation, Inc. (Note 4)        6,275.2        62.8        1,518.0           -                 -
Promissory note conversions (Note 8)                         3,444.3        34.4          715.6           -                 -
Conversion premium on promissory note (Note 8)                     -           -          231.6           -                 -
Amortization of deferred compensation                              -           -              -         5.3                 -
                                                          ----------- ----------- -------------- ----------- ---------------------
Balance at December 31, 2004 (Restated and Revised)         39,571.1       395.7       27,067.0       (19.4)        (21,016.4)
                                                          ----------- ----------- -------------- ----------- ---------------------
Net loss (Restated and Revised)                                    -           -              -           -            (999.6)
Other comprehensive loss:
  Unrealized losses on available-for-sale
     marketable securities (Note 2)                                -           -              -           -                 -
  Comprehensive loss
Exercise of stock options                                      555.0         5.5          108.0           -                 -
Amortization of deferred compensation                              -           -              -        19.4                 -
                                                          ----------- ----------- -------------- ----------- ---------------------
Balance at December 31, 2005 (Restated and Revised)         40,126.1       401.2       27,175.0           -         (22,016.0)
                                                          ----------- ----------- -------------- ----------- ---------------------
Net loss                                                           -           -              -           -          (2,133.5)
Other comprehensive loss:
  Unrealized losses on available-for-sale
     marketable securities (Note 2)                                -           -              -           -                 -
  Comprehensive loss
Stock-based compensation expense                                   -           -          448.2           -                 -
Issuance of shares in conjunction with acquisition
  of Sterling Financial Group (Note 4)                      13,000.0       130.0        3,276.0           -                 -
Issuance of shares in arbitration settlements (Note 13)      1,303.8        13.1          248.2           -                 -
                                                          ----------- ----------- -------------- ----------- ---------------------
Balance at December 31, 2006                                54,429.9     $ 544.3     $ 31,147.4         $ -       $ (24,149.5)
                                                          =========== =========== ============== =========== =====================

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                              vFINANCE, INC.
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                            FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004

                                                              (In thousands)
                                                                (CONTINUED)

                                                                    Accumulated
                                                                        Other                           Total
                                                                   Comprehensive   Comprehensive     Shareholders'
                                                                       Income          Income           Equity
                                                                    -----------------------------------------------
<S>                                                                   <C>         <C>                 <C>
Balance at December 31, 2003 (Restated and Revised)                   $ (170.5)                       $ 1,273.9
Net income (Restated and Revised)                                            -     $ 2,414.8            2,414.8
Other comprehensive income:
  Unrealized losses on available-for-sale
     marketable securities (Note 2)                                     (170.7)       (170.7)            (170.7)
                                                                                  -----------
  Comprehensive income                                                             $ 2,244.1
                                                                                  ===========
Issuance of shares in conjunction with acquisition
  of Global Partners and EquityStation, Inc. (Note 4)                        -                          1,580.8
Promissory note conversions (Note 8)                                         -                            750.0
Conversion premium on promissory note (Note 8)                               -                            231.6
Amortization of deferred compensation                                        -                              5.3
                                                                    -----------                    -------------
Balance at December 31, 2004 (Restated and Revised)                     (341.2)                         6,085.7
                                                                    -----------                    -------------
Net loss (Restated and Revised)                                              -      $ (999.6)            (999.6)
Other comprehensive loss:
  Unrealized losses on available-for-sale
     marketable securities (Note 2)                                     (244.5)       (244.5)            (244.5)
                                                                                  -----------
  Comprehensive loss                                                              $ (1,244.1)
                                                                                  ===========
Exercise of stock options                                                    -                            113.5
Amortization of deferred compensation                                        -                             19.4
                                                                    -----------                    -------------
Balance at December 31, 2005 (Restated and Revised)                     (585.7)                         4,974.5
                                                                    -----------                    -------------
Net loss                                                                     -    $ (2,133.5)          (2,133.5)
Other comprehensive loss:
  Unrealized losses on available-for-sale
     marketable securities (Note 2)                                      (56.8)        (56.8)            (56.8)
                                                                                  -----------
  Comprehensive loss                                                              $ (2,190.3)
                                                                                  ===========
Stock-based compensation expense                                             -                           448.2
Issuance of shares in conjunction with acquisition
  of Sterling Financial Group (Note 4)                                       -                         3,406.0
Issuance of shares in arbitration settlements (Note 13)                      -                           261.3
                                                                    -----------                   -------------
Balance at December 31, 2006                                          $ (642.5)                      $ 6,899.7
                                                                    ===========                   =============

                      The accompanying notes are an integral component of these financial statements.
</TABLE>

                                                             -47-

<PAGE>
<TABLE>
<CAPTION>
                                                          vFINANCE, INC.
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 FOR THE YEARS ENDED DECEMBER 31,

                                                           (In thousands)

                                                                              2006             2005          2004
                                                                                            (Restated     (Restated
                                                                                           and Revised)  and Revised)
                                                                           --------------- -----------  ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
<S>                                                                            <C>           <C>         <C>
Net income (loss)                                                              $ (2,133.5)   $ (999.6)   $ 2,414.8
    Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
       Non-cash fees received                                                    (1,974.1)     (487.5)      (419.4)
       Non-cash compensation paid                                                 1,350.5       158.1        286.3
       Gain on forgiveness of debt                                                      -           -     (1,500.0)
       Depreciation and amortization                                                958.7       446.3        166.1
       Issuance of equity in arbitration settlements                                261.3           -            -
       Provision for doubtful accounts                                                  -        69.7         79.8
       Beneficial conversion feature expense                                            -           -        360.4
       Conversion premium expense                                                       -           -        231.6
       Stock-based compensation                                                     448.2        19.4          5.3
       Goodwill impairment                                                              -       420.0            -
       Forgiveness of amount due from unconsolidated affiliate                      215.0           -            -
       Impairment of investment in unconsolidated affilitate                            -        80.0            -
       Amounts forgiven under forgivable loans                                       36.3         6.6         80.2
       Changes in operating assets and liabilities:
        (Increase) decrease in:
         Accounts receivable                                                        285.0      (393.4)        30.7
         Forgivable loans                                                           (95.1)          -            -
         Due from clearing broker                                                   405.2       (38.0)      (332.1)
         Notes receivable - employees                                               (60.5)      101.1         14.5
         Investments in trading securities                                         (413.4)       95.7       (220.4)
         Other current assets                                                       (54.0)      (32.1)       (18.2)
         Other assets and liabilities, net                                          (83.0)      (79.6)       189.4
        Increase (decrease) in:
         Accounts payable and accrued liabilities                                   798.6       (50.1)        57.1
         Securities sold, not yet purchased                                          (0.8)      (25.1)       (16.3)
                                                                           --------------- ----------- ------------
 Cash provided by (used in) operating activities                                    (55.6)     (708.5)     1,409.8
                                                                           --------------- ----------- ------------
 CASH USED IN INVESTING ACTIVITIES:
     Purchase of property and equipment                                            (222.7)     (125.7)      (245.8)
     Proceeds from sales of investments in securities available-for-sale            426.5        35.2        268.6
     Cash acquired in acquisition                                                       -           -         56.2
     Investment in unconsolidated affiliate                                        (161.9)          -            -
                                                                           --------------- ----------- ------------
 Cash provided by (used in) investing activities                                     41.9       (90.5)        79.0
                                                                           --------------- ----------- ------------
 CASH PROVIDED BY (USED IN) FINANCING ACTIVTIES:
     Repayments of capital lease obligations                                       (208.5)     (143.4)       (16.3)
     Proceeds from exercise of common stock options                                     -       113.5            -
                                                                           --------------- ----------- ------------
 Cash used in financing activities                                                 (208.5)      (29.9)       (16.3)
                                                                           --------------- ----------- ------------
 Increase (decrease) in cash and cash equivalents                                  (222.2)     (828.9)     1,472.5
 Cash and cash equivalents at beginning of year                                   4,427.4     5,256.3      3,783.8
                                                                           --------------- ----------- ------------
 Cash and cash equivalents at end of year                                       $ 4,205.2   $ 4,427.4    $ 5,256.3
                                                                           =============== =========== ============

                          The accompanying notes are an integral component of these financial statements.
</TABLE>
                                                              -48-
<PAGE>

                                 vFINANCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (All tables in thousands, except per share data)


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Description of Business

     vFinance, Inc. (the "Company") is a global financial services company which
specializes  in high growth  opportunities.  The Company's  expertise  into this
marketplace flows from three principal lines of business:  providing  investment
banking and advisory services to micro, small and mid-cap high growth companies;
making  markets  in over  3,000  micro  and  small  cap  stocks;  and,  offering
information  services  on  its  website,  a  leading  destination  for  emerging
companies seeking capital and investors seeking opportunities. Due to its focus,
the Company believes it is uniquely positioned to offer alternative  investments
to  institutional  and high  net-work  investors  seeking to  outperform  market
indices in addition to offering a full range of investment options. With over 40
offices in the U.S. and other parts of the world,  the Company  serves more than
12,000   corporate,   institutional   and  high  net  worth  clients.   vFinance
Investments,    Inc.   ("vFinance   Investments")   and   EquityStation,    Inc.
("EquityStation"),  both  subsidiaries  of vFinance,  Inc.,  are  broker-dealers
registered with the Securities and Exchange Commission  ("SEC"),  and members of
National  Association of Securities  Dealers  ("NASD") and  Securities  Investor
Protection  Corporation  ("SIPC").  vFinance Investments is also a member of the
National Futures Association ("NFA").

     Basis of Presentation

     The Consolidated  Financial  Statements include the accounts of the Company
and  its  wholly  owned  subsidiaries.   All  intercompany  accounts  have  been
eliminated in consolidation.

     Reclassifications

     Certain amounts in the 2005 and 2004 Consolidated Financial Statements have
been  reclassified  to  conform  to the  presentation  in the 2006  Consolidated
Financial Statements.  Such  reclassifications did not have a material impact on
the presentation of the overall financial statements.

     Restatement and Revision

     After review of comments  received from the staff of the SEC, the Company's
Chief  Executive   Officer  and  Chief  Financial  Officer  concluded  that  the
Consolidated Balance Sheets as of December 31, 2005, 2004, 2003 and 2002 and the
Consolidated  Statements of Operations  and  Shareholders'  Equity for the years
then ended  should no longer be relied upon  because of certain  errors in those
Consolidated  Financial  Statements,  as  reported  on the Form 8-K filed by the
Company with the SEC on March 6, 2007.  Therefore,  in accordance with Financial
Accounting  Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 154,  "Accounting  Changes and Error  Corrections -A Replacement of
APB Opinion  No. 20 and FASB  Statement  No. 3",  these  Consolidated  Financial
Statements have been restated for the following corrections of errors:

                                      -49-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


Reclassification of Securities from Trading to Available-for-Sale

     The Company  occasionally  receives  equity  securities  from small  public
companies in exchange for services the Company provides.  The Company previously
classified these securities as trading  securities  because the Company's intent
was to sell them in the near  future.  However,  due to the absence of an active
market for and frequent buying and selling of these  securities,  they have been
reclassified as  available-for-sale in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". The Company has restated
its 2005 and 2004  Consolidated  Financial  Statements to reflect this change in
marketable security  classification,  which resulted in the  reclassification of
unrealized  gains and losses on these  securities from the  determination of net
income to accumulated  other  comprehensive  loss, a component of  shareholders'
equity.

Amortization of Customer Relationships

     In connection  with the  acquisition of certain  assets of Global  Partners
Securities,  Inc.  ("Global")  and 100% of the  issued  and  outstanding  equity
securities of EquityStation,  all of which were owned by Level2, a subsidiary of
Global (the  "Global  Acquisition")  in  November  2004,  the  Company  recorded
goodwill  of  $1.4  million.   Subsequent  to  the  preliminary  purchase  price
allocation,  the Company  determined  that the  purchase  price should have been
allocated to the  acquired  customer  relationships  rather than  goodwill.  The
Company did not record  amortization of this  intangible  asset from the date of
acquisition  through  December 31,  2005.  The Company has restated its 2005 and
2004  Consolidated   Financial   Statements  to  reflect  amortization  of  this
intangible  asset since the  acquisition  date and to classify  this  intangible
asset as customer relationships rather than goodwill in the Consolidated Balance
Sheets.

     As of March 31,  June 30 and  September  30,  2006,  the  Company  recorded
amortization  of the  intangible  asset related to customer lists using a useful
life of 5 years.  However,  management  reconsidered  this life based on factors
including the turnover rate of brokers,  the expected  longevity of the brokers'
relationship  with the Company and retention of customer  accounts after brokers
terminate.  After this review, management determined that the intangible asset's
useful life should be 10 years. The Company's  restated  Consolidated  Financial
Statements  reflect  amortization  expense from the date of acquisition  using a
useful life of 10 years.

Amortization of Beneficial Conversion Feature

     The Company allocated the proceeds from the SBI Note Purchase  Agreement of
$975.0  thousand  to an  imputed  interest  factor of $563.0  thousand  and to a
beneficial  conversion  feature  of  $412.0.  The  imputed  interest  factor was
recognized over the term of the SBI Note, and the beneficial  conversion feature
was  immediately  expensed.  The  Company  has  restated  its 2004  Consolidated
Financial  Statements by reversing all imputed interest  associated with the SBI
Note and  recording a beneficial  conversion  feature of $975.0  thousand.  Such
beneficial  conversion  feature was recognized  over the term of the SBI Note in
accordance   with  Emerging   Issues  Task  Force   ("EITF")  Issue  No.  00-27,
"Application  of Issue No. 98-5 to Certain  Convertible  Instruments",  and EITF
Issue  No.  98-5,   "Accounting  for  Convertible   Securities  with  Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios".

                                      -50-

<PAGE>

Deferral of Transition Payment

     In March,  2004, the Company entered into a five-year  clearing  agreement.
Under  this  agreement,  the  clearing  firm made a $200.0  thousand  transition
payment to the Company to mitigate the costs of  transitioning  to the new firm.
The Company  recognized this  transition  payment as a reduction to clearing and
transaction  costs in the year ended December 31, 2004. The Company has restated
its 2004 and 2005 Consolidated  Financial Statements to recognize the transition
fee ratably since its receipt in 2004 through the end of the clearing  agreement
term,  since the Company must repay a portion of the  transition  payment if the
clearing  agreement is  terminated.  See Note 13 to the  Consolidated  Financial
Statements.

     The net effect of the  restatements on the beginning  accumulated  deficit,
accumulated other  comprehensive  income and total  stockholders'  equity are as
follows:
<TABLE>
<CAPTION>

                                                  Beginning Equity - December 31, 2003
                                                          Effect of Restatements

                                      Reclassification of         Beneficial Conversion Feature
                                      Securities from Trading to  Expense Recognition
                                      Available-for-Sale
                        ----------------------------------------- -----------------------------------------------------------
                        As Reported   2003    2002   Cumulative   2003    2002    2001   Cumulative  Cumulative Net Restated
                                                        Total                              Total        Effect     and Revised
                        ------------ ------- ------- ----------- ------- -------- ------ ----------- ------------ -----------
<S>                     <C>           <C>      <C>        <C>    <C>      <C>     <C>         <C>          <C>    <C>
Additional paid-in
 capital                $  24,376.8       -       -           -       -    225.0      -       225.0        225.0  $ 24,601.8
Accumulated deficit     $ (23,590.3)  123.6    46.9       170.5  (114.6)  (288.5) 391.7       (11.4)       159.1  $ (23,431.2)
Accumulated other
  comprehensive loss    $         -  (123.6)  (46.9)     (170.5)      -        -      -           -       (170.5)   $ (170.5)
Total stockholders'
 equity                 $   1,060.3       -       -           -  (114.6)   (63.5) 391.7       213.6        213.6   $ 1,273.9
</TABLE>

                                                               -51-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     The  following  tables  present a summary of the effects from each of these
adjustments  on the revised and restated  Consolidated  Financial  Statements in
2005 and 2004:
<TABLE>
<CAPTION>
                                                           2005
                               ------------------------------------------------------------------------------------
                                                                                    Effect of Restatements
                               ------------------------------------------------------------------------------------
                                                                              Reclass-
                                                                              ication of                 Amortiz-
                                                                              Securities    Amortiz-     ation of
                                                                              Trading to    ation of     Beneficial
                                                 Reclass-                     Available for Intagible    Conversion
                                As Reported     ifications     As Revised     Sale          Asset        Feature
                               --------------  ------------- --------------- -------------  --------  -------------
Statement of Operations:
<S>                               <C>              <C>          <C>            <C>        <C>          <C>
Total revenues                    $ 25,826.3             -      $  25,826.3    244.4            -          -
Clearing and transaction costs*   $  1,905.2       1,112.0      $   3,017.2        -            -          -
Depreciation and amortization     $     80.7         218.9      $     299.6        -        146.7          -
Total operating expenses          $ 27,021.5         104.7      $  27,126.2        -        146.7          -
Income (loss) from operations     $ (1,195.2)       (104.7)     $  (1,299.9)   244.4       (146.7)         -
Other income (expenses)           $        -         162.6      $     162.6        -            -          -
Net income (loss)                 $ (1,137.3)            -      $  (1,137.3)   244.4       (146.7)         -

Net income (loss) per share       $    (0.03)
                               ==============
Wt. avg. shares outstanding -
  basic and diluted                 40,049.7
                               ==============
Balance Sheet:
Trading securities                $    870.3             -       $    870.3   (274.3)           -          -
Investment securities
  available-for-sale              $        -             -      $       -     274.3            -          -
Customer relationships, net       $  1,446.9             -       $  1,446.9        -       (165.1)         -
Total assets                      $  9,062.1             -       $  9,062.1        -       (165.1)         -
Other current liabilities         $    118.8             -       $    118.8        -            -          -
Total current liabilities         $  3,567.4             -       $  3,567.4        -            -          -
Additional paid-in capital        $ 26,821.6             -       $ 26,821.6        -            -      353.4
Accumulated deficit               $(21,953.2)            -       $(21,953.2)   585.7       (165.1)    (353.4)
Accumulated other
  comprehensive loss              $        -             -       $        -   (585.7)           -          -
Total stockholders' equity        $  5,269.6             -       $  5,269.6        -       (165.1)         -
</TABLE>
                                            2005 CONTINUED
                                       Effect of Restatements

                                                 Net
                                Deferral of      Effect
                                Transition       Restate-    Restated
                                Payment          ments       and Revised
                               ------------  ------------- ---------------
Statement of Operations:
Total revenues                      -            244.4       $  26,070.7
Clearing and transaction costs* (40.0)           (40.0)      $   2,977.2
Depreciation and amortization       -            146.7       $     446.3
Total operating expenses        (40.0)           106.7       $  27,232.9
Income (loss) from operations    40.0            137.7       $  (1,162.2)
Other income (expenses)             -                -       $     162.6
Net income (loss)                40.0            137.7       $    (999.6)
Net income (loss) per share                     $ 0.01       $     (0.02)
                                             ===========   ================
Wt. avg. shares outstanding -
  basic and diluted                                             40,049.7
                                                           ===============
Balance Sheet:
Trading securities                  -           (274.3)       $    596.0
Investment securities
  available-for-sale                -            274.3        $    274.3
Customer relationships, net         -           (165.1)       $  1,281.8
Total assets                        -           (165.1)       $  8,897.0
Other current liabilities       130.0            130.0        $    248.8
Total current liabilities       130.0            130.0        $  3,697.4
Additional paid-in capital          -            353.4        $ 27,175.0
Accumulated deficit            (130.0)           (62.8)       $(22,016.0)
Accumulated other
  comprehensive loss                -           (585.7)       $   (585.7)
Total stockholders' equity     (130.0)          (295.1)       $  4,974.5

     *  The  Company   reclassified   certain  amounts  in  the  2005  and  2004
Consolidated  Statements of Operations from general and administrative  costs to
clearing  and  transaction  costs,  to conform to the  presentation  in the 2006
Consolidated Statement of Operations.
                                      -52-
<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>
<CAPTION>
                                                              2004
                                ------------------------------------------------------------------------------------
                                                                                      Effect of Restatements
                                ------------------------------------------------------------------------------------
                                                                              Reclass-
                                                                              ication of                  Amortiz-
                                                                              Securities     Amortiz-     ation of
                                                                              Trading to     ation of     Beneficial
                                                  Reclass-                    Available for  Intagible    Conversion
                                 As Reported     ifications     As Revised    Sale           Asset        Feature
                                --------------  ------------- --------------- -------------  --------  -------------

Statement of Operations:
<S>                                   <C>         <C>        <C>                   <C>      <C>           <C>
Total revenues                        $ 26,329.3         -   $  26,329.3           170.7         -            -
Clearing and transaction costs*       $  1,030.1   1,039.2   $   2,069.3               -         -            -
Depreciation and amortization         $    147.8         -   $     147.8               -      18.3            -
Total operating expenses              $ 24,793.0       0.9   $  24,793.9               -      18.3            -
Income from operations                $  1,536.1      (0.7)  $   1,535.4           170.7     (18.3)           -
Other income (expense)                $  1,278.3    (230.9)  $   1,047.4               -         -       (110.4)
Net income (loss)                     $  2,774.4    (231.6)  $   2,542.8           170.7     (18.3)      (110.4)

Net income per share - basic          $     0.08
                                      ===========

Wt. avg. shares outstanding - basic     33,773.3
                                      ===========

Net income per share - diluted        $     0.08
                                      ===========
Wt. avg. shares outstanding - diluted   35,840.2
                                      ===========
Stockholders' Equity:
Additional paid-in capital            $  6,713.6         -   $  26,713.6               -         -        353.4
Accumulated deficit                   $(20,815.9)        -   $ (20,815.9)          341.2     (18.3)      (353.4)
Accumulated other
  comprehensive loss                  $        -         -   $         -          (341.2)        -            -
Total stockholders' equity            $  6,274.0         -   $   6,274.0               -     (18.3)           -
</TABLE>


                                     2004 CONTINUED
                                Effect of Restatements
                               -------------------------------------------
                                                 Net
                                Deferral of      Effect
                                Transition       Restate-   Restated
                                Payment          ments      and Revised
                               ------------  ------------- ---------------
Statement of Operations:
Total revenues                           -      170.7       $ 26,500.0
Clearing and transaction costs*      170.0      170.0       $  2,239.3
Depreciation and amortization            -       18.3       $    166.1
Total operating expenses             170.0      188.3       $ 24,982.2
Income from operations              (170.0)     (17.6)      $  1,517.8
Other income (expense)                   -     (110.4)      $    937.0
Net income (loss)                   (170.0)    (128.0)      $  2,414.8
Net income per share - basic                  $ (0.01)      $     0.07
                                             =========      ===========
Wt. avg. shares outstanding - basic                           33,773.3
                                                            ===========
Net income per share - diluted                              $     0.07
                                                            ===========
Wt. avg. shares outstanding - diluted                         35,840.2
                                                            ===========
Stockholders' Equity:
Additional paid-in capital               -      353.4      $  27,067.0
Accumulated deficit                 (170.0)    (200.5)     $ (21,016.4)
Accumulated other
  comprehensive loss                     -     (341.2)     $    (341.2)
Total stockholders' equity          (170.0)    (188.3)     $   6,085.7


As  a  result  of  the   reclassification   of   Securities   from   Trading  to
Available-for-Sale,  the Company also reclassified the proceeds from the sale of
Securities  Available-for-Sale from Operating Activities to Investing Activities
in  the   Consolidated   Statements   of  Cash  Flows.   As  a  result  of  this
reclassification,  cash used in operating  activities  and investing  activities
increased  (decreased) from amounts previously  reported by $(35.2) thousand and
$35.2 thousand,  respectively, in 2005. Additionally, cash provided by operating
activities  and  investing   activities   increased   (decreased)  from  amounts
previously reported by $(268.6) thousand and $268.6 thousand,  respectively,  in
2004.

