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                                  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, 2007

                                       OR

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

         For the transition period from __________ to _________

                        Commission File Number: 001-11454
                                 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
                     Common Stock, Par Value $.01 Per Share

                   Name of Each Exchange on Which Registered
                               OTC Bulletin Board

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. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]      Accelerated filer [ ]
                                 (Do not check if a
                                 smaller reporting company)

 Non-accelerated filer  [ ]      Smaller reporting company [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 June 30, 2007, the aggregate market value of the common stock of the
registrant held by non-affiliates was approximately $9.7 million based on the
closing price of the common stock as quoted on the OTC Bulletin Board on such
date.

As of March 10, 2008, the registrant had 54,829,876 shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None



<PAGE>

                               INDEX TO FORM 10-K



Page
PART I
ITEM 1.  BUSINESS.............................................................2
ITEM 1A. RISK FACTORS........................................................16
ITEM 2.  PROPERTIES..........................................................28
ITEM 3.  LEGAL PROCEEDINGS...................................................29
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................30

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
         MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...................31
ITEM 6.  SELECTED FINANCIAL DATA.............................................33
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...........................................34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........43
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................44
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE................................................77
ITEM 9A. CONTROLS AND PROCEDURES.............................................77
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
         AND RELATED STOCKHOLDER MATTERS.....................................93
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE........................................................96
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES..............................96

PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.............................98

SIGNATURES..................................................................106





<PAGE>

                                     PART 1

                           FORWARD-LOOKING STATEMENTS

The  information   contained  in  this  Annual  Report  on  Form  10-K  includes
forward-looking  statements as defined in the Private  Securities  Reform Act of
1995.  These forward  looking  statements are often  identified by words such as
"may,"  "will,"  "expect,"  "intend,"   "anticipate,"   "believe,"   "estimate,"
"continue," "plan" and similar expressions.  These statements involve estimates,
assumptions  and  uncertainties  that  could  cause  actual  results  to  differ
materially from those expressed for the reasons  described in this Annual Report
on Form 10-K.  You  should not place  undue  reliance  on these  forward-looking
statements.

You should be aware that our actual results could differ  materially  from those
contained  in  the  forward-looking  statements  due  to a  number  of  factors,
including:

        o   general economic conditions;

        o   our ability to obtain future financing or funds when needed;

        o   the inability of our  broker-dealer  operations to operate
            profitably in the face of intense  competition from
            larger full-service and discount brokers;

        o   a general decrease in merger and acquisition  activities and our
            potential inability to receive success fees as
            a result of transactions not being completed;

        o   increased competition from business development portals;

        o   technological changes;

        o   our potential inability to implement our growth strategy through
            acquisitions or joint ventures;

        o   acquisitions,  business combinations,  strategic partnerships,
            divestures,  and other significant transactions
            may involve additional uncertainties; and

        o   our ability to maintain and execute a successful business strategy.

You should also consider carefully the statements under "Risk Factors" and other
sections of this Annual Report on Form 10-K,  which address  additional  factors
that  could  cause our  actual  results  to differ  from  those set forth in the
forward-looking  statements  and  could  materially  and  adversely  affect  our
business,  operating results and financial condition. All subsequent written and
oral  forward-looking  statements  attributable  to us or persons  acting on our
behalf are expressly  qualified in their entirety by the  applicable  cautionary
statements.

The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal  securities  laws, we undertake no
obligation  to  update  any  forward-looking  statement  to  reflect  events  or
circumstances  after the date on which the  statement  is made or to reflect the
occurrence of unanticipated  events. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of
factors,  or  factors we are  unaware  of,  may cause  actual  results to differ
materially from those contained in any forward-looking statements.

                                      -1-

<PAGE>


ITEM 1.  BUSINESS.

vFinance,  Inc. ("vFinance") is a financial services company that specializes in
high  growth  opportunities.  Our three  principal  lines of business  are:  (1)
offering full service retail  brokerage to  approximately  12,000 high net worth
individuals and institutional clients, (2) providing investment banking, merger,
acquisition  and  advisory  services  to micro,  small and  mid-cap  high growth
companies,  and (3) trading  securities,  including making markets in over 3,500
micro and small-cap stocks and providing liquidity in the United States Treasury
marketplace.  In addition to our core business, we offer information services on
our  website.   vFinance   Investments,   Inc.   ("vFinance   Investments")  and
EquityStation,  Inc.  ("EquityStation"),  both subsidiaries of the Company,  are
broker-dealers  registered with the Securities and Exchange  Commission ("SEC"),
and members of Financial Industry  Regulatory  Authority ("FINRA") (formerly the
National  Association of Securities  Dealers) and Securities Investor Protection
Corporation  ("SIPC").  vFinance  Investments  is also a member of the  National
Futures Association ("NFA").