                                      -53-
<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

In May 2005,  the FASB  issued  SFAS No. 154,  which  requires  that a voluntary
change in accounting  principle be applied  retroactively  with all prior period
financial  statements  presented on the new accounting  principle,  unless it is
impractical  to do so. This  statement  also provides that a change in method of
depreciating or amortizing a long-lived  non-financial asset be accounted for as
a change in estimate (prospectively) that was effected by a change in accounting
principle.  Additionally,  correction of errors in previously  issued  financial
statements  should be termed a "restatement".  The new standard is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 15, 2005. The Company  adopted SFAS No. 154 effective  January 1,
2006,  which  did not  have a  material  impact  on the  Company's  Consolidated
Financial Statements.

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from these estimates.

     Cash and Cash Equivalents

     Cash and cash  equivalents  include  all  highly  liquid  investments  with
maturities of three months or less when purchased.

     Accounts and Notes Receivable

     Accounts receivable consist of receivables  incurred in the ordinary course
of business including but not limited to investment banking and consulting fees.
The Company has a policy of establishing an allowance for uncollectible accounts
based on its best  estimate  of the  amount  of  probable  credit  losses in its
existing  accounts  receivable.  The Company  periodically  reviews its accounts
receivable to determine  whether an allowance is necessary  based on an analysis
of past due accounts and other factors that may indicate that the realization of
an account may be in doubt. The allowance for  uncollectible  receivables was $0
at December 31, 2006 and 2005.

     Due from and Payable to Clearing Brokers

     Receivables from brokers and dealers consist  primarily of amounts due from
the Company's  clearing  organization,  which  provides  clearing and depository
services for brokerage transactions on a fully disclosed basis.

     The Company clears  certain of its  proprietary  and customer  transactions
through another  broker-dealer on a fully disclosed basis. The amount payable to
the  clearing  broker  relates  to  the   aforementioned   transactions  and  is
collateralized  by  securities  owned by the  Company.  Due to Clearing  Brokers
totaled  $30.7  thousand  and $85.5  thousand  at  December  31,  2006 and 2005,
respectively,  and is included in Other Current  Liabilities in the Consolidated
Balance Sheets.

     Investments

     Investments  consist  primarily of marketable equity securities the Company
buys and sells in  market-making  activities  and marketable  equity  securities
received as compensation for investment  banking services.  At December 31, 2006
and 2005,  investments  consisted of common stock,  corporate  bonds,  municipal
securities,  collateralized mortgage-backed securities and common stock purchase
warrants held for resale.

                                      -54-

<PAGE>

     Investments the Company buys and sells in its market-making  activities are
classified  as  investments  in  trading  securities  and are held for resale in
anticipation  of  short-term  market  movements  or until  such  securities  are
registered  or  are  otherwise  unrestricted.   Trading  securities,  consisting
primarily of marketable equity securities, municipal securities,  collateralized
mortgages  obligations and corporate bonds,  are stated at fair value,  based on
information  obtained from the Company's  clearing firms. In cases where a stock
is traded, but the shares the Company holds are restricted,  the Company reduces
this fair value by 25% to reflect this restriction. When a stock has not traded,
its fair value is deemed to be zero until it begins to trade  again.  Unrealized
gains or losses are recognized as trading profits in the Consolidated Statements
of  Operations,  based on changes in the fair  value of the  security.  Realized
gains or losses are  recognized in the  Consolidated  Statement of Operations as
trading profits when the equity instruments are sold.

     The Company classifies  marketable  securities received as compensation for
investment     banking     services    as    investments     available-for-sale.
Available-for-sale securities are stated at fair value, with unrealized gains or
losses  reflected  as  Other   Comprehensive   Income  (Loss),  a  component  of
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss) in
the accompanying Consolidated Statements of Shareholders' Equity.


     The fair values of the Company's marketable  securities are based on quoted
market   prices.   The  fair  value  of  trading   securities   and   securities
available-for-sale,  which are traded but restricted as to resale, is reduced by
25% to reflect this restriction.  When a stock has not traded, its fair value is
deemed  to be zero by the  Company's  clearing  firms  until it  begins to trade
again.


     The cost of securities sold is based on the specific identification method.
Proprietary  securities  transactions  in  regular-way  trades are  accrued  and
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.  Customers'  securities
and  commodities  transactions  are  reported  on a  settlement  date basis with
related  commission  income and expense reported on a trade date basis.  Amounts
receivable and payable for securities  transactions  that have not reached their
contractual settlement date are recorded net on the balance sheet.

     Financial Instruments with Off-Balance Sheet Risk

     The securities  transactions of the Company's customers are introduced on a
fully  disclosed  basis  with a clearing  broker-dealer.  The  Company  holds no
customer  funds or securities.  The clearing  broker-dealer  is responsible  for
execution,  collection  of and payment of funds,  and  receipt  and  delivery of
securities relative to customer transactions. Off-balance sheet risk exists with
respect to these  transactions  due to the  possibility  that  customers  may be
unable  to  fulfill   their   contractual   commitments   wherein  the  clearing
broker-dealer may charge any related losses to the Company. The Company seeks to
minimize this risk through procedures  designed to monitor the  creditworthiness
of its customers and to ensure that customer  transactions are executed properly
by the clearing broker-dealer.

                                      -55-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Property and Equipment

     Property  and  equipment  are stated on the basis of cost less  accumulated
depreciation  and consists  primarily  of computer  equipment.  Depreciation  is
computed using the  straight-line  method over the estimated useful lives of the
assets, 3-7 years, for financial  reporting  purposes.  Included in Property and
Equipment is approximately  $704.6 thousand of computer equipment acquired under
capital leases.

     The  cost of  repairs  and  maintenance  is  expensed  as  incurred.  Major
replacements  and  improvements  are  capitalized.  When  assets are  retired or
disposed  of, the cost of the asset and  related  accumulated  depreciation  are
removed from the accounts and any resulting gains and losses are included in the
determination of net income in the period of disposition.

     Leases

     The  Company  has three  operating  leases  for its  office  space,  at its
corporate headquarters in Boca Raton, Florida, a branch office in New York City,
New  York  and its  disaster  recovery  center  in  Mount  Laurel,  New  Jersey.
Additionally,  the Company has an operating lease for additional office space in
Boca  Raton,  Florida,  which  is  currently  subleased  through  the end of the
remaining lease term. These leases  generally  require the Company to pay costs,
such as real estate  taxes,  common area  maintenance  costs and  utilities.  In
addition,  these leases  generally  include  scheduled  rent  increases  and may
include rent holidays.  The Company  accounts for material  escalations and rent
holidays  on a  straight-line  basis  over  the  initial  terms  of the  leases,
commencing on the date the Company can take  possession of the leased  facility.
Resulting  liabilities  are recorded as  short-term  or long-term  deferred rent
liabilities as appropriate.  These liabilities are then amortized as a reduction
of rent expense on a straight-line basis over the life of the related lease.

     Intangible Assets

     The Company accounts for business combinations using the purchase method of
accounting, in accordance with SFAS No. 141, "Business Combinations". Under SFAS
No.  141,  intangible  assets are  separately  recognized  if the benefit of the
intangible  asset is obtained through  contractual or other legal rights,  or if
the intangible asset can be sold, transferred,  licensed,  rented, or exchanged,
regardless  of  the  Company's  intent  to  do  so.  The  Company  accounts  for
acquisition of intangible  assets,  which are acquired  individually or within a
group  of  assets  (but  not  those  acquired  in a  business  combination),  in
accordance with SFAS No. 142, "Goodwill and Other Intangible  Assets".  SFAS No.
141 and  SFAS  No.  142  require  acquired  intangible  assets  to be  initially
recognized  and  measured  based on fair value,  amortized  over their  expected
useful  lives and  examined  for  impairment  in  accordance  with SFAS No. 144,
"Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets",  whenever
indications of impairment are present.

     The Company's principal identifiable  intangible assets consist of acquired
customer relationships,  which are amortized on a straight-line basis over their
useful lives, ranging from five to ten years.

                                      -56-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Goodwill

     During 2005, the final  contributing  brokers from First Level  Capital,  a
prior  period  acquisition,  departed  the  firm.  As a result,  the  discounted
expected  future cash flows  associated with the goodwill no longer exceeded the
book value of the goodwill,  resulting in goodwill  impairment charges of $420.0
thousand in 2005.  There was no goodwill  included in the  Consolidated  Balance
Sheets as of December 31, 2006 or 2005.

     Impairment of Long-Lived Assets

     In  accordance  with SFAS No.  144,  the Company  periodically  reviews its
long-lived  assets,  including  customer  relationship  intangible  assets,  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount  of the  assets  may  not be  fully  recoverable.  The  Company
recognizes an impairment loss when the sum of expected  undiscounted future cash
flows is less than the carrying amount of the asset. The amount of impairment is
measured as the difference between the asset's estimated fair value and its book
value.

     Other Accrued Liabilities

     As of December 31, 2006 and 2005, other accrued  liabilities were comprised
primarily of (i) $70.0 thousand and $280.0 thousand, respectively, in settlement
reserves  for  open  litigation,  (ii)  $306.0  thousand  and  $185.0  thousand,
respectively,  in accrued  bonus  payable  and (iii)  $76.0  thousand  and $93.6
thousand, respectively, in accrued audit fees.

     Revenue Recognition

     The Company follows the guidance of the SAB 104 for revenue recognition. In
general,  the Company records revenue when persuasive evidence of an arrangement
exists,  services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectibility is reasonably
assured.

     The Company earns  brokerage  commissions  and trading  profits,  which are
recognized at the time of transaction execution, along with related clearing and
other  costs.  The  Company  also earns  revenue  from  investment  banking  and
consulting.  Monthly  consulting  fees for investment  banking are recognized as
earned.  Investment  banking  success fees are revenues  that are paid only upon
successful  completion of a capital raise or other transaction and are generally
based  on a  percentage  of  the  total  transaction  value.  Success  fees  are
recognized  when earned as a result of  successfully  completing a  transaction.
Other brokerage related income includes  revenues related to various  investment
banking services, which is recognized as services are provided.

     The Company does not require  collateral  from its customers.  Revenues are
not concentrated in any particular  region of the country or with any individual
or group.

                                      -57-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     The Company  periodically  receives equity  instruments which include stock
purchase  warrants  and common and  preferred  stock from  companies  as part of
compensation  for  investment   banking   services,   which  are  classified  as
available-for-sale  securities in the accompanying  Consolidated Balance Sheets.
Primarily all such equity  instruments are received from small public  companies
and are typically  restricted as to resale, with the Company generally receiving
registration   rights  within  one  year.  When  the  Company   receives  equity
instruments  as  compensation  for  investment  banking  services,   revenue  is
recognized based on the fair value of these instruments, in accordance with SFAS
No. 115 "Accounting for Certain  Investments in Debt and Equity  Securities" and
EITF Issue No.  00-8  "Accounting  by a Grantee for an Equity  Instrument  to be
Received  in  Conjunction   with  Providing  Goods  or  Services."  The  Company
recognizes  revenue  for stock  purchase  warrants  based on the  Black  Scholes
valuation model. The revenue  recognized  related to other equity instruments is
determined  based  on  available  market  information,  discounted  by a  factor
reflective  of  the  expected  holding  period  for  those   particular   equity
instruments.

     Occasionally,  the Company receives equity instruments in private companies
with no readily  available market value.  Equity  instruments for which there is
not a public  market are  valued  based on factors  such as  significant  equity
financing by  sophisticated,  unrelated new investors,  history of positive cash
flow from operations,  the market value of comparable  publicly traded companies
(discounted  for  liquidity)  and  other  pertinent  factors.   Management  also
considers  recent offers to purchase a company's  securities  and the filings of
registration  statements in connection with a company's  initial public offering
when valuing warrants.

     The  Company  also  occasionally  distributes  equity  instruments  or  the
proceeds from the sale of equity  instruments to its employees,  as compensation
for their investment  banking success.  The distributions are made in accordance
with individual compensation agreements, which vary on a banker by banker basis.
Accordingly, unrealized gains and losses recorded in the Consolidated Statements
of Operations  related to  securities  held by us at the end of each period also
impact  compensation  expense  and  accrued  compensation  for the portion to be
distributed.

     Stock Based Compensation

     The Company has a stock option plan under which options to purchase  shares
of the  Company's  common stock may be granted to key employees and directors of
the Company,  which are more fully  described in Note 9 below.  Options  granted
under  the plans  are  non-qualified  and are  granted  at a price  equal to the
closing  market  price of the common  stock on to the date of grant.  Generally,
options  granted  have a term of 5 years from the date of grant and will vest in
increments of 25% per year over a 4-year period on the annual anniversary of the
grant date.

                                      -58-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based
Payment"  ("SFAS No. 123R") and in March 2005,  the SEC issued SAB 107 regarding
its  interpretation of SFAS No. 123R. The standard requires companies to expense
the grant-date fair value of stock options and other  equity-based  compensation
issued to employees and is effective for annual periods beginning after June 15,
2005.  Effective  January 1, 2006, the Company adopted SFAS No. 123R and related
interpretive  guidance issued by the FASB and SEC using the modified prospective
transition method.  Under the modified  prospective  transition method, SFAS No.
123R applies to new awards modified, repurchased or cancelled after the required
effective date.  Additionally,  compensation  cost for the portion of the awards
for which the requisite  service period has not been rendered as of the required
effective  date is recognized  as the requisite  service is rendered on or after
the required effective date.  Accordingly,  the Company's Consolidated Financial
Statements  have not been  restated for prior periods to reflect the adoption of
SFAS No. 123R.

     Prior to January 1, 2006, the Company  accounted for  stock-based  employee
compensation  plans  (including  shares  issued under its stock option plans) in
accordance  with APB Opinion No. 25 and followed  the pro forma net income,  pro
forma  income  per  share,   and   stock-based   compensation   plan  disclosure
requirements   set  forth  in  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation".
<TABLE>
<CAPTION>

                                                             2005          2004
                                                         ------------- -------------
<S>                                                        <C>            <C>
Net income (loss), as reported                             $   (999.6)    $ 2,414.8
Pro forma stock-based compensation expense, net of taxes       (544.0)       (167.6)
                                                         ------------- -------------

Pro forma net income (loss)                                $ (1,543.6)    $ 2,247.2
                                                         ============= =============

Basic net income (loss) per share, as reported             $    (0.02)       $ 0.07
Pro forma stock-based compensation expense                 $    (0.02)       $    -
Pro forma net income earnings (loss) per share             $    (0.04)       $ 0.07

Diluted net income (loss) per share, as reported           $    (0.02)       $ 0.07
Pro forma stock-based compensation expense                 $    (0.02)       $(0.01)
Pro forma diluted net income (loss) per share              $    (0.04)       $ 0.06

Risk-free interest rate                                          4.25%         3.31%
Expected dividend yield                                             -             -
Expected term                                                4-5 years     4-5 years
Expected volatility                                                72%          112%

</TABLE>

     Forgivable Loans

     In order to remain competitive in the marketplace,  the Company has granted
forgivable loans to certain employees, primarily registered representatives,  as
part of their  compensation  package in order to attract  them to join the firm.
The terms of the loans  generally  range from one to three years.  For each year
the  employee is in good  standing  with the  Company,  the  Company  forgives a
ratable portion of the loan and charges this amount to compensation  expense. If
the  employee  is  terminated,   the  principal   balance  is  due  and  payable
immediately.

                                      -59-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     The  Company  makes every  effort to collect  any monies due on  forgivable
loans.  The loans do not bear  interest and interest is not imputed  because the
amounts of imputed  interest  would be immaterial to the Company's  Consolidated
Financial  Statements and because the Company's ability to collect such interest
would not be  probable.  As of December  31,  2006 and 2005,  the balance of the
forgivable loans was $58.8 thousand and $0, respectively.

     Income Taxes

     The  Company  accounts  for  income  taxes  under the  liability  method in
accordance with SFAS No. 109,  "Accounting for Income Taxes". Under this method,
deferred income tax assets and  liabilities are determined  based on differences
between the financial  reporting and tax bases of assets and liabilities and are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences are expected to reverse.

     Fair Value of Financial Instruments

     The carrying amounts of the Company's financial instruments,  which include
cash and cash equivalents,  accounts and notes receivable,  accounts payable and
accrued expenses approximate their fair values. The fair values of the Company's
marketable securities is primarily based on quoted market prices.

     New Accounting Pronouncements

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".
SFAS No. 157 defines fair value,  establishes  a framework  for  measuring  fair
value under generally accepted  accounting  principles,  and expands disclosures
about fair  value  measurements.  This  statement  is  effective  for  financial
statements  issued for fiscal years  beginning  after  November  15,  2007,  and
interim  periods within those fiscal years.  The adoption of SFAS No. 157 is not
expected  to have a  material  impact on the  Company's  Consolidated  Financial
Statements.

     In September 2006, the SEC issued SAB 108, to address diversity in practice
in quantifying financial statement misstatements and the potential for the build
up of improper  amounts on the balance  sheet.  SAB 108  identifies the approach
that  registrants   should  take  when  evaluating  the  effects  of  unadjusted
misstatements  on  each  financial  statement,  the  circumstances  under  which
corrections  of   misstatements   should  result  in  a  revision  to  financial
statements, and disclosures related to the correction of misstatements.  SAB 108
is  effective  for any  report for an interim  period of the first  fiscal  year
ending after  November 16, 2006. The adoption of SAB 108 did not have a material
impact on the Company's Consolidated Financial Statements.

                                      -60-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     In  June  2006,  the  FASB  issued  FASB  Interpretation  No.  ("FIN")  48,
"Accounting for Uncertainty in Income Taxes". This interpretation applies to all
tax  positions  accounted for in accordance  with SFAS No. 109,  Accounting  for
Income Taxes.  FIN 48 clarifies  the  application  of FASB  Statement No. 109 by
defining the criteria that an individual tax position must meet in order for the
position to be  recognized  within the  financial  statements.  It also provides
guidance on measurement, de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition for tax positions. This
interpretation  is effective for fiscal years beginning after December 15, 2006,
with earlier adoption permitted.  The adoption of FIN 48 is not expected to have
a material impact on the Company's Consolidated Financial Statements.

     In February  2006,  the FASB issued SFAS No. 155,  "Accounting  for Certain
Hybrid  Financial  Instruments"  which  amends  SFAS No.  133,  "Accounting  for
Derivative Instruments and Hedging Activities" and SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 155 simplifies the accounting for certain derivatives embedded in other
financial  instruments  by allowing  them to be accounted  for as a whole if the
holder elects to account for the whole  instrument  on a fair value basis.  SFAS
No. 155 also  clarifies and amends  certain other  provisions of SFAS No.133 and
SFAS No.140.  SFAS No.155 is effective for all financial  instruments  acquired,
issued or subject to a  remeasurement  event occurring in fiscal years beginning
after September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
material impact on the Company's Consolidated Financial Statements.

2.       INVESTMENTS

     Net  realized and  unrealized  gains  (losses)  related to  investments  in
trading  securities  were $9.6  million,  $4.2 million and $5.2 million in 2006,
2005 and 2004, respectively.

     Investments in marketable securities  classified as available-for-sale  are
comprised  of  equity  securities  and  warrants  received  in  connection  with
investment banking services.  The cost basis of the equity securities classified
as  available-for-sale  at December 31, 2006 and 2005 was $1,057.1  thousand and
$860.0  thousand,  respectively,  and  the net  unrealized  losses  were  $642.5
thousand and $585.7  thousand,  respectively.  The estimated fair value of these
securities  was $414.6  thousand  and $274.3  thousand at December  31, 2006 and
2005,   respectively.   Net  unrealized  losses  related  to  available-for-sale
securities  are  classified  as  Other  Comprehensive  Income,  a  component  of
Comprehensive  Income (Loss) and  Accumulated  Other  Comprehensive  Loss in the
accompanying Consolidated Statements of Shareholders' Equity.

     At December 31, 2006, substantially all equity securities classified as
available-for-sale were restricted.

                                      -61-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


3.       PROPERTY AND EQUIPMENT

     At December 31, 2006 and 2005, property and equipment, net, consisted of
the following:

                                              2006          2005
                                          ------------- -------------

Furniture and fixtures                          $ 90.8        $ 85.1
Equipment                                        727.5         559.5
Capital leases - computer equipment              704.5         572.5
Leasehold improvements                           174.8         166.7
Software                                         214.8         173.9
                                          ------------- -------------

                                               1,912.4       1,557.7
Less: accumulated depreciation                (1,251.4)       (865.1)
                                          ------------- -------------

Property and equipment, net                    $ 661.0       $ 692.6
                                          ============= =============

     The  Company  recorded  depreciation  expense  of $386.3  thousand,  $299.6
thousand and $147.8  thousand in the years ended  December  31,  2006,  2005 and
2004, respectively.

4.       ACQUISITIONS

     Sterling Financial Acquisition

     On May 11, 2006, vFinance Investments  purchased certain assets of Sterling
Financial  Investment  Group,  Inc.  ("SFIG")  and Sterling  Financial  Group of
Companies,  Inc.  ("SFGC" and together  with SFIG,  "Sterling  Financial").  The
assets acquired from Sterling Financial  consisted  primarily of client accounts
from  Sterling  Financial's   Institutional  Fixed  Income  and  Latin  American
businesses.  These  transactions  were approved by the National  Association  of
Securities Dealers, Inc. on April 28, 2006.

     Purchase  price  consideration  consisted  of 13.0  million  shares  of the
Company's  common stock, to which the Company has granted  certain  registration
rights.  The assets  acquired in this  transaction  were the Sterling  Financial
customer relationships,  which were capitalized as an intangible asset, customer
relationships,  at the time of acquisition in accordance with SFAS No. 142. This
allocation is preliminary and subject to final  adjustments.  The purchase price
of the customer  relationships  was determined to be $3.4 million,  based on the
average  closing  price  of the  Company's  stock  for the  five  days  prior to
completing the acquisition, to be amortized over an expected useful life of five
years.   The  results  of   operations   derived  from  the  acquired   customer
relationships  are included in the  Company's  results of  operations  since the
acquisition in May 2006.

                                      -62-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Global Acquisition

     On November 2, 2004,  vFinance  Investments  completed its  acquisition  of
certain assets of Global Partners  Securities,  Inc.  ("Global") and 100% of the
issued   and   outstanding    equity   securities   of    EquityStation,    Inc.
("EquityStation"),  all of which were owned by Level2,  a  subsidiary  of Global
(the "Global Acquisition").

     Purchase  price  consideration  consisted  of  6.3  million  shares  of the
Company's  common stock, to which the Company has granted  certain  registration
rights.  The  transaction  was  accounted  for  as a  business  combination,  in
accordance  with SFAS No. 141. The purchase price of the customer  relationships
was  determined  to be $1.4 million,  based on the average  closing price of the
Company's stock for the five days prior to completing the acquisitions,  and the
warrants were valued based upon a Black-Scholes  valuation  model.  The customer
relationships were assigned a ten year useful life and the results of operations
of the acquired  business are included in the  Company's  results of  operations
since the acquisition in November 2004.

     In accordance with Financial  Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation" the Company has included vested stock
options  issued by the  Company  in  exchange  for  outstanding  awards  held by
employees of acquired companies as part of the purchase price.

     Pro Forma Financial Information

     The following unaudited Pro Forma Combined Financial Statements of Sterling
and  vFinance  gives  effect to the  acquisition  of certain  assets of Sterling
Financial,  as though the  transactions  occurred  as of  January 1, 2005.  This
unaudited pro forma information is presented for informational  purposes,  based
upon available data and assumptions that management believes are reasonable, and
is not necessarily indicative of future results:
<TABLE>
<CAPTION>

                                                                                       2006
                                                    -------------------------------------------------------------------------
                                                        vFinance          Sterling          Adjustments         Pro Forma
                                                    ----------------- -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                      <C>         <C>
Total revenue                                             $ 38,594.9         $ 3,759.4                $ -         $ 42,354.3
Income (loss) from operations                               (2,258.4)             48.0             (340.6)          (2,551.0)
Net income (loss)                                           (2,133.5)             48.0             (340.6)          (2,426.1)
                                                    -----------------                    -----------------  -----------------
Loss per share - basic and diluted                           $ (0.04)                             $ (0.03)           $ (0.04)
                                                    =================                    =================  =================
Wt. avg. shares outstanding - basic and diluted             48,528.0                             13,000.0           61,528.0
                                                    =================                    =================  =================

                                                                                       2005
                                                    -------------------------------------------------------------------------
                                                        vFinance          Sterling          Adjustments         Pro Forma
                                                    ----------------- -----------------  -----------------  -----------------

Total revenue                                             $ 26,070.7         $ 9,954.5                $ -         $ 36,025.2
Loss from operations                                        (1,162.2)            447.6             (681.2)          (1,395.8)
Net loss                                                      (999.6)            447.6             (681.2)          (1,233.2)
                                                    -----------------                    -----------------  -----------------
Loss per share - basic and diluted                           $ (0.02)                             $ (0.05)           $ (0.02)
                                                    =================                    =================  =================
Wt. avg. shares outstanding - basic and diluted             40,049.7                             13,000.0           53,049.7
                                                    =================                    =================  =================
</TABLE>

                                      -63-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


5.       CUSTOMER RELATIONSHIPS

     At December 31, 2006 and 2005, customer  relationships totaled $4.1 million
and $1.3 million, net of accumulated  amortization of $737.4 thousand and $165.0
thousand, respectively.

     Acquired  customer  relationships  are  amortized  using the  straight-line
method over their  estimated  useful lives,  which  coincide with their expected
revenue-generating  lives,  which  range  from five to ten  years.  The  Company
recorded  amortization  expense of $572.4  thousand,  $146.7  thousand and $18.3
thousand in the years ended December 31, 2006, 2005 and 2004, respectively.

6.       NET CAPITAL REQUIREMENT

     Both vFinance  Investments and  EquityStation are subject to the Securities
and Exchange  Commission Uniform Net Capital Rule (rule 15c3-1),  which requires
the  maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined,  shall not exceed 15 to 1 (and the
rule of the  "applicable"  exchange also provides that equity capital may not be
withdrawn or cash dividends paid if the resulting net capital ratio would exceed
10 to 1). At December 31,  2006,  vFinance  Investments  had net capital of $1.5
million, which was $514.5 thousand in excess of its required net capital of $1.0
million.  EquityStation  had net  capital  of $427.3  thousand  that was  $327.3
thousand in excess of its required net capital of $100.0 thousand.

     vFinance  Investments'  aggregate  indebtedness to net capital ratio was to
2.01 to 1 in 2006. Equity Station's aggregate  indebtedness to net capital ratio
was  1 to  2.84.  vFinance  Investments  and  EquityStation  qualify  under  the
exemptive  provisions  of Rule 15c3-3 under  Section  (k)(2)(ii) of the Rule, as
they do not carry security accounts of customers or perform custodial  functions
related to customer securities.

7.       RELATED PARTY TRANSACTIONS

     Employment Agreements

     On November 16, 2004, the Company entered into new agreements  ("Employment
Agreements") amending and restating employment agreements dated November 8, 1999
with  the  Company's  current  Chairman  and  Chief  Executive  Officer  and the
Company's  former Chief Operating  Officer and Chairman.  Under the terms of the
Employment Agreements,  which have three year terms and automatically extend for
a one year period on each  anniversary  date  thereafter  unless the Company has
provided a non-renewal  notice thirty (30) days prior to an anniversary  date as
directed by a majority vote of the Board of  Directors,  each  individual  shall
receive (i) an initial base salary of $257,000 per annum which shall increase 5%
per  annum  beginning  January  1,  2005 and each  year  thereafter  and will be
reviewed by the Board at least annually and may be increased (but not decreased)
from time to time as Board may  determine;  (ii)  discretionary  bonuses  and/or
interim  cash bonuses  and/or  other  bonuses when and in such amounts as may be
determined  by the  Company's  Board  of  Directors  based  on each  individuals
performance,  the Company's performance and/or other factors;  provided that the
Board shall meet at least annually to review employees' bonus entitlements;  and
(iii) incentive compensation paid quarterly no later than the 45th day following
the end of  quarter  primarily  based  on  performance  of the  Company  and its
respective   subsidiaries.   The  Primary  Employment  Agreements  also  contain
provisions related to change of control.


                                      -64-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     On May 12, 2006,  the Company an Mr.  Sokolow  entered into an amendment to
Mr.  Sokolow's  Employment  Agreement to provide a base salary of  $343,511.  On
December 29, 2006, the Company and Mr. Sokolow entered into another amendment to
the Mr. Sokolow's Employment Agreement,  pursuant to which Mr. Sokolow serves as
the  Chairman  of the  Company's  Board of  Directors  and the  Company's  Chief
Executive  Officer.  Mr.  Sokolow's  base salary was increased from $343,511 per
annum to $396,750 per annum, subject to an annual increase based on the reported
cost of living adjustment  beginning January 1, 2008. None of the other terms of
the Sokolow Employment Agreement were modified in any material respect.


     On  December  29,  2006,  the  Company  and  Mr.  Mahoney  entered  into  a
Resignation  Agreement  (the  "Resignation  Agreement"),  pursuant  to which Mr.
Mahoney  resigned from his  positions as the Chairman of the Company's  Board of
Directors and the Company's Chief Operating  Officer  effective January 3, 2007.
In accordance with the Resignation  Agreement,  the Company agreed to pay to Mr.
Mahoney,  upon a Change  in  Control  anytime  from  January  3,  2007 up to and
including January 3, 2010 an amount equal to: (a) twice the sum of Mr. Mahoney's
highest  annual base  salary  during his  employment  with us, and (b) twice the
greater  of (i) the  highest  bonus,  incentive  or other  compensation  payment
actually  received by Mr. Mahoney during the three years preceding the Change in
Control and (ii) the highest bonus,  incentive or other compensation payment Mr.
Mahoney was entitled to receive  during the three years  preceding the Change in
Control. In the event of a Change in Control, all stock options, warrants, stock
appreciation rights and other similar securities held by Mr. Mahoney will become
immediately and fully vested.

     In connection  with Mr.  Mahoney's  resignation,  on December 29, 2006, the
Company and Mr. Mahoney jointly  terminated Mr.  Mahoney's  Amended and Restated
Employment  Agreement dated November 16, 2004,  which  termination was effective
January  3, 2007.  The  termination  of the  employment  agreement  prior to the
expiration of its term will not cause the Company to incur any early termination
penalties of any kind, and all  post-employment  matters between Mr. Mahoney and
the Company are governed by the Resignation Agreement.

     Two of the  principals  of Global  and Equity  Station  each  entered  into
employment agreements with the Company,  which provided an annual base salary of
$144,000,  certain incentive bonuses,  and options to purchase 350,000 shares of
the Company's  common stock. The options are exercisable at $0.19 per share, and
vest ratably over a three year period.

                                      -65-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     JSM Capital Holding Corp.

     On January 1, 2003, the Company entered into an agreement with JSM Capital
Holding Corp. ("JSM"), a retail brokerage operations headquartered in New York
and founded by John S. Matthews (who was also, at the same time, named the
President of the Company's Retail Brokerage Division). The Company issued JSM
1,000,000 warrants to purchase its common stock at an exercise price of $0.20 in
exchange for a 19% equity position in JSM. The warrants were valued using the
Black-Scholes valuation method which calculated the value to be $0.08 per
warrant, or $80,000. The Company accounted for this investment using the cost
method. In August 2005, the relationship between the Company and JSM was
terminated, and the Company fully impaired the investment in JSM in the fourth
quarter of 2005, when it was determined that JSM has no remaining material
assets or operations.


8.       SHAREHOLDERS' EQUITY

     Common Stock

     In 2006, the Company  increased its  authorized  number of shares of common
stock from 75.0 million to 100.0 million.

     Preferred Stock

     The Company is  authorized  to issue up to 2.5 million  shares of Preferred
Stock.  122.5 thousand shares were designated as Series A Convertible  Preferred
Stock,  par value $0.01 per share,  and 50.0 thousand  shares were designated as
Series B Convertible  Preferred Stock, par value $0.01 per share. As of December
31, 2006 and 2005, there was no Preferred Stock outstanding.

     SBI Note Conversion

     In November 2001, the Company  entered into a Note Purchase  Agreement,  as
amended,  (the "Agreement")  with SBI Investments (USA) Inc. ("SBI").  Under the
terms of the  Agreement,  SBI  provided  a loan to the  Company in the amount of
$975,000 in the form of a 48-month non-interest  bearing,  convertible note (the
"SBI Note"),  the  proceeds of which were  allocated  to  beneficial  conversion
feature and amortized over the term of the note. The SBI Note was convertible at
SBI's option into as many as 3.4 million shares of the Company's common stock at
$0.285 per share.  During 2002, the SBI Note was reduced by $225.0 thousand when
a  portion  of the SBI Note was  converted  into  789.5  thousand  shares of the
Company's common stock.  During 2004, the remaining  balance on the SBI Note was
converted into 3.4 million shares of the Company's common stock. Of this amount,
$545.0  thousand was converted into 2.7 million  shares of the Company's  common
stock at a  discounted  rate of $0.20  per  share  under a  special  arrangement
offered by the  Company,  resulting  in $231.6  thousand of  conversion  premium
expense at the time of  conversion.  The  Company  recorded  $360.4  thousand of
beneficial  conversion  feature  expense  in  the  Consolidated   Statements  of
Operations in 2004, including $47.0 thousand of amortization and $313.4 thousand
written off upon final conversion.

                                      -66-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Warrants

     The Company has issued warrants to purchase shares of the Company's  common
stock,  primarily in connection with financing  transactions,  acquisitions  and
litigation  settlement.  A summary of the warrant  activity  for the years ended
December 31, 2006 and 2005 is as follows:
<TABLE>
<CAPTION>

                                                        Weighted
                                                        Average      Range of
                                        Number of       Exercise     Exercise
                                        Shares          Price        Price      Exercisable
                                      ------------------------------------------------------

<S>                     <C> <C>             <C>         <C>       <C>    <C>        <C>
Outstanding at December 31, 2003            5,398.5     $ 1.70    0.65 - 7.20       5,388.5
                                                                                ============
Issued                                      2,927.9     $ 0.16    0.15 - 0.16
Exercised                                         -          -              -
Expired                                      (230.0)    $ 0.44    0.35 - 2.50
                                      --------------

Outstanding at December 31, 2004            8,096.4     $ 1.18    0.15 - 7.20       8,086.4
                                                                                ============
Issued                                            -          -              -
Exercised                                         -          -              -
Expired                                      (436.8)    $ 2.21    0.35 - 6.00
                                      --------------

Outstanding at December 31, 2005            7,659.6     $ 1.12    0.15 - 7.20       7,649.6
                                                                                ============
Issued                                      3,299.7     $ 0.11           0.11
Exercised                                         -          -              -
Expired                                    (6,999.6)    $ 1.18    0.15 - 7.20
                                      --------------

Outstanding at December 31, 2006            3,959.7     $ 0.16    0.11 - 0.63       3,949.7
                                      ==============                            ============
</TABLE>

     The following table summarizes information concerning warrants outstanding
at December 31, 2006:
<TABLE>
<CAPTION>
      Exercise Prices     Number Outstanding  Weighted Average Remaining   Weighted Average
                                                   Contractual Life         Exercise Price
------------------------  ------------------- --------------------------- -----------------


<S>                            <C>                        <C>                 <C>
   $ 0.11                      3,299.7                    2.84
   $ 0.15                        250.0                    1.03
   $ 0.625                       400.0                    4.63
   $ 2.250                        10.0                    0.83
                          ------------------
                               3,959.7                    2.90                   $0.16
                          ==================                                  =============
</TABLE>

     There were 3.3 million and 2.9  million  warrants  issued in 2006 and 2004,
respectively.  There  were no  warrants  issued in 2005.  The  weighted  average
issue-date  fair value of warrants  issued  equaled  $0.13 and $0.16 in 2006 and
2004,  respectively.  As of December 31, 2006, the aggregate  intrinsic value of
the Company's outstanding and exercisable warrants was $38.5 thousand.

                                      -67-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


9.       STOCK OPTIONS

     During 2006, the Company  recorded $448.2 thousand of compensation  expense
(included  as   Compensation,   commission   and  benefits  costs  in  the  2006
Consolidated  Statement of Operations)  attributable to stock options granted or
vested subsequent to December 31, 2005.

     The  Company   uses  the   Black-Scholes   valuation   model  to  determine
compensation  expense and  amortizes  compensation  expense  over the  requisite
service  period of the grants on a  straight-line  basis.  The  following  table
summaries the assumptions used:

     Risk-free interest rate ........................... 4.25% - 5.25%

     Expected dividend yield ................................. -

     Expected term ....................................... Five years

     Expected volatility ............................... 72.4% - 80.7%%

     The risk free investment rate is based on the U.S.  Treasury yield curve at
the time of grant.  The expected  term of stock  options  grated is derived from
historical  data and  represents  the  period of time  that  stock  options  are
expected to be  outstanding.  The  expected  volatility  is based on  historical
volatility, implied volatility and other factors impacting the Company.

     The following table summarizes the stock option activity during 2006:
<TABLE>
<CAPTION>

                                                                                   Weighted-
                                                                                   Average
                                                                 Weighted-         Remaining    Aggregate
                                                                 Average           Contractual  Instinct
                                                                 Exercise          Term         Value (in
                                              Shares             Price             (Years)      thousands)
                                           -------------------  ---------------- ------------- ---------------

<S>                                             <C>            <C>                 <C>           <C>
Options outstanding at beginning of year        14,614.8       $    0.23
Granted                                          7,215.0       $    0.21
Exercised                                              -  $            -
Forfeited and expired                           (6,251.1)      $    0.29
                                           ----------------
Options outstanding at end of year              15,578.7       $    0.20              4.0         $  59.10
                                           ================
Options exercisable at end of year               4,532.3       $    0.19              3.1         $  25.20

</TABLE>

     The weighted-average  grant-date fair value of stock options granted during
2006,  2005 and  2004 was  $0.14,  $0.13  and  $0.16,  respectively.  The  total
intrinsic  value of stock  options  exercised  during 2005 was $113.5  thousand.
There were no stock options exercised in 2006 or 2004.

                                      -68-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


A summary of non-vested stock option transactions is as follows for 2006:

                               Shares (in millions)     Weighted-Average
                                                      Grant-Date Fair Value
                                                            (per share)
                                -------------------  ------------------------

Nonvested at beginning of period          10,688.4           $ 0.13
Granted                                    7,215.0           $ 0.21
Vested                                    (3,245.8)          $ 0.11
Forfeited and expired                     (3,611.2)          $ 0.32
                                -------------------
Nonvested at end of period                11,046.4           $ 0.13
                                ===================

     As of  December  31,  2006,  there was $1.4  million of total  unrecognized
compensation  cost related to non-vested stock options,  which is expected to be
recognized  over a period of four years.  The total fair value of shares  vested
during 2006 was $357.0 thousand.

     During  2005  proceeds  from the  exercise  of stock  options  were  $113.5
thousand. There were no stock options exercised in 2006 or 2004.

10.      EARNINGS PER SHARE

     The Company calculates  earnings per share in accordance with SFAS No. 128,
"Earnings per Share".  In accordance with SFAS No. 128, basic earnings per share
is  computed  using the  weighted  average  number  of  shares  of common  stock
outstanding  and  diluted  earnings  per share is  computed  using the  weighted
average number of shares of common stock and the dilutive  effect of options and
warrants outstanding, using the "treasury stock" method, as follows:

                                           2006         2005         2004
                                        ------------ ------------ ------------

Weighted average shares outstanding -
  basic                                    48,714.8     40,049.7     33,773.3
Effect of dilutive stock options and
 warrants                                         -            -      2,066.9
                                        ------------ ------------ ------------

Weighted average shares outstanding -
  diluted                                  48,714.8     40,049.7     35,840.2
                                        ============ ============ ============

     As of  December  31, 2006 and 2005,  the Company had 19.5  million and 22.3
million stock options and warrants outstanding, respectively, none of which have
been  included  in  diluted  earnings  per  share  since  they  would  have been
anti-dilutive as a result of the net losses in 2006 and 2005. As of December 31,
2004, 2.3 million options and warrants were not included in diluted earnings per
share because they would have been anti-dilutive.


                                      -69-

<PAGE>
                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

11.      DEBT AND CAPITAL LEASE OBLIGATIONS

     Capital lease obligations at December 31, 2006 consisted of the following:

   Obligations under capital leases        336.4
           Less: current maturities       (210.8)
                                     ------------
                                         $ 125.6
                                     ============


     Future minimum lease payments for equipment under capital leases at
December 31, 2006 are as follows:

                         Year Ending December 31:   Amount
-------------------------------------------------- ------------

                                             2007      $ 242.4
                                             2008         87.8
                                             2009         31.6
                                             2010            -
                                             2011            -
                                       Thereafter            -
                                                   ------------

                     Total minimum lease payments        361.8
              Less: amounts representing interest        (25.4)
                                                   ------------

      Present value of net minimum lease payments        336.4
                            Less: current portion       (210.8)
                                                   ------------

                                                      $  125.6
                                                   ============

     Debt Forgiveness

     On January  25,  2002,  the Company  entered  into a Credit  Agreement,  as
amended on April 12, 2002, with UBS Americas,  Inc. ("UBS").  Under the terms of
the Credit Agreement,  UBS provided the Company with a revolving credit facility
for up to $3.0  million  for the  purpose of  supporting  the  expansion  of the
Company's  brokerage  business or  investments in  infrastructure  to expand the
Company's  operations  and  broker-dealer  operations.  The loan had a term of 4
years,  was required to be repaid in full by January 2005, and accrued  interest
at LIBOR plus a LIBOR  margin of 2% if the loan was repaid  within a month or 5%
if it was outstanding more than a month. The Company borrowed $1.5 million under
the credit  facility on January  28, 2002  leaving an  additional  $1.5  million
available.