Our website,  www.vfinance.com,  is  available to an audience of  entrepreneurs,
corporate  executives  and  private  and  institutional  investors  in over  150
countries with an estimated 35,000 unique visitors monthly. The website provides
sales leads to our  investment  banking,  brokerage and  institutional  services
divisions, giving visitors 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, we charge nominal fees for the
use of  proprietary  search  engines and premium  services  such as our business
planning services.

Restatement 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,  on December 11, 2007 we restated  certain
amounts in our 2006, 2005, 2004 and 2003 Consolidated  Financial Statements as a
result of comments we received from the staff of the SEC.

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.

                                      -2-

<PAGE>

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 Holdings,
Inc. completed 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.com,  Inc.  ("Level  2"), 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   Holdings,   Inc.  assumed  no
liabilities in connection  with the acquisition of Global's  assets.  Two of the
principals of Global and EquityStation  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, exercisable
at $0.19 per share.  One of the  principals was employed by us until October 31,
2007 and the other principal was employed by us until January 15, 2008.

EquityStation  is a  broker-dealer  registered  with the SEC and is a member  of
FINRA.  EquityStation  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  advanced 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 Sterling Financial's business as
a  going  concern,   certain  intellectual   property,   customer  relationships
associated  with  Sterling  Financial's  Institutional  Fixed  Income  and Latin
American  businesses,  computer  equipment and certain real property leases.  In
exchange  for the  assets,  we issued 13 million  shares of our common  stock to
SFGC.  The aggregate  purchase  price was  determined  to be $3.4 million.  This
transaction  was  approved by FINRA on April 28, 2006.  The  Sterling  Financial
acquisition resulted in the addition of institutional traders in U.S. treasuries
and corporate bonds and retail  brokerage  activities in Latin American  through
the addition of independent contractor offices in Panama, Chile and Columbia.

We expect that the institutional  investor customer  relationships acquired from
Sterling  Financial  will result in  approximately  $7.0 million of  incremental
annual revenues and a marginal impact on net income,  as the increased  revenues
and cost  savings are  expected to be offset by  operating  expenses  and $680.0
thousand of annual non-cash amortization expense.

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 as well as investment banking
advisory services for private and public Hispanic businesses.

                                      -3-

<PAGE>


Recent Developments

The  following is a brief summary of the material  provisions of the  agreements
entered into or to be entered into in  connection  with our merger with National
Holdings  Corporation.  The  summary is not  complete  and is  qualified  in its
entirety by reference to the agreements,  which are included as exhibits to this
Annual Report on Form 10-K and which are incorporated  herein by this reference.
We urge  you to read  the  agreements  in  their  entirety  for a more  complete
description of their terms and conditions.

Merger Agreement

On  November  7, 2007,  we entered  into an  Agreement  and Plan of Merger  (the
"Merger  Agreement")  with  National  Holdings  Corporation  ("National"),  vFin
Acquisition Corporation ("Merger Sub"), a wholly-owned subsidiary of National.

Under the terms and subject to the conditions set forth in the Merger Agreement,
which has been  unanimously  approved by the special  committees of our board of
directors  and the Board of Directors of National and our board of directors and
those of  National  and Merger  Sub,  Merger Sub will be merged with and into us
(the "Merger"), the separate corporate existence of Merger Sub will cease and we
will  continue as a surviving  corporation  of the Merger and as a  wholly-owned
subsidiary of National.

Pursuant to the Merger Agreement, upon the closing of the Merger (the "Effective
Date"), all of our stockholders  (except those who properly exercise dissenters'
rights  under  Delaware  law) will become  stockholders  of  National.  Upon the
Effective Date, our stockholders  will own  approximately 40% of the outstanding
shares of common stock of National. National's common stock is quoted on the OTC
Bulletin Board under the symbol "NHLD."

To effect the Merger,  each share of our common  stock  outstanding  immediately
prior to the closing of the Merger  (other than shares held by National or us or
any of our stockholders who properly exercise  dissenters' rights under Delaware
law) will  automatically  be converted  into the right to receive 0.14 shares of
National  common stock,  plus any cash in lieu of fractional  shares of National
common stock.

Each  option  to  purchase  shares  of our  common  stock  outstanding  upon the
Effective Date will be converted into options to acquire the number of shares of
National common stock  determined by multiplying (i) the number of shares of our
common stock underlying each outstanding  stock option  immediately prior to the
effective  time of the  Merger by (ii)  0.14,  at a price per share of  National
common  stock  equal to (i) the  exercise  price per share of each stock  option
otherwise  purchasable  pursuant to the stock option divided by (ii) 0.14.  Each
warrant to purchase shares of our common stock outstanding on the Effective Date
will be  exercisable  to purchase the number of shares of National  common stock
determined  by  multiplying  (i)  the  number  of  shares  of our  common  stock
underlying  each  outstanding  warrant  by (ii)  0.14,  at a price  per share of
National  common  stock  equal  to (i)  the  aggregate  exercise  price  of such
outstanding  warrant to purchase our common stock  divided by (ii) the number of
shares of  National  common  stock for which  such  warrant is  exercisable,  as
determined above.

Completion of the Merger is subject to various customary conditions,  including,
among others,  (i) requisite  approvals of our stockholders,  (ii) completion by
National of a private placement of equity securities resulting in gross proceeds
of at least $3 million,  (iii)  effectiveness of the registration  statement for
the National  securities  to be issued in the Merger,  (iv) absence of any suit,
proceeding or  investigation  challenging or seeking to restrain or prohibit the
Merger, and (v) FINRA and any other applicable regulatory approvals.

                                      -4-

<PAGE>

The  Merger  Agreement  contains  a  non-solicitation   or  "no-shop"  provision
restricting  each of National  and us from  soliciting  alternative  acquisition
proposals from third parties and from  providing  information to and engaging in
discussions with third parties regarding alternative acquisition proposals.  The
no-shop  provision is subject to a customary  "fiduciary-out"  provision,  which
allows each National and us under certain  circumstances to provide  information
to and  participate in discussions  with third parties with respect to bona fide
written  unsolicited   alternative   acquisition  proposals  and  under  certain
circumstances, coupled with the payment of a termination fee of $1.5 million, to
terminate the Merger Agreement.

The  Merger  must be  approved  by the  holders  of at least a  majority  of our
outstanding  common stock. Our Board of Directors has not yet set a date for the
stockholder's  meeting.  We  anticipate  that the merger,  if approved,  will be
completed in mid-2008.

On the  Effective  Date,  National's  board of  directors  will  consist of Mark
Goldwasser  (Chairman of the Board),  Leonard J. Sokolow  (Vice  Chairman of the
Board),  Christopher Dewey (Vice Chairman of the Board),  Charles Modica,  Jorge
Ortega,  up to three  designees  of  National  and up to one  designee  of ours.
Messrs. Modica and Ortega and the designees will be independent  directors.  The
designees  must be  reasonably  acceptable to our board of directors and that of
National.

Voting Agreements

In connection  with the Merger  Agreement,  National and Merger Sub have entered
into a voting  agreement (the  "Stockholder  Voting  Agreement") with Leonard J.
Sokolow  and  Dennis  De  Marchena,  who  owned  approximately  10.7%  and 4.0%,
respectively,  of our  outstanding  shares of common stock as of March 10, 2008.
Pursuant to the Stockholder Voting Agreement, Mr. Sokolow has agreed to vote all
of his shares and Mr. De Marchena has agreed to vote 2,000,000 of his shares, or
approximately  3.6% of our outstanding shares of common stock on March 10, 2008,
in favor of the Merger and against any  transaction  or other  action that would
interfere with the Merger.

Pursuant  to the Merger  Agreement,  Mark  Goldwasser,  Chairman of the board of
directors  of  National,  Christopher  Dewey,  Vice  Chairman  of the  board  of
directors of National,  and Leonard J. Sokolow, our Chairman and Chief Executive
Officer,  will enter into an agreement (the "Director Voting  Agreement") on the
Effective  Date to vote their  shares of National for the election of each other
and up to three  designees of Mr.  Goldwasser  and up to three  designees of Mr.
Sokolow until the earlier to occur of: (i) National's  merger,  consolidation or
reorganization  whereby the holders of National's voting stock own less than 50%
of the voting power of National after such  transaction,  (ii) by mutual consent
of the parties  thereto,  (iii) the date that  Messrs.  Goldwasser,  Sokolow and
Dewey own in the  aggregate  less than one  percent  of the  outstanding  voting
securities of National,  (iv) upon the fifth  anniversary of the Director Voting
Agreement or (v) upon  listing of  National's  common stock on AMEX,  the NASDAQ
Capital Market or the NASDAQ Global Market.

Sokolow  Employment  Termination  Agreement to be Entered into on the  Effective
Date

On the Effective  Date,  Mr.  Sokolow's  present  employment as our Chairman and
Chief  Executive  Officer and his  present  employment  agreement  with us dated
November 16, 2004, as amended,  will be terminated and our principal office will
be relocated to New York City, New York.  Accordingly,  pursuant to the terms of
Mr. Sokolow's present  employment  agreement with us dated November 16, 2004, as
amended,  Mr.  Sokolow will be entitled to a lump sum cash payment of $1,150,000
as of the  Effective  Date.  On the  Effective  Date,  we  will  enter  into  an
employment termination agreement ("Termination Agreement") with Mr. Sokolow.

                                      -5-

<PAGE>

Pursuant to the Termination Agreement,  Mr. Sokolow's employment as our Chairman
and Chief Executive Officer and his employment agreement with us will terminate.
Notwithstanding the fact that his stock options to purchase shares of our common
stock that have not vested as of the Effective  Date would have vested  pursuant
to his  employment  agreement  with us,  Mr.  Sokolow  has  agreed to waive such
accelerated  vesting.  He will receive a lump sum cash payment of  $1,150,000 as
required under the terms of his employment  agreement with us. However,  if: (i)
Mr.  Sokolow's  employment  is  terminated  by  National  with cause or (ii) Mr.
Sokolow voluntarily resigns his employment with National,  all stock options Mr.
Sokolow  received in exchange for his stock options pursuant to the terms of the
Merger  Agreement  will become 100%  vested and will remain  exercisable  by Mr.
Sokolow or his  beneficiaries  for a period of nine months from the date of such
event; provided, however, such period of nine months will not exceed the earlier
of (i) the  latest  date upon  which  such  options  could  have  expired by the
original  terms under the  circumstances  or (ii) the tenth  anniversary  of the
original date of the grant of the options.