     In June 2003,  Fidelity  Investments,  on behalf of its clearing  division,
National  Financial  Services  LLC,  Member  NYSE/SIPC,  a Fidelity  Investments
company ("NFS"),  announced that it had acquired Correspondent Services Clearing
("CSC"),  an  affiliate of UBS and vFinance  Investments'  clearing  firm at the
time. In connection with this transaction,  the Company believed certain actions
constituted  breaches  under  the  Credit  Agreement,  including  the  Company's
preclusion from borrowing the $1.5 million remaining  available under the credit
facility.

                                      -70-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     In March  2004,  NFS  agreed to  extinguish  the $1.5  million  owed by the
Company under the Credit Agreement,  pursuant to a guaranty Fidelity Investments
made to UBS as part of their original  acquisition of the CSC clearing division.
In connection with this forgiveness, the Company recorded a $1.5 million gain on
debt  forgiveness,  relinquished  any right to borrow the remaining $1.5 million
that should have been available under the Credit Agreement and waived any lender
liability  claims for actual or  consequential  damages it may have had  against
UBS.  Additionally,  the Company entered into a clearing agreement with NFS. See
Note 13 to the Consolidated Financial Statements.

12.      INCOME TAXES

     The  components of the Company's tax provision for the years ended December
31, 2006, 2005 and 2004 were as follows:

                                     2006         2005         2004
                                  ------------ ------------ ------------

Current income tax expense            $ -          $ -       $ 40.0
Deferred income tax (benefit)           -            -        (40.0)
                                  ------------ ------------ ------------
                                      $ -          $ -       $    -
                                  ============ ============ ============


     The reconciliation of the income tax computed at the U.S. Federal statutory
rate to income tax expense for the period  ended  December  31,  2006,  2005 and
2004:
<TABLE>
<CAPTION>

                                                      2006         %         2005         %        2004         %
                                                   ------------ --------- ------------ -------- ------------ ---------
<S>                                                    <C>         <C>       <C>         <C>      <C>          <C>
Tax expense (benefit) at statutory rate of 35%         (766.6)     35.0      $ (349.8)   (35.0)   $   845.2    35.0
Nondeductible expenses                                   66.9                 2,916.9               2,916.8
Alternative minimum tax                                     -                       -                  40.0
Change in valuation allowance                           699.7               (2,567.10)             (3,802.0)
                                                   ------------           ------------          ------------
Net income tax expense (benefit)                      $     -                $      -             $       0
                                                   ============           ============          ============
</TABLE>
     The Company was not subject to any alternative minimum tax for the tax year
ending December 31, 2006 or 2005.

     Deferred  income  taxes  reflect  the net income  tax  effect of  temporary
differences  between  the  carrying  amounts of the assets and  liabilities  for
financial  reporting  purposes and amounts used for income taxes.  The Company's
deferred income tax assets and liabilities consist of the following:

                                                       2006          2005
                                                   ------------- -------------

 Deferred tax assets:
   Net operating loss carry-forwards                  $4,828.0      $ 4,688.7
   Deferred rent                                          66.0              -
   Stock options                                         171.0              -
   Impairment of investment in JSM                        30.0           30.9
   Accrued bonuses                                       117.0              -
   Depreciation and amortization                          49.0          (97.3)
   Deferred revenue                                       34.0              -
   Reserve for settlements                                37.0              -
                                                   ------------- -------------
                                                       5,332.0        4,622.3
 Valuation allowance                                  (5,332.0)      (4,622.3)
                                                   ------------- -------------

 Net deferred tax asset                               $      -      $       -
                                                   ============= =============

                                      -71-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Net operating loss  carry-forwards  totaled  approximately $12.6 million at
December 31, 2006.  The net  operating  loss  carry-forwards  can be utilized or
expire  if  not  utilized  through  the  tax  years  2021  through  2026.  After
consideration  of all the evidence,  both positive and negative,  management has
recorded  a  valuation  allowance  at  December  31,  2006 and 2005,  due to the
uncertainty of realizing the deferred tax assets.

     Utilization of the Company's net operating loss  carry-forwards are limited
based on changes in ownership as defined in Internal Revenue Code Section 382.

13.      COMMITMENTS AND CONTINGENCIES

     Clearing Agreement

     vFinance  Investments  entered into a clearing  agreement  with NFS in 2004
(the  "Clearing  Agreement").  NFS  acquired  the  vFinance  Investment's  prior
clearing firm and made a payment to extinguish  $1.5 million owed by the Company
under a credit facility in connection with that acquisition.  See Note 11 to the
Consolidated Financial Statements.

     The new Clearing Agreement requires NFS to pay a monthly incentive bonus to
the  Company  up to $25.0  thousand  per month  over the  five-year  term of the
Clearing Agreement (to an aggregate of $1.5 million).  The Company also received
a $200.0 thousand  payment from NFS in 2004, as compensation  for the transition
costs  associated  with migrating to a new clearing firm. As  consideration  for
these  incentives,  NFS required a termination  fee of $1.7 million in the event
vFinance  Investments  terminates  the Clearing  Agreement.  This fee is reduced
annually on a pro rata basis over the five year term of the Clearing  Agreement.
As of December 31, 2006,  the  contingent  obligation of the Company  associated
with this Clearing Agreement was $1.0 million.

     Operating Lease Commitments

     The Company  leases office space under the terms of operating  leases.  The
following chart shows lease  obligations  including  rental of real property and
equipment.

         Year Ending December 31:   Amount
---------------------------------- ------------

                             2007    $ 1,356.4
                             2008      1,271.4
                             2009        703.5
                             2010        611.1
                             2011        635.1
                       Thereafter      1,286.6
                                   ------------

                            Total      5,864.1
           Less: sublease rentals     (3,992.8)
                                   ------------

                                     $ 1,871.3
                                   ============

     Total rent expense under operating leases,  including space rental, totaled
$1,026.8  thousand,  $726.3  thousand  and $690.4  thousand  for the years ended
December 31, 2006, 2005 and 2004, respectively.

                                      -72-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

     Litigation

     The Company,  including its wholly owned subsidiary  vFinance  Investments,
has been named as a defendant in various  lawsuits  and  customer  arbitrations.
These  claims  result  from the  actions of  brokers  affiliated  with  vFinance
Investments.  In  addition,  under the  vFinance  Investments,  Inc.  registered
representatives'  contract,  each registered  representative has indemnified the
Company  for  these  claims.  In  accordance  with  SFAS No. 5  "Accounting  for
Contingencies,"  the Company has established  liabilities  for potential  losses
from  such  complaints,  legal  actions,   investigations  and  proceedings.  In
establishing  these liabilities,  the Company's  management uses its judgment to
determine  the  probability  that losses  have been  incurred  and a  reasonable
estimate of the amount of losses.  In making these decisions,  the Company bases
its judgments on knowledge of the situations,  consultations  with legal counsel
and  historical  experience  in resolving  similar  matters.  In many  lawsuits,
arbitrations and regulatory proceedings, it is not possible to determine whether
a liability has been incurred or to estimate the amount of that liability  until
the matter is close to resolution.  However, accruals are reviewed regularly and
are adjusted to reflect the Company's  estimates of the impact of  developments,
rulings,  advice of counsel and any other information  pertinent to a particular
matter. Because of the inherent difficulty in predicting the ultimate outcome of
legal and  regulatory  actions,  the Company  cannot  predict with certainty the
eventual  loss or  range  of loss  related  to such  matters.  If the  Company's
judgments prove to be incorrect,  its liability for losses and contingencies may
not accurately reflect actual losses that result from these actions, which could
materially   affect   results  in  the  period  other  expenses  are  ultimately
determined. As of December 31, 2006, the Company has accrued approximately $70.0
thousand for these matters. In 2005 the Company acquired an errors and omissions
policy for certain  future claims in excess of the policy's  $75.0  thousand per
claim  deductible,  up to an aggregate of $1.0  million.  While the Company will
vigorously  defend itself in these matters,  and will assert insurance  coverage
and  indemnification  to the maximum extent possible,  there can be no assurance
that these lawsuits and arbitrations  will not have a material adverse impact on
its financial position.

     The business of vFinance Investments and EquityStation  involve substantial
risks of  liability,  including  exposure to liability  under  federal and state
securities  laws  in  connection  with  the   underwriting  or  distribution  of
securities and claims by dissatisfied customers for fraud, unauthorized trading,
churning, mismanagement and breach of fiduciary duty. In recent years, there has
been an increasing  incidence of litigation  involving the securities  industry,
including class actions that generally seek rescission and substantial damages.

     In the ordinary course of business, the Company and/or its subsidiaries may
be parties to other legal proceedings and regulatory  inquiries,  the outcome of
which,  either  singularly or in the aggregate,  is not expected to be material.
There can be no assurance  however that any  sanctions  will not have a material
adverse  effect on the  financial  condition  or  results of  operations  of the
Company  and/or its  subsidiaries.  The  following is a brief summary of certain
matters pending against or involving the Company and its subsidiaries.

                                      -73-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     On  October  16,  2006,  the  Company  settled a lawsuit  initiated  by two
customers by agreeing to issue 1.0 million shares of the Company's  common stock
to the  customers.  The common stock  issuance was  accounted for as general and
administrative  expense,  based on the average  closing  price of the  Company's
common stock for the five days prior to issuance of these shares. As part of the
settlement, the Company agreed that if the customers sold the common stock after
October 16,  2007 at a sales  price of less than  $0.175 per share,  the Company
would pay the customers the  difference  between $0.175 per share and the actual
net sales  price of the  common  stock in a  transaction  with a bona fide third
party.

     On or about February 28, 2005,  Knight Equity Markets,  LP ("Knight") filed
an arbitration  action (NASD Case No. 05-01069)  against  vFinance  Investments,
Inc.  ("vFinance"),  claiming  that  vFinance  received  roughly $6.5 million in
dividends that rightfully belong to Knight.  vFinance asserts that the dividends
actually went to two of its clients,  Pearl Securities LLC ("Pearl  Securities")
and Michael  Balog,  and that  vFinance has no liability.  vFinance  filed third
party claims  against  Pearl  Securities  and Michael  Balog to bring all of the
parties  into the  action.  vFinance's  motion to amend the third party claim to
include  these two  clients  is  currently  pending.  Pearl and Balog have filed
motions to dismiss  vFinance's  claims and the motions are scheduled for hearing
on April 17, 2006. Knight is seeking  approximately $6.5 million in damages plus
costs,  attorney  fees and punitive  damages.  vFinance  denies any liability to
Knight and intends to vigorously defend against Knight's claims.

     On or about  September  27, 2005,  John S.  Matthews  filed an  arbitration
action  (NASD Case No.  05-014991)  against  vFinance,  claiming  that  vFinance
wrongfully  terminated his  independent  contact with vFinance and that vFinance
"stole"  his  clients  and  brokers.  Mr.  Matthews  has  obtained  a  temporary
restraining  order and an agreed upon  injunction  was issued by the NASD panel.
Matthews and JMS Capital  Holding Corp., a plaintiff in the  arbitration  action
also request  unspecified  damages  resulting from vFinance's  alleged  improper
activity.  The full hearing on the merits was currently  scheduled for August 30
through  September  1, 2006,  but was  postponed  and has not been  rescheduled.
vFinance intends to vigorously defend this matter. In addition to contesting and
defending  against JSM's and Mr. Matthews claims,  vFinance filed a counterclaim
for indemnity based upon the contractual agreement between the parties.

     The Company  engaged in a number of other legal  proceedings  incidental to
the  conduct  of its  business.  These  claims  aggregate  a range of $28,000 to
$260,000.

14.      DEFINED CONTRIBUTION PLAN

     The  Company  maintains  a  defined  contribution  savings  plan  in  which
substantially  all employees are eligible to participate.  The Company may match
up to 25% of the employee's  salary.  The Company made no  contributions  to the
plan for the years ended December 31, 2006, 2005 and 2004, respectively.

                                      -74-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


15.      CASH FLOW INFORMATION

     Supplemental  disclosure  of  cash  flow  information  and  non-cash  items
affecting the statement of cash flows are as follows:
<TABLE>
<CAPTION>

                                                                   2006           2005           2004
                                                                ------------   ------------  -------------
 Supplemental cash flow disclosures:
<S>                                                               <C>             <C>          <C>
 Cash paid for interest during the year                           $    59.7       $   30.7     $     34.0
                                                                ============   ============  =============
 Cash paid for income taxes during the year                       $       -       $      -     $        -
                                                                ============   ============  =============

 Non-cash items affecting investing and financing activities:

 Acquisition of computer equipment under capital leases           $   132.0        $ 368.0      $   204.6
                                                                ============   ============  =============
 Common stock issued for acquisition                              $ 3,406.0        $     -      $ 1,580.8
                                                                ============   ============  =============
 Common stock issued for payment of note                          $       -        $     -      $   750.0
                                                                ============   ============  =============
 Common stock issued to settle arbitration                        $   261.3        $     -      $       -
                                                                ============   ============  =============

</TABLE>


16.      CONCENTRATIONS OF CREDIT RISK

     The Company maintains its cash in bank and brokerage deposit accounts,  the
majority  of which,  at times,  are either  uninsured  or may  exceed  federally
insured  limits.  At December 31,  2006,  the Company had $3.4 million in United
States bank  deposits,  which exceeded  federally  insured  limits.  The Company
places its cash with high quality  insured  financial  institutions  and has not
experienced any losses in such accounts through December 31, 2006.

     The  Company  and its  subsidiaries  are  engaged  in various  trading  and
brokerage activities in which counterparties  primarily include  broker-dealers,
banks,  and other  financial  institutions.  The  Company  clears a  substantial
portion of its retail, wholesale and market-making transactions through a single
clearing broker. Similarly, the Company clears most of its fixed income security
transactions  through another clearing broker.  In the event these or other such
counterparties do not fulfill their  obligations,  the Company may be exposed to
risk. The risk of default depends on the creditworthiness of the counterparty or
issuer of the instrument.  It is the Company's  policy to review,  as necessary,
the credit standing of each counterparty.

                                      -75-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


18.      QUARTERLY FINANCIAL DATA

As discussed in Note 1 to the Consolidated  Financial Statements,  the Company's
Consolidated Financial Statements have been restated in accordance with SFAS No.
154 to correct certain errors. The following tables present certain items in the
Company's Consolidated Statements of Income for each of the quarterly periods in
2006 and 2005.
<TABLE>
<CAPTION>

                                                      Three Months       Three Months        Three Months         Three Months
                                                      Ended March 31,    Ended June 30,      Ended September 30,  Ended December 31,
                                                      2006 (Unaudited)   2006 (Unaudited)    2006 (Unaudited)     2006 (Unaudited)
                                                                              (3)                  (3)                  (3) (4)
                                                    ------------------  ------------------  -------------------  ------------------
<S>                                                        <C>                <C>                <C>               <C>
Revenues, as reported (1)                                  $ 8,754.8          $ 9,655.5          $ 9,545.5
Reclassifications to other income (expense), net (2)           141.1              (36.6)             (62.3)
                                                      ---------------     --------------     --------------
Revenues, revised                                            8,895.9            9,618.9            9,483.2
Restatement to reclassify securities
 available-for-sale                                            111.7               35.6               46.2
                                                      ---------------     --------------     --------------
Revenues - restated and revised                            $ 9,007.6          $ 9,654.5          $ 9,529.4         $ 10,403.4
                                                      ===============     ==============     ===============     ==============
Income (loss) from operations, as reported (1)               $ 234.0           $ (425.1)         $  (478.6)
Reclassifications from revenue to other income
 (expense), net (2)                                            141.1              (36.6)             (62.3)
Reclassifications from operating expenses to other
 income (expense), net (2)                                    (145.1)              17.9               14.2
                                                      ---------------     --------------     --------------
Income (loss) from operations, revised                         230.0             (443.8)            (526.7)
Restatement adjustments:
  Reclassification of securities available-for-sale            111.7               35.6               46.2
  Amortization of customer relationships                        36.7               36.7               36.7
  Recognition of transition payment                             10.0               10.0               10.0
                                                      ---------------     --------------     --------------
    Net effect of restatement adjustments                      158.4               82.3               92.9
                                                      ---------------     --------------     --------------

Income (loss) from operations - restated and revised         $ 388.4           $ (361.5)          $ (433.8)        $ (1,851.5)
                                                      ===============     ==============     ==============     ==============

Net income (loss), as reported (1)                           $ 253.2           $ (425.1)          $ (478.6)
Restatement adjustments:
  Reclassification of securities available-for-sale            111.7               35.6               46.2
  Amortization of customer relationships                        36.7               36.7               36.7
  Recognition of transition payment                             10.0               10.0               10.0
                                                      ---------------     --------------     --------------
Net effect of restatements                                     158.4               82.3               92.9
                                                      ---------------     --------------     --------------

Net income (loss) - restated and revised                     $ 411.6           $ (342.8)          $ (385.7)        $ (1,816.6)
                                                      ===============     ==============     ==============     ==============
Net income (loss) per share - basic, as reported (1)          $ 0.01            $ (0.01)           $ (0.01)
Net effect of adjustments                                       0.00               0.00               0.00
                                                      ---------------     --------------     --------------
Net income (loss) per share - basic -
 restated and revised                                         $ 0.01            $ (0.01)           $ (0.01)           $ (0.03)
                                                      ===============     ==============     ==============     ==============
Weighted avg. shares outstanding                            40,126.1           47,269.0           53,126.1           53,357.6
                                                      ===============     ==============     ==============     ==============
Net income (loss) per share - diluted as reported (1)         $ 0.01            $ (0.01)           $ (0.01)
Net effect of adjustments                                       0.00               0.00               0.00
                                                      ===============     ==============     ==============
Net income (loss) per share - diluted -
 restated and revised                                         $ 0.01            $ (0.01)           $ (0.01)           $ (0.03)
                                                      ===============     ==============     ==============     ==============
Weighted avg. shares outstanding - diluted                  42,231.2           47,269.0           53,126.1           53,357.6

</TABLE>

     (1) Amounts labeled "as reported" represent amounts reported in the
Company's quarterly reports on Form 10-Q for the quarterly periods ended March
31, June 30 and September 30, 2006.

     (2) We reclassified certain amounts from revenues and operating expenses
to other income and expense, net during 2006.

                                           -76-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

     (3) Revenues and operating expenses increased in the second, third and
fourth quarters of 2006 compared to the first quarter of 2006, primarily as a
result of the Sterling Financial acquisition.

     (4) The Company's loss from operations and net loss increased during the
quarter ended December 31, 2006, primarily as a result of $261.3 thousand of
expenses recorded in connection with arbitration settlements, the forgiveness of
$215.0 thousand due from an unconsolidated affiliate, the accrual of incentive
compensation to be paid in 2007 and a decrease in success fee revenues derived
from investment banking services compared to prior quarters.


<TABLE>
<CAPTION>
                                                           Three Months     Three Months     Three Months    Three Months
                                                           Ended March 31,  Ended June 30,   Ended September Ended December
                                                           2005 (Unaudited) 2005 (Unaudited) 30, 2005        31, 2005
                                                                                             (Unaudited)     (Unaudited) (3)
                                                          ----------------  ---------------  ---------------  ---------------
<S>                                                           <C>               <C>            <C>              <C>
Revenues, as reported (1)                                     $ 6,491.2         $ 6,320.7      $ 6,593.9        $ 6,420.5
Reclassifications to other income (expense), net (2)               (0.2)            (19.5)         (41.2)            60.9
                                                         ---------------  ---------------- --------------  ---------------
Revenues, revised                                               6,491.0           6,301.2        6,552.7          6,481.4
Restatement to reclassify securities available-for-sale           119.9              10.4           38.5             75.6
                                                         ---------------  ---------------- --------------  ---------------

Revenues - restated and revised                               $ 6,610.9         $ 6,311.6      $ 6,591.2        $ 6,557.0
                                                         ===============  ================ ==============  ===============
Loss from operations, as reported (1)                         $  (173.6)          $ (69.5)      $ (132.7)        $ (819.4)
Reclassifications from revenue to other income
 (expense), net (2)                                                (0.2)            (19.5)         (41.2)            60.9
Reclassifications from operating expenses to
  other income (expense), net (2)                                 (18.4)              8.3           10.1           (104.7)
                                                         ---------------  ---------------- --------------  ---------------
Loss from operations, revised                                    (192.2)            (80.7)        (163.8)          (863.2)
Restatement adjustments:
  Reclassification of securities available-for-sale               119.9              10.4           38.5             75.6
  Amortization of customer relationships                          (36.7)            (36.7)         (36.7)           (36.6)
  Recognition of transition payment                                10.0              10.0           10.0             10.0
                                                         ---------------  ---------------- --------------  ---------------
    Net effect of  restatement adjustments                         93.2             (16.3)          11.8             49.0
                                                         ---------------  ---------------- --------------  ---------------
Loss from operations - restated and revised                    $  (99.0)          $ (97.0)      $ (152.0)        $ (814.2)
                                                         ===============  ================ ==============  ===============
Net loss, as reported (1)                                      $ (154.5)          $ (69.5)      $ (132.7)        $ (780.6)
Restatement to reclassify securities available-for-sale           119.9              10.4           38.5             75.6
Amortization of customer relationships                            (36.7)            (36.7)         (36.7)           (36.6)
Recognition of transition payment                                  10.0              10.0           10.0             10.0
                                                         ---------------  ---------------- --------------  ---------------
Net effect of restatements                                         93.2             (16.3)          11.8             49.0
                                                         ---------------  ---------------- --------------  ---------------
Net loss - restated and revised                                 $ (61.3)          $ (85.8)      $ (120.9)        $ (731.6)
                                                         ===============  ================ ==============  ===============
Net loss per share - basic and diluted, as reported (1)         $ (0.00)          $ (0.00)       $ (0.00)         $ (0.02)
Net effect of adjustments                                          0.00             (0.00)          0.00             0.00
                                                         ---------------  ---------------- --------------  ---------------
Net loss per share - basic and diluted - restated
 and revised                                                    $ (0.00)          $ (0.00)       $ (0.00)         $ (0.02)
                                                         ===============  ================ ==============  ===============
Weighted avg. shares outstanding - basic and diluted           39,816.0          40,126.0       40,123.1         40,049.7
                                                         ===============  ================ ==============  ===============
</TABLE>

     (1) Amounts labeled "as reported" represent amounts reported in the
Company's quarterly reports on Form 10-QSB for the quarterly periods ended March
31, June 30 and September 30, 2005.