Pursuant to the terms of the Termination Agreement,  if any payments made to Mr.
Sokolow,  including  the  acceleration  of the  vesting  of his  National  stock
options,  will be subject to the tax  imposed  by Section  4999 of the  Internal
Revenue  Code of  1986,  as  amended,  we have  agreed  to pay  Mr.  Sokolow  an
additional  amount such that the net amount  retained by him, after deduction of
any tax on such payment,  will equal the payments  received by Mr. Sokolow under
the Termination Agreement.

Employment Agreements to be Entered into on the Effective Date

On the Effective  Date,  Mark  Goldwasser and Leonard J. Sokolow will each enter
into  substantially  identical  five-year  employment  agreements with National,
pursuant to which Mr.  Goldwasser  will be employed by National as Chairman  and
Chief  Executive  Officer and Mr.  Sokolow  will be employed by National as Vice
Chairman and President.  Under the terms of the employment  agreements,  Messrs.
Goldwasser  and Sokolow  will each  receive an annual  base salary of  $450,000,
which  will  increase  5% per year,  and a  non-accountable  automobile  expense
allowance  of $1,000 per month.  In  addition,  each of them will be entitled to
receive on a fiscal year basis a cash bonus  determined in the discretion of the
Compensation  Committee  of the board of directors of National of not less than:
(i)  $225,000,  (ii) 5% of  National's  fiscal year  consolidated  net income in
excess of $4.5 million,  up to 100% of the difference between their then current
base  salaries and $225,000  and (iii) such  additional  bonuses as the board of
directors of National may determine  based upon the Board's  assessment of their
performance in the following  areas:  revenue  growth of National,  new business
development,  investor  relations,  communications  with the board of directors,
communication  and  collaboration  with  the  other  members  of  the  Executive
Committee  of the board of  directors  and  special  projects as assigned by the
board of directors.

                                      -6-

<PAGE>

Each  employment  agreement  terminates  upon the  earliest to occur of: (i) the
death  of  the  employee;  (ii) a  termination  by  National  by  reason  of the
disability  of the  employee;  (iii) a  termination  by National with or without
cause; (iv) a termination by the employee with or without good reason;  (v) upon
a "Change in Control"  (as defined in the  employment  agreements);  or (vi) the
non-renewal  of  the  agreement.  Upon  the  termination  due to  the  death  or
disability of the employee, by National without cause, by the employee with good
reason,  upon a "Change of Control"  or upon the  expiration  of the  employment
agreement  if  National  or the  employee  refuses  to  extend  the  term of the
employment  agreement,  the  employee  will be entitled  to: (i) any accrued but
unpaid salary or bonus or unreimbursed expenses;  (ii) any bonus payable for the
portion of the fiscal year during which the  termination  occurs;  (iii) 100% of
the employee's base salary (150% in the event of termination by National without
cause or by the employee  with good  reason);  (iv) the  continuation  of health
benefits until the earlier of (a) 18 months after  termination  and (b) the date
the employee  accepts other  employment;  and (v) all unvested  options  granted
pursuant to the  employment  agreements  will become  immediately  vested and be
exercisable for a period of nine months.

Pursuant to each  employment  agreement,  on the Effective Date, each of Messrs.
Goldwasser and Sokolow will be granted  non-qualified  stock options to purchase
the greater of (i)  1,000,000  shares of  National's  common stock or (ii) 5% of
National's  issued and  outstanding  shares of common  stock  immediately  after
consummation  of the  Merger at a  purchase  price  equal to the  average of the
10-day  closing  market price of National's  common stock prior to the Effective
Date. The options vest and become exercisable as to 25% of the shares underlying
the options every 12 months.  The options  expire seven years from the effective
date of the Merger.

In accordance  with the terms of the Merger  Agreement,  on the Effective  Date,
Alan  B.  Levin,  our  Chief  Financial  Officer,  will  enter  into a  one-year
employment agreement with National, pursuant to which he will be employed as the
Chief  Financial  Officer.  Under the terms of the  agreement,  Mr.  Levin  will
receive an annual base salary of $180,000.  In addition,  he will be entitled to
receive an annual cash bonus  determined in the  discretion of the  Compensation
Committee of the board of directors of National based upon its assessment by the
President  of  National  of Mr.  Levin's  performance  in the  following  areas:
revenue,  net income and revenue growth of National,  new business  development,
investor relations,  communications  with the board of directors,  communication
and collaboration with the other members of the Executive Committee of the board
of directors, and other factors including, without limitation,  special projects
as assigned by the Chief Executive Officer,  Executive Committee or the board of
directors of National.