     (2) We reclassified certain amounts from revenues and operating expenses
to other income and expense, net to conform to the 2006 Statement of Operations
presentation. Included in those reclassification was approximately $70.0
thousand received in connection with a legal settlement, formerly classified as
a reduction in operating expenses.

     (3) The Company's loss from operations and net loss increased during the
quarter ended December 31, 2005, primarily as a result of $420.0 thousand of
goodwill impairment recorded during the quarter ended December 31, 2005.

                                      -77-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


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

     None.

ITEM 9A.          CONTROLS AND PROCEDURES.

     As required by Rule 13a-15(b)  under the Exchange Act, as of the end of the
period  covered by this Annual Report,  our  management  conducted an evaluation
with the  participation  of our Chief  Executive  Officer  and  Chief  Financial
Officer (collectively, the "Certifying Officers") regarding the effectiveness of
the design and operation of our  disclosure  controls and procedures (as defined
in Rules  13a-15(e) and 15d-15(e)  under the Exchange Act). Our management  with
the participation of the Certifying Officers also conducted an evaluation of our
internal control over financial reporting.

     Based  on this  evaluation  and in  accordance  with  the  requirements  of
Auditing  Standard No. 2 of the Public Company  Accounting  Oversight Board, our
Chief  Executive   Officer  and  Chief  Financial  Officer  concluded  that  our
disclosure  controls  and  procedures  were  effective  and  that we  maintained
effective control over financial reporting as of December 31, 2006.

     Our management, including the Certifying Officers, does not expect that our
disclosure  controls  and  procedures  will  prevent all errors and all improper
conduct.  A control  system,  no matter how well  conceived  and  operated,  can
provide only  reasonable,  not absolute  assurance  that the  objectives  of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource  constraints,  and the benefits of controls must be
considered  relative to their costs.  Because of the inherent  limitations  of a
cost-effective control system, misstatements due to error or fraud may occur and
may not be detected.  Despite these  limitations,  the Certifying  Officers have
concluded  that our  disclosure  controls  and  procedures  (1) are  designed to
provided  reasonable  assurance of achieving their objectives and (2) do provide
reasonable assurance of achieving their objectives.

ITEM 9B.          OTHER INFORMATION.

     Not Applicable.

                                      -78-

<PAGE>

                               vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


                                    PART III

ITEM 10.          DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

     The following table sets forth the names, ages and positions of our
executive officers and directors as of March 26, 2007. Under our bylaws, each
director holds office until the election and qualification of his successor or
until his earlier resignation or removal:

            Name            Age                     Position
---------------------   ------------  -------------------------------------

Leonard J. Sokolow          50        Chairman* and Chief Executive Officer
Charles R. Modica           59        Director
Alan B. Levin               43        Chief Financial Officer
Richard Campanella          55        Secretary

     Leonard J. Sokolow has been the  chairman of our Board of  Directors  since
January 1,  2007,  one of our  directors  since  November  8, 1997 and our Chief
Executive  Officer since November 8, 1999. From January 5, 2001 through December
31, 2006, Mr. Sokolow was our President.  From November 8, 1999 through  January
4, 2001, Mr. Sokolow was Vice Chairman of our Board.  Since  September 1996, Mr.
Sokolow  has been  President  of Union  Atlantic  LC, a  merchant,  banking  and
strategic  consulting firm  specializing  domestically  and  internationally  in
technology  industries that is a wholly-owned  subsidiary of our Company.  Union
Atlantic LC has been inactive since  September 16, 2005.  Since August 1993, Mr.
Sokolow  has been  President  of Genesis  Partners,  Inc.,  a private  financial
business-consulting  firm.  Genesis  Partners,  Inc.  has  been  inactive  since
December 31, 2002.  From August 1994 through  December 1998, Mr. Sokolow was the
Chairman and Chief Executive Officer of the Americas Growth Fund, Inc., a public
closed-end  management  investment company. Mr. Sokolow received his B.A. degree
in Economics  from the  University  of Florida in 1977,  a J.D.  degree from the
University  of  Florida  Levin  College  of Law in 1980 and an LL.M.  degree  in
Taxation  from the New  York  University  Graduate  School  of Law in 1982.  Mr.
Sokolow is a Certified Public Accountant.  He is also a director of Consolidated
Water Co. Ltd., a position he has held since May 2006.

     Charles R. Modica has been one of our directors  since January 3, 2007. Mr.
Modica has served as  Chairman of the Board of Trustees  and  Chancellor  of St.
George's  University  located  in  Grenada,  West  Indies,  since  founding  the
university  as a School  of  Medicine  in 1976.  He has  served  on the Board of
Trustees of Barry  University,  Miami,  Florida,  since 1983, and as Chairman of
such Board of Trustees from 1997 - 2001. Additionally, he served on the Board of
Trustees of Rosarian Academy,  West Palm Beach,  Florida, from 1995 to 2001, and
as  Chairman of such Board of Trustees  from 1998 to 2001.  Mr.  Modica also has
served on the Board of Trustees of WXEL Public Radio and  Television  of Florida
since 1998. Mr. Modica  received his B.S. degree in Biology from Bethany College
in 1970 and his J.D. degree from the Delaware Law School in 1975.

     Alan B. Levin has been our Chief Financial  Officer since January 2007. Mr.
Levin had been our  Interim  Chief  Financial  Officer  since  July 2006 and our
Controller  since June  2005.  Prior to joining  us, Mr.  Levin  served as Chief
Financial  Officer for United  Capital  Markets,  Inc.  from  September  2000 to
January  2005.  Mr.  Levin has over 18 years  serving in various  industries  in
accounting  management roles. He has spent the last 8 years serving as Financial
and  Operations  Principal  within the  brokerage  industry.  He received a B.S.
degree in Economics with a concentration in Accounting from Southern Connecticut
State University in New Haven, Connecticut in 1986.

                                      -79-

<PAGE>

                               vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

     Richard  Campanella  has been our Secretary  since  December 18, 2001.  Mr.
Campanella currently serves as the President,  Chief Operating Officer and Chief
Compliance  Officer  of  vFinance  Investments.  He  assumed  the  role of
President  and Chief  Operating  Officer of  vFinance  Investments,  Inc.  as of
January 2006. From February 1994 to April 2001, Mr.  Campanella was a partner of
Commonwealth  Associates,  a registered  broker-dealer,  where he served as the
director of  Compliance.  He received a B. A. degree in Business  Administration
from the College of Staten Island in 1972.

     *From  November 8, 1999  through  January 3, 2007,  Mr.  Timothy E. Mahoney
served as our Chairman of the Board and Chief Operating Officer. On December 29,
2006,  we entered into a resignation  agreement  with Mr.  Mahoney,  pursuant to
which Mr.  Mahoney  resigned  from his positions as the Chairman of our Board of
Directors and Chief Operating Officer, effective January 3, 2007. Effective upon
Mr. Mahoney's  resignation,  Mr. Sokolow assumed the position of Chairman of our
Board of Directors.

     In connection with Mr.  Mahoney's  departure,  Messrs.  Mahoney and Sokolow
entered  into  a  voting   agreement   dated  December  29,  2006  (the  "Voting
Agreement").  Under the terms of the Voting  Agreement,  as long as either party
owns 1.0 million  shares of our common  stock,  as adjusted for stock splits and
other  recapitalizations,  each  party  will  vote  for the  other  party or his
designee to serve on our Board of Directors.

AUDIT COMMITTEE

     Our Board of Directors  serves as our audit  committee.  Leonard J. Sokolow
has been  designated as an "audit  committee  financial  expert" as such term is
defined in the SEC's rules.

CODE OF ETHICS

     We have adopted a Code of Ethics for the Chief Executive  Officer and Chief
Financial  Officer,  which was filed as Exhibit 14 to the Annual  Report on Form
10-KSB for the fiscal year ended December 31, 2003,  and is herein  incorporated
by  reference.  If we make any  substantive  amendments to our code of ethics or
grant any waiver, including any implicit waiver, from a provision of the code to
the Chief  Executive  Officer or Chief Financial  Officer,  we will disclose the
nature of such amendment or waiver in a report on Form 8-K.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a) of the Exchange Act requires  our  directors  and  executive
officers,  and persons  who  beneficially  own more than ten percent  (10%) of a
registered class of our equity securities,  to file with the SEC initial reports
of  ownership  and reports of changes in  ownership  of our common stock and the
other of our equity securities.

     Officers,  directors and persons who beneficially own more than ten percent
(10%) of a  registered  class  of our  equity  securities  are  required  by the
regulations of the SEC to furnish us with copies of all Section 16(a) forms they
file.

     To our  knowledge,  based  solely on review of these  filings  and  written
representations  from the  directors  and  officers,  we believe that during the
fiscal year ended  December 31, 2006,  our officers,  directors and  significant
stockholders  have timely filed the appropriate  form under Section 16(a) of the
Exchange Act.

                                      -80-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


ITEM 11.          EXECUTIVE COMPENSATION.

COMPENSATION DISCUSSION & ANALYSIS

     In this section,  we will give an overview and analysis of our compensation
program and  policies,  the material  compensation  decisions we have made under
those  programs and  policies,  and the material  factors that we  considered in
making compensation decisions for our Named Executive Officers, as defined under
the heading "Additional Information Regarding Executive  Compensation." Specific
information  regarding the compensation earned by or paid to our Named Executive
Officers  in  2006  is set  forth  in a  series  of  tables  under  the  heading
"Additional Information Regarding Executive  Compensation." The discussion below
is intended to help you  understand the detailed  information  provided in those
tables and put that  information  into context  within our overall  compensation
program.

Overview of Compensation Program

     Our Board of Directors has  responsibility  for establishing,  implementing
and  continually   monitoring   adherence  with  our  compensation   philosophy,
maintaining competitive compensation and structuring compensation to achieve our
compensation  objectives.  Generally,  the types of compensation and benefits we
provide to our Named  Executive  Officers  are similar to those  provided to our
other executive officers.

Compensation Philosophy and Objectives

     Our Board believes that compensation  paid to our Named Executive  Officers
should  be  aligned  with our  performance,  and  that  compensation  should  be
structured   to  ensure  that  our  Named   Executive   Officers'   compensation
opportunities are related to achievement of our financial and operational goals,
such as meeting targets for profitability,  revenue, cash flow, acquisitions and
mergers,  recruiting,  balance sheet objectives and operating within the capital
expenditures  budget, all of which impact stockholder value. Our Board evaluates
both  performance  and  compensation  to ensure that we maintain  our ability to
attract and retain highly  skilled and motivated  employees in key positions and
that compensation  provided to key employees remains competitive relative to the
compensation paid to similarly situated executives of our peer companies,  which
include Sanders Morris Harris Group,  Siebert  Financial Corp., MCF Corporation,
Ladenburg  Thalman  Financial  Services,  Paulson  Capital Corp.,  First Montauk
Financial, Empire Financial Holding Company, Investors Capital Holdings Ltd. and
National  Holdings  Corporation.  To that  end,  our  Board  believes  that  the
executive  compensation  packages we provide to our  executives,  including  our
Named Executive  Officers,  should include a mix of base salary and equity-based
and incentive-based compensation.

     Our  compensation  decisions  with respect to our Named  Executive  Officer
compensation  opportunities  are  influenced  by (a) the  executive's  level  of
responsibility and function within the Company,  (b) our overall performance and
profitability, and (c) our assessment of the competitive marketplace,  including
our Peer Companies located in our geographical business area.

                                      -81-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


Setting Executive Compensation

     Based on the foregoing philosophy and objectives,  our Board has structured
our Named Executive  Officers' base salary and equity-based and  incentive-based
compensation to motivate executives to achieve our business goals and reward the
executives for achieving such goals.  In furtherance of this, our Board plans to
reassess our  compensation  program as the  employment  agreements  of our Named
Executive  Officers come up for renewal to ensure that our goals and  objectives
are achieved.

     In determining  the  compensation  of our Named  Executive  Officers as set
forth in their most recent  employment  agreements,  our Board  reviewed (i) the
Report on  Compensation  of Top  Management in Small and Regional  Firms - 2005,
prepared by the Securities Industry Association, which covered compensation paid
to executive  officers of 43 member  firms;  (ii) the Report on  Management  and
Professional  Earnings  in the  Securities  Industry  -  2006,  prepared  by the
Securities Industry Association,  which covered compensation information for 188
middle-management  and  professional  positions;  and (iii) the Report on Office
Salaries in the Securities  Industry - 2006, prepared by the Securities Industry
Association,   which  provides   compensation   information  for  95  non-exempt
positions.  Using this information,  our Board determined the total compensation
of  our  Named  Executive   Officers,   pursuant  to  their  current  employment
agreements.

2006 Executive Compensation Components

     For the fiscal year ended  December 31, 2006,  the principal  components of
compensation for our Named Executive Officers were:

o        base salary;
o        equity-based compensation;
o        incentive-based compensation; and
o        benefits.

     Base Salary

     Base  salaries for our  executives  are  established  based on the scope of
their  responsibilities  and their  prior  relevant  background,  training,  and
experience,  taking into account  competitive  market  compensation  paid by the
companies  represented in the  compensation  data our Board reviewed for similar
positions and the overall market demand for such  executives at the time of hire
or entry into employment agreements. As with total compensation, we believe that
executive  base  salaries  should  be  competitive  with  the  salaries  paid to
executives  in  similar  positions  and  with  similar  responsibilities  in the
companies  of  comparable  size  to us  represented  in  the  compensation  data
reviewed.  An  executive's  base salary is also  evaluated  together  with other
components of the executive's other  compensation to ensure that the executive's
total  compensation  is in line with our  overall  compensation  philosophy  and
objectives.

     Base salaries are reviewed  annually and increased based upon (i) a need to
realign base salaries with market levels for the same positions in the companies
of similar size to us represented  in the  compensation  data reviewed;  (ii) an
internal review of the executive's compensation,  both individually and relative
to other executive officers;  (iii) the individual  performance of the executive
and (iv) an assessment of whether  significant  corporate  goals were  achieved.
Additionally,  we adjust base  salaries  as  warranted  throughout  the year for
promotions  or other changes in the scope or breadth of an  executive's  role or
responsibilities.

                                      -82-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Equity-Based Compensation

     Under the terms of our Named  Executive  Officers'  employment  agreements,
they are  entitled  to receive  equity-based  compensation  in the form of stock
options. We believe that equity compensation is an effective means of creating a
long-term link between the compensation provided to our Named Executive Officers
and other key management personnel with gains realized by the stockholders.  All
stock options incorporate the following features:

o        the term of the grant does not exceed 5 years;
o        the grant price is not less than the market price on the date of
         grant; and
o        options vest 25% per year over four years beginning with the first
         anniversary of the date of grant.

     We use stock options as a long-term incentive vehicle because:

o       stock options align the interests of executives with those of
        the stockholders, support a pay-for-performance culture,
        foster employee stock ownership, and focus the management team
        on increasing value for the stockholders;
o       stock options are performance based (all of the value received
        by the recipient from a stock option is based on the growth of
        the stock price above the option price); and
o       the five year vesting for stock options creates incentive for
        increases in stockholder value over a longer term and
        encourages executive retention.

     In  determining  the number of  options  to be  granted to Named  Executive
Officers,   we  take  into   account  the   individual's   position,   scope  of
responsibility,   ability  to  affect  profits  and   stockholder   value,   the
individual's historic and recent performance,  and the value of stock options in
relation to other elements of total compensation.

     Incentive-Based Compensation

     Discretionary  Bonus.  Our former  Chairman and our former Chief  Financial
Officer  were,  and our current  Chairman  and Chief  Executive  Officer and our
current Chief Financial  Officer are,  eligible to receive  periodic  bonuses in
amounts  determined by our Board in its sole  discretion  based upon targets for
revenue, profitability,  cash flow, acquisitions and mergers closed, recruiting,
capital  expenditure  budget  objectives,   balance  sheet  objectives  and  the
respective individual  performance of the executive.  The annual bonuses paid to
our current  Chairman and Chief  Executive  Officer and current Chief  Financial
Officer  are,  and  those  paid to our  former  Chairman  and our  former  Chief
Financial  Officer were, paid in cash. These bonus  provisions are intended,  in
accord with our  compensation  philosophies  and objectives,  to align executive
interests with stockholder interests.

     Incentive Bonus. Our employment agreements with our former Chairman and our
current  Chairman  and Chief  Executive  Officer,  provide for the payment of an
incentive  bonus  equal to 10% of the  "Income,"  up to a maximum of 50% of such
officer's  base salary.  "Income" is computed in  accordance  with the following
formula:

                  Income = "Revenues" - "Expenses" - "Reserves"

                                      -83-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Where,

o        "Revenues" means 100% of cash revenues or other income received by us;
o        "Expenses" means the direct and indirect expenses for our
         operation including, but not limited to, salaries, profit
         sharing expenses to divisional executives or other divisional
         employees (excluding the subject officer), taxes, allocable
         rent, utilities, phone, accounting, bookkeeping, etc.; and
o        "Reserves" means, in the context of current facts and
         circumstances, the appropriate reserve for future
         contingencies and demands on cash resources attributable to
         the operations of such division.

     The incentive bonuses paid to our former Chairman, our current Chairman and
Chief Executive  Officer and Chief  Financial  Officer are paid as frequently as
quarterly in cash, as directed by the Board of Directors.

     Our employment  agreements with our former Chief Financial Officer provided
and the employment  agreement with the President and Chief Operating  Officer of
vFinance Investments, Inc. provides for the payment of annual incentive bonuses.
Our employment agreement with our former Chief Financial Officer provided for an
incentive  bonus based upon the percentage of the increase (if any) of operating
profits from the creation and/or sale of financial, home resource,  information,
data and telecommunication  services. The bonus was computed using the following
percentages:

Period                                            Percentage
----------------------------------------   -------------------------

Year Just Ended                                       10%
Incremental profit of the prior year                   8%
Incremental profit of two years ago                    6%
Incremental profit of three years ago                  4%
Incremental profit of four years ago                   2%

     Our employment  agreement with the President and Chief Operating Officer of
vFinance Investments, Inc. provides for the payment of an incentive bonus of 10%
of the pre-tax net income of our retail brokerage division above $1,732,000.

     The  incentive  bonuses  paid to our former  and  present  Chief  Financial
Officer and the President and Chief Operating  Officer of vFinance  Investments,
Inc. are paid periodically in cash, as directed by the Board of Directors.

     These bonus  provisions  are  intended to align  executive  interests  with
stockholder interests.

     As the employment  agreements of our Named  Executive  Officers come up for
renewal, our Board plans to review the employment agreements to determine if our
Named Executive Officers' compensation levels are competitive and have the right
mix of incentive-based compensation.

                                      -84-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Benefits

     Our former  Chairman and our former Chief Financial  Officer  participated,
and our current  Chairman  and Chief  Executive  Officer  and our current  Chief
Financial Officer participate,  in a variety of health and welfare benefit plans
for which we pay the premium.  We believe that health and welfare  benefits help
ensure that we have a productive and focused workforce.

Termination-Based Compensation

     Termination

     Our employment  agreement with our current Chief Financial  Officer is, and
our employment agreement with our former Chief Financial Officer was, terminable
at will. Accordingly,  we will not incur any obligations upon the termination of
these Named Executive Officers.

     Our employment  agreement with our former Chairman could have been, and our
employment  agreement with our current Chairman and Chief Executive  Officer may
be, terminated upon the occurrence of the following:

i.            the death of such Named Executive Officer;
ii.           such Named Executive Officer giving 30 days' notice of
              termination;
iii.          the Named Executive Officer being unable to discharge his duties
              due to physical or mental illness (for the purpose of this
              discussion "Disability") for a period of more than nine
              consecutive months or 12 months during any 18-month period; and
iv.           (a) the final non-appealable adjudication of such Named Executive
              Officer as guilty of a felony or (b) the unanimous determination
              of our Board (other than such Named Executive Officer) that such
              Named Executive Officer has engaged in material intentional
              misconduct or the gross neglect of his duties that has a material
              adverse effect on our business (for the purpose of this
              discussion, "For Cause").