Additional Information Regarding National Holdings Corporation

National files annual,  quarterly,  and special reports,  proxy statements,  and
other  information  with the SEC. Copies of these documents are available at the
SEC's public reference room at 100 F Street, N.E., Washington,  DC 20549. Copies
of these  materials  may also be obtained  from the SEC at  prescribed  rates by
writing  to the  Public  Reference  Section  of the  SEC,  100 F  Street,  N.E.,
Washington,  DC  20549.  Information  about  the  operation  of the  SEC  public
reference  room in  Washington,  D.C.  may be  obtained  by  calling  the SEC at
1-800-SEC-0330.  National's  filings  are  also  available  to the  public  from
commercial document retrieval services and at the web site maintained by the SEC
at http://www.sec.gov.

                                      -7-

<PAGE>

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 also
has  made it more  expensive  for  smaller  firms to  remain  in  business  thus
accelerating the consolidation of these firms.

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.

Financial Arrangements with Clearing Brokers

In 2004,  vFinance  Investments entered into a clearing agreement (the "Clearing
Agreement") with National Financial Services LLC, Member New York Stock Exchange
("NYSE")/SIPC,  a  Fidelity  Investments  company  ("NFS"),  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 $25,000 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,  2007,  our
contingent  obligation  in  connection  with the Clearing  Agreement  was $680.0
thousand.

EquityStation and vFinance  Investments have ancillary clearing  agreements with
Fortis Clearing, Legent Clearing and Penson Clearing,  providing services in the
areas NFS is not suited to handle.  These clearing  agreements contain customary
terms and conditions.

                                      -8-

<PAGE>

Our Business

Retail Brokerage

The largest  portion of our revenues,  63%, 62% and 72% in 2007,  2006 and 2005,
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 50 states, plus the District of Columbia and Puerto Rico, and our registered
representatives  are registered in those states where their customers reside. In
addition,  vFinance  Investments  has  registered  representatives  operating in
Panama,  Chile  and  Colombia.   vFinance  Investments'  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 or her business.
As an employee,  all of the expenses of the broker's  operation  are paid for by
the  company,  and the broker 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 and costs associated with its 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%, 25% and 16% of our revenues from trading profits in our market
making activities in 2007, 2006 and 2005, respectively.

vFinance  Investments  provides  liquidity  by  making  markets  in  over  3,500
Over-the-Counter  Bulletin Board ("OTC Bulletin Board"), National Market System,
Pink Sheet, and NASDAQ Capital Market 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.

                                      -9-

<PAGE>

Investment Banking

We  derived  11%,  12%  and 8% of  our  revenues  from  our  investment  banking
activities in 2007,  2006 and 2005,  respectively.  We assist  emerging  growth,
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  advisory  fees and  success  fees,  which are based on a
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 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 advanced direct market
access trading  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.

As of  March  10,  2008,  we  employed  or had  contractual  relationships  with
approximately 22 people providing  institutional  services,  approximately 10 of
which provide hedge fund related services.  We currently  service  approximately
195 institutional  customers, of which approximately 85 are hedge funds. For the
year  ended  December  31,  2007,  hedge fund  related  services  accounted  for
approximately $5 million in revenue.

                                      -10-

<PAGE>

Internet Strategy

Our website,  www.vfinance.com,  is  available to an audience of  entrepreneurs,
corporate  executives  and  private  and  institutional  investors  in over  150
countries with an estimated 35,000 unique visitors monthly. The website provides
sales leads to our  investment  banking,  brokerage and  institutional  services
divisions, giving visitors 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, we 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 and EquityStation  carried at NFS 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 EquityStation  have agreed to indemnify the clearing brokers for
losses they incur on these credit arrangements.

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.

                                      -11-

<PAGE>

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  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  FINRA.  FINRA
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 FINRA.

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.  FINRA  approved the change of ownership
to, or asset  acquisition  by,  us,  as the case may be,  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  and
EquityStation,  and (v) Sterling Financial. The federal securities laws prohibit
the states from imposing substantive  requirements on broker-dealers that exceed
those imposed under federal law. The laws,  however,  do 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.

                                      -12-

<PAGE>

The SEC,  self-regulatory  organizations,  such as FINRA,  and state  securities
commissions may conduct  administrative  proceedings that 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 FINRA rules require prior notice to the SEC and
FINRA 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.

As of  March  10,  2008,  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.  The
client  accounts for  EquityStation  are carried on the books and records of NFS
and  Penson  Clearing.  NFS has  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.

                                      -13-

<PAGE>

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, 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,  FINRA  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
Annual  Report  on  Form  10-K,  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).

                                      -14-

<PAGE>

Employees

At December 31, 2007, we employed the following personnel:

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

 Officers                                 9                -            9
 Administration                          36               27           63
 Brokers                                 21              126          147
 Traders                                 19                1           20
 Investment Bankers                       6               12           18
 Lenders                                  -                6            6
                              --------------  ---------------  -----------

 Totals                                  91              172          263
                              ==============  ===============  ===========


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
FINRA 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, other employees or brokers 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.

                                      -15-

<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 known 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 $2.2  million,  including a $1.5  million
non-cash gain on debt  forgiveness.  For the years ended December 31, 2007, 2006
and 2005,  however,  our results  amounted to net losses of  approximately  $1.7
million, $2.2 million and $1.1 million, respectively.

The net  losses  generated  in  2007,  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,  customer  settlements  and their  respective  legal costs,  non-cash
impairment  charges in 2005 and stock option expense in 2007 and 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.

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.

                                      -16-

<PAGE>

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  FINRA,  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 FINRA.  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.


                                      -17-

<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
FINRA Regulation,  Inc., the regulatory arm of FINRA. We are primarily regulated
by FINRA and the SEC. FINRA Regulation Inc. adopts rules, subject to approval by
the SEC, that govern its members and conducts  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.

                                      -18-

<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 27% and 35% of our total assets as of
December 31, 2007 and 2006, respectively.  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.

                                      -19-

<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 we 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.

                                      -20-

<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 86% of our retail registered  representatives
were independent contractors as of December 31, 2007. 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.

                                      -21-

<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.

                                      -22-

<PAGE>

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.

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.

                                      -23-

<PAGE>

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.  We do not believe
that  we  have  experienced  any  security   breaches  in  the  transmission  of
confidential  information.  In 2007, however, we were the target of hacking that
affected some of our internal databases and our website. Since that incident, we
have  invested  in several  defensive  systems,  including,  but not limited to,
updating data encryption to current standards,  upgrading password  requirements
to "strong passwords" and adding state of the art firewall protection across all
of  our  networks.   Moreover,   we  continually  evaluate  advanced  encryption
technology to try and 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.

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,  Fortis  Clearing,  Legent  Clearing and Penson  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.

                                      -24-

<PAGE>

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.

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.

                                      -25-

<PAGE>

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.

                                      -26-

<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 of 1934,  as amended (the  "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.

                                      -27-

<PAGE>

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

As of March 10, 2008, we had  outstanding  approximately  54.8 million shares of
common stock, options to purchase an approximate total of 16.7 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 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.

     The Company  leases office space in four  locations.  The  following  chart
provides   information   related   to   these   lease   obligations:

<TABLE>
<CAPTION>

               Office Location             Approximate Square Footage   Lease Rental    Expiration Date
---------------------------------------   ---------------------------  -------------   ------------------
<C>                                                   <C>               <C>                <C>
3010 N. Military, Boca Raton, FL                      18,390            $ 666,930          2/28/2009
880 Third Ave., New York, NY                           7,850            $ 188,520          6/30/2008
131 Gaither Drive, Mount Laurel, NJ                    1,400            $  19,600          9/31/2008
1200 N. Federal Highway, Boca Raton FL                16,250            $ 542,100          8/21/2014

</TABLE>

Our corporate headquarters are located at 3010 North Military Trail, Boca Raton,
Florida 33431,  where we lease 18,390 square feet for an approximate annual rent
of $666,930. The lease expires on February 28, 2009.

On December 15, 2004, we entered into a lease at 880 Third Avenue, New York, New
York for office  space on the twelfth  floor with an annual rent of $188,520 for
approximately 7,850 square feet. The lease expires on June 30, 2008.

On August 1, 2004,  we  entered  into a lease in Mt.  Laurel,  New  Jersey.  The
opening of this office was part of our disaster  recovery  plan  implemented  in
order to be able to provide our clients with uninterrupted service. The lease is
for  approximately  1,400 square feet with an annual rent of $19,600 and expires
on September 31, 2008.

Effective September 27, 2006, vFinance  Investments assumed a lease for property
located in Boca Raton in connection with the acquisition of assets from Sterling
Financial.  The lease is for approximately  16,250 square feet with an estimated
annual rent of $542,100 and expires on August 21, 2014.  On September  27, 2006,
we entered into a sublease  with regard to  approximately  14,000 square feet of
this property with estimated annual rent of $486,400.  Since September 2004, the
balance  of this  space  has been  subleased  on a  month-to-month  basis for an
estimated  annual rent of $71,200.  In February  2008, we received  notification
from the sublessee that occupies 14,000 square feet of this property that it was
insolvent and would be unable to perform its obligations under the sublease. See
Note 17 to our Consolidated Financial Statements for additional information.

We consider the  facilities of our company and those of our  subsidiaries  to be
reasonably insured and adequate for the foreseeable needs of our company and its
subsidiaries.

                                      -28-

<PAGE>

ITEM 3.           LEGAL PROCEEDINGS.

From time to time,  vFinance,  Inc. and/or one of our subsidiaries is 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 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.
Additionally,  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.