     Upon the death or  "Disability"  of our  former  Chairman  and our  current
Chairman  and Chief  Executive  Officer  or our  termination  of our  employment
agreements  with such Named  Executive  Officers  other than "For  Cause,"  such
employment  agreements  provide  that we would be  required  to pay these  Named
Executive  Officers a lump sum payment  equal to the sum of (a) twice the sum of
their respective  highest annual base salary during  employment with us, and (b)
twice the  greater of (i) the highest  bonus,  incentive  or other  compensation
payment  actually  received by such officer during the three years preceding the
termination and (ii) the highest bonus,  incentive or other compensation payment
such  officer was  entitled  to receive  during the three  years  preceding  the
termination.  Additionally,  we will  be  required  to  provide  all  applicable
benefits  to such  officer  and his family for a period of two years.  All stock
options  warrants or other  similar  securities  will become fully  vested.  Our
employment  agreement with our former Chairman was mutually  terminated in 2006.
For a  description  the  terms of the  resignation  agreement,  see  "Additional
Information Regarding Executive Compensation - Employment Agreements."

                                      -85-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Prior to December 31, 2006, our employment agreement with the President and
Chief Operating  Officer of vFinance  Investments could have been terminated for
"Good reason" by such officer or for "Cause" by us. If our employment  agreement
with the  President  and Chief  Operating  Officer of vFinance  Investments  was
terminated  for "Good  reason" by such  officer or other than for  "Cause" by us
prior to December 31, 2006, we would have been obligated to continue  paying the
President and Chief  Operating  Officer of vFinance  Investments his base salary
until such date.  After  December 31, 2006,  the President  and Chief  Operating
Officer of vFinance Investments is terminable at will.

     In determining whether to approve and setting the terms of such termination
arrangements,  our Board  recognizes that executives,  especially  highly ranked
executives, often face challenges securing new employment following termination.
Based upon the data  reviewed by our Board,  we believe  that the payments to be
made upon  termination are generally in line with severance  packages offered to
similarly situated executives.

     Change in Control

     Upon the  acquisition  by an  individual or company of 50.1% or more of our
issued  and  outstanding  shares,  all  options  granted  to our  current  Chief
Financial  Officer and the  President  and Chief  Operating  Officer of vFinance
Investments, Inc. pursuant to their respective employment agreements will become
immediately vested.

     Upon the  acquisition  by an  individual  or  company of 51% or more of our
issued and outstanding shares, all options granted to our former Chief Financial
Officer  pursuant to her  employment  agreement  would have  become  immediately
vested.  Additionally,  if our former Chief Financial Officer's  employment were
terminated  following such  acquisition,  we would have been required to pay our
former Chief Financial Officer 12 months' salary.

     Upon a "Change in Control," as defined below,  anytime from January 3, 2007
up to and  including  January  3,  2010,  we have  agreed  to pay to our  former
Chairman an amount equal to: (a) twice the sum of his highest annual base salary
during  his  employment  with us, and (b) twice the  greater of (i) the  highest
bonus,  incentive or other compensation  payment actually received by him during
the three years  preceding  the Change in Control  and (ii) the  highest  bonus,
incentive or other  compensation  payment he was entitled to receive  during the
three  years  preceding  the  Change  in  Control.  In the  event of a Change in
Control,  all stock  options,  warrants,  stock  appreciation  rights  and other
similar securities held by our former Chairman will become immediately and fully
vested.

     Upon a Change in Control, we have agreed to pay to our current Chairman and
Chief  Executive  Officer an amount  equal to: (a) twice the sum of his  highest
annual base salary during his  employment  with us, and (b) twice the greater of
(i) the highest bonus, incentive or other compensation payment actually received
by him  during the three  years  preceding  the  Change in Control  and (ii) the
highest  bonus,  incentive  or other  compensation  payment he was  entitled  to
receive during the three years preceding the Change in Control.  In the event of
a Change in Control, all stock options,  warrants, stock appreciation rights and
other  similar  securities  held by our  current  Chairman  and Chief  Executive
Officer will become immediately and fully vested.

                                      -86-

<PAGE>

                                 vFINANCE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     In  determining  whether to approve and in setting the terms of such Change
in Control  arrangements,  our Board  recognizes  the  importance  to us and our
stockholders of avoiding the  distraction  and loss of key management  personnel
that may  occur in  connection  with  rumored  or actual  fundamental  corporate
changes.  A properly arranged Change in Control provision  protects  stockholder
interests by enhancing employee focus during rumored or actual Change in Control
activity through:

o   incentives to remain with us despite uncertainties while a transaction is
    under consideration or pending; and
o   assurance of compensation for terminated employees after a Change in
    Control.

     We believe that our change in control  arrangements  are  generally in line
with such arrangements offered to similarly situated officers of the companies.

     For the  purposes  of this  discussion,  a "Change  of  Control"  means the
occurrence  of the  following  events:  (1) thirty  percent (30%) or more of our
voting  stock is  acquired  by any  person  (other  than the  subject  executive
officer),  entity or affiliated group; (ii) an unapproved change to the majority
control of our Board;  (iii) any merger,  consolidation or business  combination
pursuant to which we are not the surviving corporation;  (iv) our liquidation or
dissolution; or (v) the sale of all or substantially all of our assets.

Board Report

     Our Board  reviewed  and  discussed  the above  Compensation  Discussion  &
Analysis ("CD&A") with our management.  Based on the review and discussions, our
Board determined that the CD&A be included in this Annual Report on Form 10-KSB.

                                                              Board of Directors

                                                              Leonard J. Sokolow
                                                              Charles R. Modica

                                      -87-

<PAGE>

             ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION

     Summary Compensation Table


     The following  table provides  compensation  information for the year ended
December 31, 2006 for Named Executive  Officers.  The "Executive  Compensation -
Compensation  Discussion and Analysis" section of this proxy statement  includes
information  regarding the material  terms of plans and  agreements  pursuant to
which certain items set forth below are paid.
<TABLE>
<CAPTION>

                 Name and Principal Position                    Year      Salary       Bonus     Option Awards  All Other  Total
                                                                                                                   Comp.
                                                                            ($)        ($)(1)        ($)            ($)     ($)
                             (a)                                 (b)        (c)          (d)         (f)            (i)     (j)
---------------------------------------------------------- ------------- ------------ -----------  ------------ --------- ----------
<S>                                                             <C>         <C>          <C>          <C>        <C>        <C>
                                                                2006        340,698      155,000      280,000    9,160      784,858
Leonard J. Sokolow
Chief Executive Officer
                                                                2006        118,192       27,000      135,000        -      280,192
Alan B. Levin
Chief Financial Officer
                                                                2006        147,512        7,024            -        -      154,536
Richard Campanella
 President and Chief  Operating Officer
  of vFinance Investments, Inc.
                                                                2006        283,373      106,000            -    9,160      398,533
Timothy Mahoney
Former Chairman and Chief Operating Officer
                                                                2006        118,035       26,581            -    5,343      149,959
Sheila Reinken
Former Chief Financial Officer

</TABLE>

     (1) Mr. Levin assumed the position of Chief Financial  Officer effective on
December 29, 2006 and the position of interim  Chief  Financial  Officer on July
24,  2006.  Prior  to  July  2006,  Mr.  Levin  served  as our  Controller.  The
information  presented herein represents actual amounts paid for the period from
January 1, 2006 to December 31, 2006.

      (2) Ms. Reinken resigned from the position of Chief Financial Officer July
26, 2006. The information presented herein represents actual amounts paid for
the period from January 1, 2006 to July 26, 2006.

     (3) Bonus amounts have been determined pursuant to the bonus terms outlined
in our Named Executive Officers'  respective  employment  agreements or based on
the discretion of the Board of Directors.

     (4) Options  amounts  have been  determined  pursuant  to the option  terms
outlined in our Named Executive Officers'  respective  employment  agreements or
based on the discretion of the Board of Directors.

     (5) Represents health insurance contributions.

                                      -88-
<PAGE>

                           Grants Of Plan-Based Awards

          The following table shows all plan-based awards granted to Named
Executive Officers during fiscal year 2006. Certain terms of the Corporation's
Stock Plan pursuant to which the grants identified in the table were made are
described in the "Executive Compensation - Compensation Discussion and Analysis
- Long-Term Equity-Based Compensation" section of this proxy statement.
<TABLE>
<CAPTION>



                              Estimated Future Payouts Under        Estimated Future Payouts
                                  Non-Equity Incentive Plan        Under Equity Incentive Plan
                                           Awards:                         Awards:
         Name      Grant Date Threshold ($) Target ($) Maximum ($)  Threshold ($)Target  Maximum ($)

         (a)           (b)         (c)        (d)          (e)          (f)        (g)       (h)
------------------------------------------------------------------------------------------------------
<S>                                <C>        <C>         <C>          <C>       <C>         <C>
Leonard J. Sokolow 12/29/2006       -          -           -             -          -          -
------------------------------------------------------------------------------------------------------
                    7/24/2006       -          -           -             -          -          -
Alan B. Levin      12/29/2006       -          -           -             -          -          -
------------------------------------------------------------------------------------------------------
Richard Campanella    2006          -          -           -             -          -          -
------------------------------------------------------------------------------------------------------
Timothy Mahoney       2006          -          -           -             -          -          -
------------------------------------------------------------------------------------------------------
Sheila Reinken        2006          -          -           -             -          -          -
------------------------------------------------------------------------------------------------------
</TABLE>
                  All Other    All Other
                    Stock        Option    Exercise
                   Awards:       Awards:    or Base  Grant Date
                  Number of     Number of  Price of  Fair Value of
                  Shares of    Securities   Option   Stock and
         Name     Stock or     Underlying   Awards     Option
                  Units (#)     Options (#) ($/Sh)   Awards ($)
         (a)         (i)          (j)        (k)         (l)
--------------------------------------------------------------

Leonard J. Sokolow     -      2,000,000    0.21     140,000
--------------------------------------------------------------
                       -        500,000    0.20
Alan B. Levin          -        500,000    0.21      65,000
--------------------------------------------------------------
Richard Campanella     -        600,000    0.17      70,000
--------------------------------------------------------------
Timothy Mahoney        -              -       -           -
--------------------------------------------------------------
Sheila Reinken         -              -       -           -
--------------------------------------------------------------


Employment Agreements

     Leonard J. Sokolow -Chairman and Chief Executive Officer

     On November  16,  2004,  we entered into a new  employment  agreement  with
Leonard  J.  Sokolow,  who  is the  beneficial  owner  of  11.4%  of  our  total
outstanding  common shares at December 31, 2006,  pursuant to which Mr.  Sokolow
served as our Chief Executive  Officer and President.  The employment  agreement
provides that Mr. Sokolow  receive an initial base salary of $257,000 per annum,
subject to a 5% increase  per annum  beginning  January 1, 2005.  Our Board will
review the base salary at least annually and may increase (but not decrease) the
base salary from time to time.  Additionally,  the employment agreement provides
that Mr. Sokolow  receive (i) a discretionary  bonus,  interim cash bonus and/or
other  bonus  when and in such  amounts  as may be  determined  by our  Board of
Directors based on his  performance,  our  performance  and/or other factors and
(ii) incentive  compensation paid quarterly no later than the 45th day following
the end of quarter primarily based on our performance.  The employment agreement
has a term of three years,  subject to automatic extensions for one year on each
anniversary date thereafter unless we have provided a non-renewal  notice thirty
(30) days prior to such anniversary date. The employment agreement also contains
provisions  related to change of control,  discussed in detail under the heading
"Additional  Information  Regarding Executive  Compensation - Post-Termination /
Change in Control Benefits," below.

                                      -89-

<PAGE>

     On May 12,  2006,  Mr.  Sokolow  and we entered  into an  amendment  to his
employment agreement to provide a base salary of $343,511. On December 29, 2006,
Mr. Sokolow and we entered into another  amendment to his employment  agreement,
pursuant to which Mr.  Sokolow  serves as the Chairman of our Board of Directors
and our Chief Executive  Officer.  Mr.  Sokolow's base salary was increased from
$343,511 per annum to $396,750 per annum, subject to an annual increase based on
the reported cost of living  adjustment  beginning  January 1, 2008. None of the
other terms of Mr. Sokolow's  employment agreement were modified in any material
respect.


     Timothy E. Mahoney - Former Chairman and Chief Operating Officer

     Pursuant to his employment  agreement,  Mr. Mahoney received an annual base
salary of  $283,394  and was  entitled  to bonus or  incentive  compensation  as
determined by our Board of Directors based on his  performance,  our performance
and other factors.  The employment  agreement provided that if we terminated Mr.
Mahoney  other than for cause or upon  death or  disability,  or if Mr.  Mahoney
voluntarily  terminated his  employment  due to an adverse  change in duties,  a
reduction in compensation or benefits or the relocation of our principal offices
(collectively  a  "Triggering  Event"),  we would have been  required to pay Mr.
Mahoney  (a) two times his highest  annual base salary in one lump sum,  and (b)
twice the  greater of (i) the highest  bonus,  incentive  or other  compensation
payment  actually  received by Mr. Mahoney during the three years  preceding the
Triggering  Event and (ii) the highest  bonus,  incentive or other  compensation
payment Mr. Mahoney was entitled to receive during the three years preceding the
Triggering  Event. We would have also been required to provide Mr. Mahoney up to
two years of other employee benefits.

     On  December  29,  2006,  Mr.  Mahoney  and we entered  into a  Resignation
Agreement (the "Resignation Agreement"),  pursuant to which Mr. Mahoney resigned
from his  positions  as the  Chairman  of our Board of  Directors  and our Chief
Operating  Officer effective January 3, 2007. In accordance with the Resignation
Agreement,  we have  agreed  to pay to Mr.  Mahoney,  upon a Change  in  Control
anytime from January 3, 2007 up to and including January 3, 2010 an amount equal
to: (a) twice the sum of Mr.  Mahoney's  highest  annual base salary  during his
employment  with  us,  and (b)  twice  the  greater  of (i) the  highest  bonus,
incentive or other compensation  payment actually received by Mr. Mahoney during
the three years  preceding  the Change in Control  and (ii) the  highest  bonus,
incentive  or other  compensation  payment Mr.  Mahoney was  entitled to receive
during the three years preceding the Change in Control. In the event of a Change
in Control,  all stock options,  warrants,  stock appreciation  rights and other
similar securities held by Mr. Mahoney will become immediately and fully vested.

     In connection  with Mr.  Mahoney's  resignation,  on December 29, 2006, the
Company and Mr. Mahoney jointly  terminated Mr.  Mahoney's  Amended and Restated
Employment  Agreement dated November 16, 2004,  which  termination was effective
January 3, 2007.

     The termination of the employment  agreement prior to the expiration of its
term will not cause us to incur any early termination penalties of any kind, and
all  post-employment  matters  between Mr.  Mahoney  and us are  governed by the
Resignation Agreement.

                                      -90-

<PAGE>

     Alan B. Levin - Chief Financial Officer

     On July 24, 2006,  we entered  into an  employment  agreement  with Alan B.
Levin,  pursuant  to which Mr.  Levin  served  as our  Interim  Chief  Financial
Officer.  Under the terms of his employment agreement,  Mr. Levin is entitled to
an annual base salary of $135,000,  plus certain incentive bonuses.  On December
29, 2006, Mr. Levin was appointed our Chief  Financial  Officer,  upon which his
annual base salary  increased to $165,000  under his  employment  agreement.  In
addition,  we granted to Mr. Levin five-year  options to purchase 500,000 of our
shares at an exercise price of $0.20 per share,  of which 125,000  options shall
vest on July 24, 2007,  and 125,000  options shall vest each  subsequent  yearly
anniversary  thereafter  provided  that Mr. Levin is employed on the  applicable
vesting date. Mr. Levin's employment is terminable at will. Upon the acquisition
by any  individual,  group  or  entity  of  more  than  50% of  the  issued  and
outstanding  shares of the Company's common stock, Mr. Levin's options will vest
immediately.

     Richard Campanella - Secretary and President and Chief Operating Officer of
vFinance Investments, Inc.

     On January 20, 2005, we entered into an employment  agreement  with Richard
Campanella,  pursuant to which Mr.  Campanella serves as the President and Chief
Operating  Officer of vFinance  Investments.  Under the terms of his  employment
agreement, Mr. Campanella is entitled to an annual base salary of $135,000, plus
certain incentive bonuses. In addition,  we granted to Mr. Campanella  five-year
options to  purchase  600,000 of our  shares at an  exercise  price of $0.18 per
share,  of which 150,000  options  vested on July 1, 2006,  and 125,000  options
shall vest each  subsequent  yearly  anniversary  thereafter  provided  that Mr.
Campanella  is  employed  on the  applicable  vesting  date.  If our  employment
agreement  with Mr.  Campanella was terminated for "Good reason" by such officer
or other than for "Cause" by us prior to December 31,  2006,  we would have been
obligated  to continue  paying Mr.  Campanella  his base salary until such date.
After December 31, 2006, Mr.  Campanella's  employment  with us is terminable at
will.

     Sheila C. Reinken - Former Chief Financial Officer and Chief Administrative
Officer

     On November 15, 2004, we entered into an employment  agreement  with Sheila
C. Reinken, pursuant to which Mrs. Reinken served as our Chief Financial Officer
and Chief  Administrative  Officer.  The employment  agreement  provided for the
payment of an annual  base  salary of  $155,000,  a  discretionary  bonus with a
target of 50% of her base salary,  plus certain incentive bonuses.  In addition,
we granted Ms. Reinken  options to purchase  600,000 shares of our common stock,
of which  150,000  options  vested on January 4, 2006,  at an exercise  price of
$0.245 per share.

     Ms. Reinken  resigned from her position as our Chief Financial  Officer and
Chief Administrative  Officer on July 21, 2006. Because Ms. Reinken's employment
was  terminable  at will,  we did not incur any  obligations  as a result of her
termination.

                                      -91-

<PAGE>

Outstanding Equity Awards At Year-End

     None of our Named Executive  Officers  exercised  options or received stock
awards during the year ended December 31, 2006.


--------------------------------------------------------------------------------
                                  Option Awards
                       ---------------------------------------------------------
         Name           Number of         Number of
                        Securities        Securities
                        Underlying        Underlying
                        Unexercised       Unexercised       Option      Option
                        Option (#),       Option (#),       Exercise  Expiration
                        Exercisable       Unexercisable     Price ($)     Date
         (a)                 (b)              (c)             (e)         (f)
--------------------------------------------------------------------------------
                               375,000          1,125,000       0.155   12/29/10
Leonard J. Sokolow                   -          2,000,000       0.210   12/28/11
--------------------------------------------------------------------------------
                                40,000            120,000       0.180   06/13/10
Alan B. Levin                   12,500             37,500       0.155   12/29/10
                                     -            500,000       0.200   07/23/11
                                     -            500,000       0.210   12/28/11
--------------------------------------------------------------------------------
Richard Campanella             150,000            450,000       0.170   06/30/10
--------------------------------------------------------------------------------
Timothy Mahoney              1,500,000                  -       0.155   12/29/10
--------------------------------------------------------------------------------
Sheila Reinken                       -                  -           -          -
--------------------------------------------------------------------------------

                                      -92-

<PAGE>

                        Option Exercises and Stock Vested

     None of our Named Executive  Officers  exercised  options or received stock
awards during the year ended December 31, 2006

Pension Benefits

     We  do  not  have  any  defined   benefit  plans  and  only  offer  defined
contribution plans.

Non-Qualified Deferred Compensation

     We do not  have  any  non-qualified  deferred  contribution  plans or other
deferred compensation plans.

                  Post-Termination / Change in Control Benefits

     The  section  below  describes  the  payments  that  may be made  to  Named
Executive  Officers upon  termination  or Change in Control,  as defined  below,
pursuant to individual  agreements.  For payments  made to a participant  upon a
retirement other than in connection with termination or a Change in Control, see
Pension Benefits above.

                                      -93-

<PAGE>

     Termination

     Our employment  agreement with our current Chief Financial  Officer is, and
our employment agreement with our former Chief Financial Officer was, terminable
at will. Accordingly,  we will not incur any obligations upon the termination of
these Named Executive Officers.

     Our employment  agreement with our former Chairman could have been, and our
employment  agreement with our current Chairman and Chief Executive  Officer may
be, terminated upon the occurrence of the following:

v.            the death of such Named Executive Officer;
vi.           such Named Executive Officer giving 30 days' notice of
              termination;
vii.          the Named Executive Officer being unable to discharge his duties
              due to physical or mental illness (for the purpose of this
              discussion "Disability") for a period of more than nine
              consecutive months or 12 months during any 18-month period; and
viii.         (a) the final non-appealable adjudication of such Named Executive
              Officer as guilty of a felony or (b) the unanimous determination
              of our Board (other than such Named Executive Officer) that such
              Named Executive Officer has engaged in material intentional
              misconduct or the gross neglect of his duties that has a material
              adverse effect on our business (for the purpose of this
              discussion, "For Cause").

     Upon the death or  "Disability"  of our  former  Chairman  and our  current
Chairman  and Chief  Executive  Officer  or our  termination  of our  employment
agreements  with such Named  Executive  Officers  other than "For  Cause,"  such
employment  agreements  provide  that we would be  required  to pay these  Named
Executive  Officers a lump sum payment  equal to the sum of (a) twice the sum of
their respective  highest annual base salary during  employment with us, and (b)
twice the  greater of (i) the highest  bonus,  incentive  or other  compensation
payment  actually  received by such officer during the three years preceding the
termination and (ii) the highest bonus,  incentive or other compensation payment
such  officer was  entitled  to receive  during the three  years  preceding  the
termination.  Additionally,  we will  be  required  to  provide  all  applicable
benefits  to such  officer  and his family for a period of two years.  All stock
options warrants or other similar securities will become fully vested.

     Our employment  agreement with our former Chairman was mutually  terminated
in  2006.  For a  description  the  terms  of  the  Resignation  Agreement,  see
"Additional   information   Regarding   Executive   Compensation   -  Employment
Agreements,"  above.  The  termination of the employment  agreement prior to the
expiration  of its  term  will  not  cause us to  incur  any  early  termination
penalties  of any kind,  and all  post-employment  matters  between  our  former
Chairman and us are governed by the Resignation Agreement.