In November 2007, Nupetco  Associates,  LLC filed a customer  arbitration action
(FINRA  Case  No.  07-03152)  with  FINRA  naming  vFinance   Investments  as  a
co-respondent.  Nupetco Associates,  LLC alleges violations of various state and
federal securities laws. Nupetco Associates,  LLC seeks compensatory  damages of
$508,787 against vFinance  Investments in addition to costs,  attorneys fees and
punitive  damages.  vFinance  Investments  has filed an answer  and  affirmative
defenses and has requested  discovery from the  arbitration  claimant.  vFinance
Investments intends to vigorously defend the arbitration.

On  January  3,  2008,  the SEC  issued  and  Order  Instituting  Administrative
Proceedings  against vFinance  Investments,  Richard Campanella and a registered
representative  of vFinance  Investments,  alleging that they  violated  federal
securities laws by failing to preserve and produce  customer  correspondence  of
the  registered  representative.  The registered  representative  terminated his
employment  with the Company on August 4, 2006, and has not been associated with
the Company since that date. The Company and Mr.  Campanella  will likely assert
as a defense that Mr. Campanella complied to the best of his ability in a timely
manner  with the SEC's  requests  for  documents;  however,  the Company and Mr.
Campanella  have not filed an answer  responding to the specific  allegations in
the Order. The Company and Mr.  Campanella  intend to vigorously  defend against
the allegations.

                                      -29-

<PAGE>

On January 24, 2008, the Company  received a complaint in a civil case (Case No.
50-2008-CA-001703-XXXX-MB,  15th  Judicial  Circuit  Court,  Palm Beach  County,
Florida) from Harry Konig, a former employee.  Mr. Konig claims that the Company
breached  the  employment  agreement  entered into with Mr. Konig on November 2,
2004,  specifically with regard to the payment of his incentive compensation and
the  issuance  of  options.  Mr.  Konig  contends  that he is owed  $280,000  as
incentive  compensation  and options to purchase 350,000 shares of the Company's
common  stock.  In addition,  Mr.  Konig is seeking  costs and  attorney's  fees
incurred for this action. The Company is evaluating the merits of the claims and
intends to defend vigorously against Mr. Konig's claims.

On March 4, 2008 the Company received a customer  arbitration action (FINRA Case
No.08-00472) from Claimants, Donald and Patricia Halfmann. Under FINRA's Code of
Arbitration  Procedure,  vFinance is not required to file a responsive  pleading
until April 18,  2008.  The  Halfmanns'  Statement  of Claim  alleges  that Jeff
Lafferty, a former broker working for vFinance Investments,  opened accounts for
the Halfmanns and misappropriated approximately $110,000 of the Halfmanns' funds
via check  alteration  and  forgery  while he was  employed  by  vFinance as the
Halfmanns'  financial advisor. The Halfmanns also contend vFinance is liable for
an additional  $150,000 for investments made by the Halfmanns directly with Jeff
Lafferty after their account  transferred  out of vFinance and after  Lafferty's
resignation from vFinance, with a form U-5 filed with NASD by vFinance on August
27, 2004. Finally,  the Halfmanns' Statement of Claim requests punitive damages,
costs and attorney's  fees incurred for this action.  While vFinance  intends to
vigorously  defend against the allegations  made in the Halfmanns'  Statement of
Claim, a prediction of the likely outcome cannot be made at this time.

The Company is engaged in a number of other legal proceedings  incidental to the
conduct of its business.  These claims  aggregate within the range of $80,000 to
$150,000.

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

None.


                                      -30-

<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 has been listed for trading on the  Over-the-Counter  Bulletin
Board,  or the OTC Bulletin  Board,  under the symbol "VFIN." The following is a
summary  of the high  and low  closing  prices  of our  common  stock on the OTC
Bulletin Board during the periods presented.  Such prices represent inter-dealer
prices,  without  retail  mark-up,  mark  down  or  commissions,   and  may  not
necessarily  represent actual transactions.  Trading in our common stock has not
been extensive and such trades should not be  characterized  as  constituting an
active trading market.


                                  High           Low
                           ------------   ------------
2007:
   Fourth Quarter               $ 0.24         $ 0.17
   Third Quarter                $ 0.24         $ 0.18
   Second Quarter               $ 0.24         $ 0.17
   First Quarter                $ 0.23         $ 0.17

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


On March 10, 2008, the closing price of our common stock was $0.18,  as reported
on the web site of the OTC  Bulletin  Board.  As of March 10,  2008,  there were
approximately  302 stockholders of record of the common stock (not including the
number of persons or entities  holding  stock in nominee or street name  through
various brokerage firms).

We are  authorized  to issue  100  million  shares  of  common  stock,  of which
approximately  54.8 million  shares were issued and  outstanding as of March 10,
2008. 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.

                                      -31-


<PAGE>

Recent Sales of Unregistered Securities

None.

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, 2002  through  December  31, 2007 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, 2002.