     Prior to December 31, 2006, our employment agreement with the President and
Chief Operating Officer of vFinance Investments, Inc. could have been terminated
for "Good  reason"  by such  officer  or for  "Cause"  by us. If our  employment
agreement   with  the  President  and  Chief   Operating   Officer  of  vFinance
Investments, Inc. was terminated for "Good reason" by such officer or other than
for "Cause" by us prior to December  31, 2006,  we would have been  obligated to
continue  paying  the  President  and  Chief   Operating   Officer  of  vFinance
Investments,  Inc.  his  base  salary  for  the  remainder  of the  term  of his
employment agreement.

                                      -94-

<PAGE>

     Assuming our current Chairman and Chief Executive Officer's  employment was
terminated  on  December  31,  2006  upon  his  death  or  "Disability"  or  our
termination  other than "For  Cause," we would be required to pay him a lump sum
of approximately $1.13 million.

     Change in Control

     Upon the  acquisition  by an  individual or company of 50.1% or more of our
issued  and  outstanding  shares,  all  options  granted  to our  current  Chief
Financial  Officer and the  President  and Chief  Operating  Officer of vFinance
Investments, Inc. pursuant to their respective employment agreements will become
immediately vested. Upon the acquisition by an individual or company of 50.1% or
more of our issued and outstanding shares on December 31, 2006, 1,157,500 shares
of common stock underlying  options held by our current Chief Financial  Officer
and 450,000 shares of common stock underlying  options held by the President and
Chief Operating  Officer of vFinance  Investments,  Inc. would have vested.  The
value  received by our current  Chief  Financial  Officer and the  President and
Chief Operating  Officer of vFinance  Investments,  Inc. would have been $12,550
and $24,000,  respectively,  calculated as the excess of the stock closing value
on December 31, 2006 over the total options  outstanding  for each  executive at
the exercise price for their respective option grants.

     Upon a Change in Control  anytime from January 3, 2007 up to and  including
January 3, 2010,  we have agreed to pay to our former  Chairman an amount  equal
to: (a) twice the sum of his highest  annual base salary  during his  employment
with us, and (b) twice the greater of (i) the highest bonus,  incentive or other
compensation  payment actually  received by him during the three years preceding
the  Change  in  Control  and  (ii)  the  highest  bonus,   incentive  or  other
compensation payment he was entitled to receive during the three years preceding
the Change in Control.  In the event of a Change in Control,  all stock options,
warrants,  stock  appreciation  rights and other similar  securities held by our
former  Chairman  will become  immediately  and fully  vested.  Upon a Change in
Control as of December 31, 2006,  we would have been  required to pay our former
Chairman a lump sum of $838,788.

     Upon a Change in Control, we have agreed to pay to our current Chairman and
Chief  Executive  Officer an amount  equal to: (a) twice the sum of his  highest
annual base salary during his  employment  with us, and (b) twice the greater of
(i) the highest bonus, incentive or other compensation payment actually received
by him  during the three  years  preceding  the  Change in Control  and (ii) the
highest  bonus,  incentive  or other  compensation  payment he was  entitled  to
receive during the three years preceding the Change in Control.  In the event of
a Change in Control, all stock options,  warrants, stock appreciation rights and
other  similar  securities  held by our  current  Chairman  and Chief  Executive
Officer will become immediately and fully vested. Upon a Change in Control as of
December 31, 2006, we would have been  required to pay our current  Chairman and
Chief Executive Officer a lump sum of approximately $1.13 million.

                              Director Compensation

     Directors  do not  receive  any  compensation  for  serving on our Board of
Directors.

                                      -95-

<PAGE>

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                 AND RELATED STOCKHOLDER MATTERS.

     The table below provides information  regarding the beneficial ownership of
the Common Stock as of March 26, 2007. The table reflects ownership by: (1) each
person  or  entity  who  owns  beneficially  5% or  more  of the  shares  of our
outstanding  Common  Stock,  (2) each of our  directors,  (3) each of the  Named
Executive  Officers,  and (4) our directors  and officers as a group.  Except as
otherwise  indicated,  and subject to  applicable  community  property  laws, we
believe the persons  named in the table have sole  voting and  investment  power
with  respect to all shares of Common  Stock held by them.  Except as  otherwise
indicated,  each stockholder's  percentage  ownership of our Common Stock in the
following table is based on 54,429,876 shares of Common Stock outstanding.
<TABLE>
<CAPTION>

                        Name of Beneficial Owner                   Number of Shares
                                                                   Beneficially
                                                                   Owned (in          Percent of
                                                                   thousands)         Class
---------------------------------------------------------------   ------------------ --------------
<S>                                                                      <C>           <C>
Leonard J. Sokolow (2)                                                   6,258.0       11.4%
Timothy E. Mahoney (3)                                                   7,383.0       13.2%
Highlands Group Holdings, Inc. (4)                                       2,175.0       4.0 %
Alan B. Levin (5)                                                           52.5           *
Richard Campanella (6)                                                     225.0           *
Sterling Financial Group of Companies, Inc. (7)                         13,000.0       23.9%
Global Partners Securities, Inc. (8)                                     4,591.6       8.2 %
Level2.com, Inc. (9)                                                     4,591.6       8.2 %
Oxir Investment Ltd. (10)                                                3,000.0       5.5 %

All executive officers and directors as a group (4 persons)              6,535.5       11.9%
</TABLE>
     ---------------------------
     * Denotes less than 1% ownership.

     (1) Beneficial  ownership is determined in accordance with the rules of the
SEC. Shares of Common Stock subject to option or warrants currently  exercisable
or  exercisable  withing 60 days of March 26, 2006, are deemed  outstanding  for
computing the  percentage  ownership of the  stockholder  holding the options or
warrants,  but are not deemed outstanding for computing the percentage ownership
of any other stockholder. Unless otherwise indicated, the officer, directors and
stockholders can be reached at our principal offices. Percentage of ownership is
based on 54,429,876 shares of Common Stock oustanding as of March 26, 2007.

     (2)  Includes  5,883,010  shares of Common Stock issued in the names of Mr.
Sokolow and his wife,  and 375,000 shares of Common Stock issuable upon exercise
of options at a price of $0.155 per share,  which options are exercisable within
60 days of March 26, 2007.

                                      -96-

<PAGE>

     (3)  Includes  2,175,000  shares  of  Common  Stock  issued  in the name of
Highlands Group Holdings,  Inc.,  3,205,009 shares of Common Stock issued in the
name of Mr. Mahoney and 1,500,000  shares of Common Stock issuable upon exercise
of options at a price of $0.155 per share,  which options are exercisable within
60 days of March 26, 2007.

     (4) Highlands Group Holdings,  Inc., whose address is 68 Cayman Place, Palm
Beach Gardens, Florida 33418, is wholly owned by Mr. Timothy Mahoney, our former
Chairman and Chief Operating  Officer.  Mr.  Mahoney,  as the owner of Highlands
Group Holdings, Inc., is deemed to beneficially own the 2,175,000 shares held by
Highlands Group Holdings, Inc.

     (5)  Includes  52,500  shares of Common  Stock  issuable  upon  exercise of
options  at a  weighted-average  price of $0.174 per share,  which  options  are
exercisable within 60 days of March 26, 2007.

     (6)  Includes  75,000  shares  of  common  stock  issued in the name of Mr.
Campanella  and 150,000 shares of Common Stock issuable upon exercise of options
at a price of $0.17 per share,  which options are exercisable  within 60 days of
March 26, 2007.

     (7) Based solely on information  contained in a Schedule 13D filed with the
SEC on May 22,  2006,  Sterling  Financial  Group of  Companies,  Inc.'s  former
business address was 1200 North Federal Highway,  Suite 401, Boca Raton, Florida
33432.  Charles  Garcia,  as the sole  officer of  Sterling  Financial  Group of
Companies,  Inc., has the power to vote and to dispose of all of the shares held
by Sterling  Financial  Group of Companies,  Inc.,  and is deemed to have shared
voting power and shared dispositive power with respect to such shares.

     (8)  Includes  3,288,253  shares of Common  Stock and  1,303,393  shares of
Common Stock  issuable  upon exercise of warrants at a price of $0.11 per share,
which warrants are exercisable within 60 days of March 26, 2007. Global Partners
Securities,  Inc.'s  business  address is 1909 Tyler  Street,  Wachovia  Center,
Penthouse,  Hollywood,  Florida  33020.  Marcos  Konig,  Harry Konig and Salomon
Konig, as president,  vice president and director of Global Partners Securities,
Inc., share the power to vote and to dispose of all of the shares held by Global
Partners  Securities,  Inc.  Global Partners  Securities,  Inc. has informed the
Company  that it intends to assign  these shares of Common Stock for the benefit
of its creditor, Dennis de Marchena.

     (9)  Includes  3,288,253  shares of Common  Stock and  1,303,393  shares of
Common Stock  issuable  upon exercise of warrants at a price of $0.11 per share,
which  warrants are  exercisable  within 60 days of March 26, 2007.  Level2.com,
Inc.'s former  business  address was 2101 W Commercial  Blvd.,  Suite 3500,  Ft.
Lauderdale  Florida  33309.  Marcos  Konig,  Harry Konig and Salomon  Konig,  as
president, vice president and director of Level2.com, Inc., respectively,  share
the power to vote and to dispose of all of the shares held by  Level2.com,  Inc.
Level2.com, Inc. has informed the Company that it intends to assign these shares
of Common Stock for the benefit of its creditor, Dennis de Marchena.

     (10) Based solely on information contained in a Schedule 13D filed with the
SEC on July 13,  2006,  Vassili  Oxenuk,  as sole  officer and director and sole
shareholder of Oxir Investment Ltd., has the power to vote and to dispose of all
of the shares held by Oxir Investment  Ltd., and is deemed to have shared voting
power and shared dispositive power with respect to such shares.  Oxir Investment
Ltd.'s business address is The Studio, St. Nicholas Close, Elstree Herts, United
Kingdom WD6 3EW. Mr. Oxenuk has advised the Company that Oxir  Investments  Ltd.
beneficially owns 3,000,000 shares of Common Stock.

                                      -97-

<PAGE>

     In  connection  with  Sterling   Financial   Group  of  Companies,   Inc.'s
acquisition  of our  securities,  on May 11, 2006,  we and vFinance  Investments
entered into a voting and lockup  agreement with Sterling  Financial  Investment
Group,  Inc.,  Sterling  Financial  Group of Companies,  Inc.,  Charles  Garcia,
Leonard J. Sokolow and Timothy E. Mahoney.  Pursuant to this agreement,  Leonard
J. Sokolow and Timothy E. Mahoney agreed,  in their capacity as stockholders and
directors,  to vote for a disgneee  of  Charles  Garcia to serve on our Board of
Directors for so long as Mr. Garcia is employed by vFinance  Investments  and to
vote for Mr.  Garcia's  designee to so serve for the one-year  period  beginning
upon Mr. Garcia's  departure.  Further,  Sterling  Financial Group of Companies,
Inc. agreed not to sell the acquired  securities  until May 11, 2007. On January
17, 2006, we also entered into a standstill  agreement  with Sterling  Financial
Investment Group,  Inc.,  Sterling  Financial Group of Companies,  Inc., Charles
Garcia and Alexis Korybut (the  "Sterling  Parties|"),  which  agreement has the
same standstill provisions as our agreement with the Konigs.

Equity Compensation Plan Information

     The following table sets forth certain information as of December 31, 2005,
with respect to compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance
under:

o all compensation plans previously approved by our security holders; and

o all compensation plans not previously approved by our security holders.

<TABLE>
<CAPTION>

                                                                                                          Number of
                                                                                                          Securities
                                                                                   Weighted-              Remaining
                                                                                   Average                Available For
                                                                                   Exercise               Future Issuance
                                                             Number of Securites   Price                  Under Equity
                                                             to be issued upon     Outstanding            Compensation
                                                             exercise of           options,               Plans (excluding
                                                             outstanding options,  warrants               securities reflected
                                                             warrants and rights   and rights             in column (a)
Plan Category                                                       (a)               (b)                       (c)
--------------------------------------------------------- ----------------------- ---------------------- ----------------------

<S>                                                        <C>                    <C>                     <C>
Equity compensation plans approved by security holders

Equity compensation plans not approved by security
holders (1)                                                           19,538,480                    .10                       -
--------------------------------------------------------- ----------------------- ---------------------- ----------------------

Total                                                                 19,538,480    $               .10                       -
                                                           ======================  ===================== =======================

</TABLE>
(1) Includes options and warrants granted pursuant to individual compensation
    arrangements.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                  INDEPENDENCE.

Related Party Transactions

     Except as otherwise set forth in this report, the Company did not engage in
any transactions  with related parties since January 1, 2006 in which the amount
involved exceeded $120,000.

     We have a written policy regarding the review,  approval or ratification of
related person  transactions.  A related person  transaction for the purposes of
the policy is a transaction  between us and one of our directors or nominees for
director,  executive  officers or 5%  shareholders,  or a member of one of these
person's  immediate  family,  in which  such  person  has a direct  or  indirect
material  interest and involves more than $120,000.  Under this policy,  related
person transactions are prohibited unless our Board of Directors, or a committee
designated  thereby,  has  determined in advance that the  transaction is in our
best  interests.  In the event we enter into such a  transaction  without  board
approval,  the Board of Directors must promptly  review its terms and may ratify
the transaction if it determines it is appropriate.

Director Independence

     The  Board  of  Directors  has   determined   that  Charles  R.  Modica  is
"independent" as such term is defined by the applicable listing standards of The
NASDAQ Stock Market, Inc. Our Board of Directors based this determination on our
directors' employment relationships.

                                      -98-

<PAGE>

ITEM 14.          PRINCIPAL ACCOUNTING FEES AND SERVICES.

     During  2006  and  2005,  the  Company  incurred  the  following  fees  for
professional services rendered by our principal accountant Sherb & Co., LLP:

                             2006            2005
                         -------------   -------------

Audit Fees (1)             $   92,000       $ 107,985
Audit-related Fees                  -               -
Tax Fees (2)               $    7,500       $  27,500
All Other Fees             $   13,700       $       -
                         -------------   -------------
Total                      $  113,200       $ 135,485
                          ============== ==============

     Audit Fees

     During the years ended  December  31,  2006 and 2005,  the  aggregate  fees
billed by Sherb & Co., LLP, our principal  accountants in 2006 and 2005, for the
audit of our  financial  statements  for each of those years,  the review of our
financial  statements  included in our Quarterly Reports on Form 10-QSB and fees
related to filings with the SEC and accounting consultations during those fiscal
years were $92,000 and $107,985, respectively.

     Audit Related Fees

     During  the  years  ended   December  31,  2006  and  2005,  our  principal
accountants,  Sherb & Co.,  LLP,  did  not  provide  any  assurance  or  related
services.

     Tax Fees

     During  the  years  ended   December  31,  2006  and  2005,  our  principal
accountants,  Sherb & Co., LLP, billed us $7,500 and $27,500,  respectively, for
the preparation of federal income tax returns and other tax related matters.

     Other Fees

     During  the  years  ended   December  31,  2005  and  2004,  our  principal
accountants,  Sherb & Co.,  LLP, did not provide any services or products  other
than as reported above.

     Pre-Approval Policies and Procedures

     Our Board of Directors has adopted a policy that requires  advance approval
of all audit  services and  permitted  non-audit  services to be provided by the
independent auditor as required by the Exchange Act. Our Board of Directors must
approve  the  permitted  service  before the  independent  auditor is engaged to
perform it.

     Our Board of  Directors  approved all of the  services  described  above in
accordance with its pre-approval policies and procedures.

                                      -99-

<PAGE>

                                     PART IV

ITEM 15.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 Number of
 Exhibit                               Exhibit Description

   2.1              Share  Exchange   Agreement  among  the  Company,   vFinance
                    Holdings,  Inc., certain  shareholders of vFinance Holdings,
                    Inc.   and   Union   Atlantic,   dated   November   8,  1999
                    (incorporated  by reference to Exhibit 2.1 to the  Company's
                    Current Report on Form 8-K filed with the SEC on November 8,
                    1999).

   2.2              Amendment to Share  Exchange  Agreement  dated  November 29,
                    1999  (incorporated  by  reference  to  Exhibit  2.2  to the
                    Company's Annual Report on Form 10-KSB filed with the SEC on
                    March 30, 2000).

   2.3              Agreement  and Plan of Merger dated as of December 22, 2000,
                    by and among the Company,  NW Holdings,  Inc.,  and Alvin S.
                    Mirman,  Ilene Mirman, Marc N. Siegel,  Richard L. Galterio,
                    Vincent W. Labarbara,  Eric M. Rand, and Mario Marsillo, Jr.
                    (incorporated  by reference to Exhibit 2.1 to the  Company's
                    Current Report on Form 8-K filed with the SEC on January 17,
                    2001).

   2.4              Agreement  and Plan of Merger,  dated as of January 3, 2001,
                    by  and  among  the  Company,  Colonial  Acquisition  Corp.,
                    Colonial Direct  Financial  Group,  Inc., and Michael Golden
                    and Ben  Lichtenberg  (incorporated  by reference to Exhibit
                    2.2 to the Company's  Current  Report on Form 8-K filed with
                    the SEC on January 17, 2001).

   2.5              Securities Exchange Agreement,  dated as of August 15, 2001,
                    among Kathleen  Wallman,  Steven Wallman,  Joseph Daniel and
                    vFinance.com,  Inc. (n/k/a vFinance,  Inc.) (Incorporated by
                    reference to Exhibit 10.1 to the Company's  Quarterly Report
                    on Form 10-QSB filed with the SEC on November 14, 2001).

   3.1              Certificate  of  Incorporation  as filed  with the  Delaware
                    Secretary  of State on February  12, 1992  (incorporated  by
                    reference to the  Company's  Registration  Statement on Form
                    S-18 filed with the SEC on July 24, 1992).

   3.2              Certificate   of  Renewal  and  Revival  of  Certificate  of
                    Incorporation as filed with the Delaware  Secretary of State
                    on March 15, 1996  (incorporated by reference to Exhibit 3.2
                    to the Company's Annual Report on Form 10-KSB filed with the
                    SEC on March 30, 2000).

   3.3              Certificate of Amendment to the Certificate of Incorporation
                    as filed with the  Delaware  Secretary of State on April 28,
                    1999  (incorporated  by  reference  to  Exhibit  3.3  to the
                    Company's Annual Report on Form 10-KSB filed with the SEC on
                    March 30, 2000).

   3.4              Certificate of Amendment to Certificate of  Incorporation as
                    filed with the Delaware Secretary of State on March 13, 2000
                    (incorporated  by reference to Exhibit 3.4 to the  Company's
                    Annual Report on Form 10-KSB filed with the SEC on March 30,
                    2000).

   3.5              Certificate of Amendment to Certificate of  Incorporation as
                    filed with the  Delaware  Secretary of State on November 28,
                    2001  (incorporated  by  reference  to  Exhibit  3.5  to the
                    Company's Annual Report on Form 10-KSB filed with the SEC on
                    April 16, 2002).

                                     -100-

<PAGE>

 Number of
 Exhibit                                Exhibit Description

   3.6              Certificate of Designation of Series A Convertible Preferred
                    Stock of the Company as filed with the Delaware Secretary of
                    State on  January  3, 2001  (incorporated  by  reference  to
                    Exhibit  3(i).1 to the Company's  Current Report on Form 8-K
                    filed with the SEC on January 17, 2001).

   3.7              Certificate of Designation of Series B Convertible Preferred
                    Stock of the Company as filed with the Delaware Secretary of
                    State on  January  3, 2001  (incorporated  by  reference  to
                    Exhibit  3(i).2 to the Company's  Current Report on Form 8-K
                    filed with the SEC on January 17, 2001).

   3.8              Bylaws of the  Company  (incorporated  by  reference  to the
                    Company's Registration Statement on Form S-18 filed with the
                    SEC on July 24, 1992).

   3.9              Unanimous   Written   Consent  of  the  Company's  Board  of
                    Directors  dated  January  24,  1994,  amending  the  Bylaws
                    (incorporated  by reference to Exhibit 3.6 to the  Company's
                    Annual Report on Form 10-KSB filed with the SEC on March 30,
                    2000).

   3.10             Unanimous   Written   Consent  of  the  Company's  Board  of
                    Directors,  effective as of January 24,  1999,  amending the
                    Bylaws  (incorporated  by  reference  to Exhibit  3.7 to the
                    Company's Annual Report on Form 10-KSB filed with the SEC on
                    March 30, 2000).

   4.1              Form of  Warrant  issued  to AMRO  International,  S.A.  (to
                    purchase 100,000  shares),  CALP II Limited  Partnership,  a
                    Bermuda limited  partnership (to purchase  350,000  shares),
                    Celeste Trust Reg (to purchase 5,000 shares), Balmore SA (to
                    purchase  35,000  shares),   Sallee   Investments  LLLP  (to
                    purchase  25,000  shares),  worldVentures  Fund  I,  LLC (to
                    purchase 25,000  shares),  RBB Bank  Aktiengesellschaft  (to
                    purchase  130,000  shares) and Thomas  Kernaghan & Co., Ltd.
                    (to purchase  58,333 shares)  (incorporated  by reference to
                    Exhibit  4.2 to the  Company's  Current  Report  on Form 8-K
                    filed with the SEC on April 13, 2000).

   4.2              Stock  Purchase  Warrant,  dated August 15, 2001,  issued to
                    Kathleen Wallman  (incorporated by reference to Exhibit 10.3
                    to the Company's  Quarterly Report on Form 10-QSB filed with
                    the SEC on November 14, 2001).

   4.3              Stock  Purchase  Warrant,  dated August 15, 2001,  issued to
                    Joseph Daniel  (incorporated by reference to Exhibit 10.4 to
                    the Company's Quarterly Report on Form 10-QSB filed with the
                    SEC on November 14, 2001).

   4.4              Form of  Common  Stock  Purchase  Warrant  (incorporated  by
                    reference to Exhibit 4.2 to the Company's  Current Report on
                    Form 8-K filed with the SEC November 8, 2004).

   4.5              Warrant to  Purchase  Common  Stock  dated  November 7, 2006
                    issued to Global Partners Securities,  Inc. (incorporated by
                    reference to Exhibit 10.2 to the Company's Current Report on
                    Form 8-K filed with the SEC on November 13, 2006.).

   4.6              Warrant to  Purchase  Common  Stock  dated  November 7, 2006
                    issued to  Level2.com,  Inc.  (incorporated  by reference to
                    Exhibit  10.3 to the  Company's  Current  Report on Form 8-K
                    filed with the SEC on November 13, 2006).

                                     -101-

<PAGE>

 Number of
 Exhibit                               Exhibit Description

   10.1             Purchase Agreement between the Company and Steven Jacobs and
                    Mauricio  Borgonovo,   dated  December  24,  1999,  for  the
                    purchase of Pinnacle  Capital Group,  LLC  (incorporated  by
                    reference to Exhibit 10.9 to the Company's  Annual Report on
                    Form 10-KSB filed with the SEC on March 30, 2000).

   10.2             Asset Purchase  Agreement  among the Company,  Steven Jacobs
                    and Mauricio  Borgonovo dated January 3, 2000  (incorporated
                    by reference to Exhibit 10.10 to the Company's Annual Report
                    on Form 10-KSB filed with the SEC on March 30, 2000).

   10.3             Asset Purchase  Agreement  dated November 17, 1999 among the
                    Company,  Andrew Reckles, Paul T. Mannion and Vincent Sbarra
                    (incorporated by reference to Exhibit 10.11 to the Company's
                    Annual Report on Form 10-KSB filed with the SEC on March 30,
                    2000).

   10.4             Stock  Purchase  Agreement  between  the  Company  and River
                    Rapids  Ltd.,  dated  September  27, 1999  (incorporated  by
                    reference to Exhibit 10.14 to the Company's Annual Report on
                    Form 10-KSB filed with the SEC on March 30, 2000).

   10.5             Amendment to Stock  Purchase  Agreement  between the Company
                    and River Rapids Ltd. dated December 22, 1999  (incorporated
                    by reference to Exhibit 10.15 to the Company's Annual Report
                    on Form 10-KSB filed with the SEC on March 30, 2000).

   10.6             Common  Stock  and  Warrants  Purchase  Agreement  among the
                    Company,   AMRO   International,   S.A.,   CALP  II  Limited
                    Partnership,  a Bermuda Limited  partnership,  Celeste Trust
                    Reg, Balmore SA, Sallee Investments LLLP, worldVentures Fund
                    I, LLC and RBB Bank Aktiengesellschaft, dated March 31, 2000
                    (incorporated  by reference to Exhibit 2.1 to the  Company's
                    Current  Report on Form 8-K filed  with the SEC on April 13,
                    2000).

   10.7             Registration  Rights  Agreement  among  the  Company,   AMRO
                    International,  S.A., CALP II Limited Partnership, a Bermuda
                    limited  partnership,  Celeste Trust Reg, Balmore SA, Sallee
                    Investments  LLLP,  worldVentures  Fund  I,  LLC,  RBB  Bank
                    Aktiengesellschaft  and Thomas  Kernaghan & Co., Ltd., dated
                    March 31, 2000  (incorporated by reference to Exhibit 4.1 to
                    the Company's  Current Report on Form 8-K filed with the SEC
                    on April 13, 2000).

   10.8             Escrow  Agreement  among the  Company,  AMRO  International,
                    S.A.,  CALP  II  Limited  Partnership,   a  Bermuda  limited
                    partnership,   Celeste   Trust  Reg,   Balmore  SA,   Sallee
                    Investments  LLLP,  worldVentures  Fund  I,  LLC,  RBB  Bank
                    Aktiengesellschaft  and Epstein Becker & Green,  P.C., dated
                    March 31, 2000  (incorporated  by reference to Exhibit 10.21
                    to Amendment No. 1 to the Company's Registration  (Statement
                    on Form SB-2 filed with the SEC on July 14, 2000).

   10.9*            Amended  and  Restated  Employment  Letter  Agreement  dated
                    December  18,  2000,  between the Company and David  Spector
                    (incorporated by reference to Exhibit 10.24 to the Company's
                    Annual Report on Form 10-KSB filed with the SEC on March 20,
                    2001).

   10.10            Registration Rights Agreement,  dated as of August 15, 2001,
                    among Kathleen Wallman, Joseph Daniel and vFinance.com, Inc.
                    (n/k/a vFinance, Inc.) (Incorporated by reference to Exhibit
                    10.2 to the Company's  Quarterly Report on Form 10-QSB filed
                    with the SEC on November 14, 2001).

                                     -102-

<PAGE>

 Number of
 Exhibit                               Exhibit Description

   10.11            Note Purchase  Agreement by and between  vFinance.com,  Inc.
                    d/b/a vFinance, Inc. (n/k/a vFinance, Inc.) and Best Finance
                    Investments  Limited  (n/k/a SBI  Investments  (USA),  Inc.)
                    dated  November  28,  2001  (incorporated  by  reference  to
                    Exhibit 10.18 to the Company's  Annual Report on Form 10-KSB
                    filed with the SEC April 16, 2002).

   10.12            Letter  Agreement  dated  November  30, 2001  amending  Note
                    Purchase  Agreement  (incorporated  by  reference to Exhibit
                    10.19 to the  Company's  Annual  Report on Form 10-KSB filed
                    with the SEC April 16, 2002).

   10.13            Letter  Agreement  dated  December  14, 2001  amending  Note
                    Purchase  Agreement  (incorporated  by  reference to Exhibit
                    10.20 to the  Company's  Annual  Report on Form 10-KSB filed
                    with the SEC April 16, 2002).

   10.14            Letter  Agreement  dated  December  28, 2001  amending  Note
                    Purchase  Agreement  (incorporated  by  reference to Exhibit
                    10.21 to the  Company's  Annual  Report on Form 10-KSB filed
                    with the SEC April 16, 2002).

   10.15            Letter  Agreement  dated  February  13, 2002  amending  Note
                    Purchase  Agreement  (incorporated  by  reference to Exhibit
                    10.22 to the  Company's  Annual  Report on Form 10-KSB filed
                    with the SEC April 16, 2002).

   10.16            Letter  Agreement dated March 4, 2002 amending Note Purchase
                    Agreement (incorporated by reference to Exhibit 10.23 to the
                    Company's  Annual  Report on Form 10-KSB  filed with the SEC
                    April 16, 2002).

   10.17            Credit Facility by and between the Company and UBS Americas,
                    Inc. dated as of January 25, 2002 (incorporated by reference
                    to  Exhibit  10.24 to the  Company's  Annual  Report on Form
                    10-KSB filed with the SEC April 16, 2002).

   10.18            Subordination  Agreement  by  and  among  the  Company,  UBS
                    Americas,  Inc., and SBI Investments (USA), Inc. dated as of
                    January 25, 2002 (incorporated by reference to Exhibit 10.25
                    to the Company's Annual Report on Form 10-KSB filed with the
                    SEC April 16, 2002).

   10.19            Consulting  Agreement effective as of August 20, 2001 by and
                    between  vFinance.com,  Inc. and Insight Capital Consultants
                    Corporation  (incorporated  by reference to Exhibit 10.34 to
                    the  Company's  Annual Report on Form 10- KSB filed with the
                    SEC April 16, 2002).

   10.20            Amendment  to Credit  Agreement  dated April 12, 2002 by and
                    between the Company and UBS Americas Inc.  (incorporated  by
                    reference to Exhibit 10.36 to the Company's Annual Report on
                    Form 10-KSB filed with the SEC April 16, 2002).

   10.21            Selected Asset Purchase  Agreement  dated as of May 29, 2002
                    among  vFinance   Investments,   Inc.,   Somerset  Financial
                    Partners, Inc., Somerset Financial Group, Inc., Douglas Toth
                    and   Nicholas   Thompson   (the  "Select   Asset   Purchase
                    Agreement")  (incorporated  by  reference to Exhibit 10.1 to
                    the Company's Quarterly Report on Form 10-QSB filed with the
                    SEC August 14, 2002).

                                     -103-

<PAGE>

 Number of
 Exhibit                               Exhibit Description

   10.22            Amendment to Select Asset Purchase  Agreement dated June 17,
                    2002 among vFinance  Investments,  Inc.,  Somerset Financial
                    Partners,  Inc., Somerset Financial Group, Inc. Douglas Toth
                    and Nicholas Thompson  (incorporated by reference to Exhibit
                    10.2 to the Company's  Quarterly Report on Form 10-QSB filed
                    with the SEC August 14, 2002).

   10.23            Escrow   Agreement   dated  June  19,  2002  among  vFinance
                    Investments,   Inc.,  Somerset  Financial  Partners,   Inc.,
                    Somerset  Financial  Group,  Inc.  Douglas  Toth,   Nicholas
                    Thompson and Krieger & Prager LLP (incorporated by reference
                    to Exhibit 10.3 to the  Company's  Quarterly  Report on Form
                    10-QSB filed with the SEC August 14, 2002).

   10.24            Termination Agreement  (incorporated by reference to Exhibit
                    10.1 to the  Company's  Quarterly  Report  on Form  10-QSB/A
                    filed with the SEC November 14, 2002).

   10.25            Branch  Agreement  between the Company and JSM Holding  Corp
                    (incorporated by reference to Exhibit 10.41 to the Company's
                    Annual  Report on Form  10-KSB  filed with the SEC March 31,
                    2003).

   10.26            Lease agreement on the Company's headquarters in Boca Raton,
                    FL,  dated  January 1, 2003  between  the Company and Zenith
                    Professional  Center,  LTD.  (incorporated  by  reference to
                    Exhibit 10.44 to the Company's  Annual Report on Form 10-KSB
                    filed with the SEC March 30, 2004).

   10.27            Stock  purchase  warrant  agreement  between the Company and
                    Zenith Professional Center, LTD.  (incorporated by reference
                    to  Exhibit  10.45 to the  Company's  Annual  Report on Form
                    10-KSB filed with the SEC March 30, 2004).

   10.28            Asset  Purchase  Agreement,  dated  November 2, 2004, by and
                    between  vFinance  Investments  Holdings,  Inc.  and  Global
                    Partners  Securities,  Inc.  (incorporated  by  reference to
                    Exhibit  2.1 to the  Company's  Current  Report  on Form 8-K
                    filed with the SEC November 8, 2004).

   10.29            Stock  Purchase  Agreement,  dated  November 2, 2004, by and
                    between vFinance Investments Holdings,  Inc. and Level2.com,
                    Inc.  (incorporated  by  reference  to  Exhibit  2.2  to the
                    Company's  Current  Report  on Form 8-K  filed  with the SEC
                    November 8, 2004).

   10.30            Registration  Rights  Agreement,  dated November 2, 2004, by
                    and among vFinance,  Inc., Global Partners Securities,  Inc.
                    and Level2.com,  Inc.  (incorporated by reference to Exhibit
                    4.1 to the Company's  Current  Report on Form 8-K filed with
                    the SEC November 8, 2004).

   10.31            Stock Escrow Agreement, dated November 2, 2004, by and among
                    vFinance  Investments  Holdings,  Inc., the Company,  Global
                    Partners Securities,  Inc., Level2.com,  Inc., and Edwards &
                    Angell,  LLP  (incorporated  by reference to Exhibit 10.1 to
                    the Company's  Current Report on Form 8-K filed with the SEC
                    November 8, 2004).

   10.32            Standstill  Agreement,  dated November 2, 2004, by and among
                    vFinance,  Inc.  and each of Marcus  Konig,  Harry Konig and
                    Salomon Konig  (incorporated by reference to Exhibit 10.2 to
                    the Company's  Current Report on Form 8-K filed with the SEC
                    November 8, 2004).

                                     -104-

<PAGE>
 Number of
 Exhibit                               Exhibit Description

   10.33*           Amended and Restated Letter Agreement dated January 14, 2005
                    between the Company and Sheila C. Reinken  (incorporated  by
                    reference to Exhibit 10.1 to the Company's Current Report on
                    Form 8-K filed with the SEC January 21, 2005).

   10.34            CIE  Master  Services  Agreement  dated May 13,  2005 by and
                    between   the    Company    and   Center   for    Innovative
                    Entrepreneurship, Inc. (incorporated by reference to Exhibit
                    10.1 to the Company's  Quarterly Report of Form 10-QSB filed
                    with the SEC on May 16, 2005)

   10.35            vFinance Management Services Agreement dated May 13, 2005 by
                    and  between   the   Company   and  Center  for   Innovative
                    Entrepreneurship, Inc. (incorporated by reference to Exhibit
                    10.2 to the Company's  Quarterly Report of Form 10-QSB filed
                    with the SEC on May 16, 2005)

   10.36            License  and  Website  Agreement  dated  June 8, 2005 by and
                    between the Company and vFinance  Holdings,  Inc. and Center
                    for  Innovative  Entrepreneurship,   Inc.  (incorporated  by
                    reference to Exhibit 10.2 to the Company's  Quarterly Report
                    of Form 10-QSB filed with the SEC on August 15, 2005).

   10.37            Asset  Purchase  Agreement,  dated  January 10, 2006, by and
                    among the  Company,  vFinance  Investments,  Inc.,  Sterling
                    Financial  Investment  Group,  Inc., and Sterling  Financial
                    Group of  Companies,  Inc.  (incorporated  by  reference  to
                    Exhibit  2.1 to the  Company's  Current  Report  on Form 8-K
                    filed with the SEC on January 17, 2006).

   10.38            Registration  Rights  Agreement,  dated January 10, 2006, by
                    and among  vFinance,  Inc., and Sterling  Financial Group of
                    Companies, Inc. (incorporated by reference to Exhibit 4.1 to
                    the Company's  Current Report on Form 8-K filed with the SEC
                    on January 17, 2006).

   10.39            Standstill  Agreement,  dated January 10, 2006, by and among
                    vFinance,  Inc.  and each of Sterling  Financial  Investment
                    Group, Inc.,  Sterling  Financial Group of Companies,  Inc.,
                    Charles Garcia and Alexis Korybut (incorporated by reference
                    to Exhibit 10.1 to the Company's  Current Report on Form 8-K
                    filed with the SEC on January 17, 2006).

   10.40            Voting and Lockup Agreement,  dated January 10, 2006, by and
                    among vFinance,  Inc., vFinance Investments,  Inc., Sterling
                    Financial  Investment Group, Inc.,  Sterling Financial Group
                    of  Companies,  Inc.,  Charles  Garcia  Leonard  Sokolow and
                    Timothy Mahoney  (incorporated  by reference to Exhibit 10.2
                    to the Company's  Current  Report on Form 8-K filed with the
                    SEC on January 17, 2006).

   10.41            Management  Agreement,  dated January 10, 2006, by and among
                    vFinance  Investments,  Inc., Sterling Financial  Investment
                    Group, Inc. and Sterling Financial Group of Companies,  Inc.
                    (incorporated  by reference to Exhibit 10.3 to the Company's
                    Current Report on Form 8-K filed with the SEC on January 17,
                    2006).

   10.42            Amendment to Asset Purchase  Agreement,  dated May 11, 2006,
                    by and between vFinance,  Inc., vFinance Investments,  Inc.,
                    Sterling  Financial  Investment  Group,  Inc.,  and Sterling
                    Financial  Group  of  Companies,   Inc.   (incorporated   by
                    reference to Exhibit 2.2 to the Company's  Current Report on
                    Form 8-K filed with the SEC on May 16, 2006).

   10.43            Second Amendment to Asset Purchase Agreement,  dated May 11,
                    2006, by and between vFinance,  Inc., vFinance  Investments,
                    Inc.,   Sterling  Financial   Investment  Group,  Inc.,  and
                    Sterling Financial Group of Companies, Inc. (incorporated by
                    reference to Exhibit 2.3 to the Company's  Current Report on
                    Form 8-K filed with the SEC on May 16, 2006).

                                     -105-

<PAGE>

 Number of
 Exhibit                               Exhibit Description

   10.44            Amendment to Registration  Rights  Agreement,  dated May 11,
                    2006, by and among  vFinance,  Inc., and Sterling  Financial
                    Group of  Companies,  Inc.  (incorporated  by  reference  to
                    Exhibit  4.2 to the  Company's  Current  Report  on Form 8-K
                    filed with the SEC on May 16, 2006).

   10.45            Amendment  to Voting  and  Lockup  Agreement,  dated May 11,
                    2006, by and among  vFinance,  Inc.,  vFinance  Investments,
                    Inc.,  Sterling Financial  Investment Group, Inc.,  Sterling
                    Financial Group of Companies,  Inc.,  Charles Garcia Leonard
                    Sokolow and Timothy  Mahoney  (incorporated  by reference to
                    Exhibit  10.3 to the  Company's  Current  Report on Form 8-K
                    filed with the SEC on May 16, 2006).

   10.46            Amendment to  Management  Agreement,  dated May 11, 2006, by
                    and among vFinance  Investments,  Inc.,  Sterling  Financial
                    Investment  Group,  Inc.  and  Sterling  Financial  Group of
                    Companies,  Inc.  (incorporated by reference to Exhibit 10.5
                    to the Company's  Current  Report on Form 8-K filed with the
                    SEC on May 16, 2006).

   10.47            Stock  Escrow  Agreement  dated May 11,  2006,  by and among
                    vFinance,   Inc.,  vFinance   Investments,   Inc.,  Sterling
                    Financial  Investment Group, Inc.,  Sterling Financial Group
                    of Companies,  Inc., and Edwards Angell Palmer & Dodge,  LLP
                    (incorporated  by reference to Exhibit 10.6 to the Company's
                    Current  Report  on Form 8-K  filed  with the SEC on May 16,
                    2006).

   10.48            Employment  Agreement  Amendment No. 1 dated May 12, 2006 by
                    and among vFinance,  Inc. and Leonard Sokolow  (incorporated
                    by reference to Exhibit 10.7 to the Company's Current Report
                    on Form 8-K filed with the SEC on May 16, 2006).

   10.49            Employment  Agreement dated July 24, 2006 between  vFinance,
                    Inc. and Alan B. Levin (incorporated by reference to Exhibit
                    10.1 to the Company's  Current Report on Form 8-K filed with
                    the SEC on July 26, 2006).

   10.50            Settlement  Agreement  dated  October  16, 2006 by and among
                    vFinance,  Inc.,  Henry S.  Snow,  Sandra S.  Snow,  Michael
                    Golden and Ben  Lichtenberg  (incorporated  by  reference to
                    Exhibit  10.1 to the  Company's  Current  Report on Form 8-K
                    filed with the SEC on November 13, 2006).

   10.51            Settlement and Escrow Release Agreement dated as of November
                    7, 2006 by and among vFinance,  Inc., vFinance  Investments,
                    Inc., Global Partners Securities, Inc., Level2.com,Inc.  and
                    Edwards Angell Palmer & Dodge LLP (incorporated by reference
                    to Exhibit 10.4 to the Company's  Current Report on Form 8-K
                    filed with the SEC on November 13, 2006).

   10.52*           Resignation Agreement dated December 29, 2006 by and between
                    vFinance,  Inc.  and  Timothy E.  Mahoney  (incorporated  by
                    reference to Exhibit 10.1 to the Company's Current Report on
                    Form 8-K filed with the SEC on January 8, 2007).

   10.53*           Employment Agreement Amendment #2 dated December 29, 2006 by
                    and  between   vFinance,   Inc.   and  Leonard  J.   Sokolow
                    (incorporated  by reference to Exhibit 10.2 to the Company's
                    Current  Report on Form 8-K filed with the SEC on January 8,
                    2007).

   10.54            Voting  Agreement  dated  December  29,  2006 by and between
                    Timothy E. Mahoney and Leonard J. Sokolow  (incorporated  by
                    reference to Exhibit 10.3 to the Company's Current Report on
                    Form 8-K filed with the SEC on January 8, 2007). -106-

<PAGE>

 Number of
 Exhibit                               Exhibit Description

   14               Code of Ethics  (incorporated  by reference to Exhibit 14 to
                    the  Company's  Annual  Report on Form 10-KSB filed with the
                    SEC March 30, 2004).

   21**             List of Subsidiaries

   23.1**           Consent of Sherb & Co. LLP

   31.1**           Certification by Chief Executive Officer pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

   31.2**           Certification by Chief Financial Officer pursuant to Section
                    1350 of the Sarbanes-Oxley Act of 2002.

   32.1**           Certification by Chief Executive Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002.

   32.2**           Certification by Chief Financial Officer pursuant to Section
                    906 of the Sarbanes-Oxley act of 2002.

*    Management contract or compensatory plan or arrangement.
**   Filed herewith.

                                     -107-

<PAGE>

                                   SIGNATURES


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

vFinance, Inc.


By: /s/ Leonard J. Sokolow
--------------------------------------------------
LEONARD J. SOKOLOW, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER



Date: April 2, 2006






Pursuant to the  requirements  of the Exchange  Act, 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                      Capacity                      Date
------------------------    ------------------------------------ ---------------

                              Chairman of the Board and Chief
/s/  Leonard J. Sokolow       Executive Officer
------------------------      (Principal Executive Officer)       April 2, 2007
Leonard J. Sokolow


/s/ Alan B. Levin             Chief Financial Officer and
------------------------      Principal Financial and Accounting  April 2, 2007
Alan B. Levin                 Officer)


/s/ Charles R. Modica         Director                            April 2, 2007
------------------------
Charles R. Modica

                                     -108-