                                [GRAPHIC OMITTED]




                             Cumulative Total Return


                     2002    2003     2004     2005     2006      2007
                   -------- -------- -------- -------- --------  --------
vFinance, Inc.      100.00   211.11   277.78   188.89   233.33    211.11
Russell 2000        100.00   145.37   170.08   175.73   205.61    199.96
DJ Select Microcap  100.00   158.21   183.56   197.80   228.19    213.59




                                      -32-

<PAGE>


ITEM 6.           SELECTED FINANCIAL DATA.

Set forth  below is our  historical  financial  data with  respect to the fiscal
years ended December 31, 2007,  2006,  2005,  2004, and 2003. The information is
only a summary.  This  information  has been derived from, and should be read in
conjunction with, our historical  Consolidated  Financial Statements and related
notes included in "Item 8.  Financial  Statements  and  Supplementary  Data" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."  The financial data for the fiscal years ended 2006, 2005, 2004,
and 2003 have been restated to reflect a revision to our  accounting  policy for
investments in restricted securities, as discussed in Note 1 to our Consolidated
Financial Statements.
<TABLE>
<CAPTION>
                                                                        As of and for the Years Ended December 31,
                                                    --------------------------------------------------------------------------------
                                                         2007              2006              2005           2004           2003
                                                                         (Restated)        (Restated)    (Restated)     (Restated)
                                                    ---------------   ----------------  ---------------- ------------ --------------
(In thousands, except per share data)

<S>                                                     <C>             <C>              <C>             <C>            <C>
Net revenues                                            $ 50,598.7      $ 38,552.7       $ 25,928.8      $ 26,280.3     $ 24,559.2
Income (loss) from operations                             (1,869.7)       (2,300.6)        (1,304.1)        1,298.1          450.9
Gain on forgiveness of debt                                      -               -                -         1,500.0              -
Net income (loss)                                       $ (1,746.0)     $ (2,175.7)      $ (1,141.5)     $  2,195.1     $    277.8

Net income (loss) per share: basic                      $    (0.03)     $    (0.04)      $    (0.03)     $     0.06     $     0.01
Wt. avg. shares outstanding: basic                        54,805.2        48,714.8         40,049.7        33,773.3       29,609.1

Net income (loss) per share: diluted                    $    (0.03)     $    (0.04)      $    (0.03)     $     0.06     $     0.01
Wt. avg. shares outstanding: diluted                      54,805.2        48,714.8         40,049.7        35,840.2       29,963.4

Total assets                                            $ 12,369.6      $ 11,792.4       $  9,031.6      $  9,846.0     $  6,459.5
Long-term debt including capital lease obligations,
net of current portion                                       297.5      $    125.6       $    225.1      $        -     $  1,889.6
Shareholders' equity                                    $  5,827.8      $  7,048.9       $  5,109.1      $  6,117.7     $  1,354.9

</TABLE>

See Notes 1, 4, 8 and 9 to our  Consolidated  Financial  Statements  included in
Item 8 of this  Annual  Report on Form  10-K for  discussions  of the  effect of
restating 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 Registrant's  Common
Equity,  Related  Stockholder Matters and Issuer Purchases of Equity Securities"
for a discussion of our dividend policy.

                                      -33-

<PAGE>


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

This discussion presents our management's  analysis of our results of operations
and financial condition as of and for each of the years ended December 31, 2007,
2006 and 2005,  respectively.  The discussion should be read in conjunction with
our Consolidated Financial Statements and the notes related thereto which appear
elsewhere in this Annual Report on Form 10-K.

We have restated  certain amounts in our  consolidated  statements of income for
each of the years ended December 31, 2006 and 2005, as a result of comments from
the  SEC,  as  discussed  in  Note 1 to our  Consolidated  Financial  Statements
contained elsewhere in this Annual Report on Form 10-K.

In addition  to the  aforementioned  restatement  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.

Recent Developments

On  November  7, 2007,  we entered  into an  agreement  and plan of merger  with
National  and  vFin  Acquisition  Corporation,  a  wholly  owned  subsidiary  of
National.  Under the terms and subject to the conditions set forth in the merger
agreement,  vFin  Acquisition  Corporation  will be merged with and into us, the
separate corporate existence of vFin Acquisition  Corporation will cease, and we
will  continue as a surviving  corporation  of the merger and as a  wholly-owned
subsidiary of National.  For additional  information regarding this transaction,
see "Item 1. Business - Recent Developments."

Overview

We  are  a  financial   services   company  that   specializes  in  high  growth
opportunities.  Our three  principal  lines of business  are: (1) offering  full
service   retail   brokerage  to   approximately   12,000  high  net  worth  and
institutional clients, (2) providing investment banking, merger, acquisition and
advisory  services to micro,  small and mid-cap high growth  companies,  and (3)
trading  securities,  including making markets in over 3,500 micro and small cap
stocks and providing  liquidity in the United States  Treasury  marketplace.  In
addition to our core  business,  we offer  information  services on our website.
vFinance  Investments,  Inc.  ("vFinance  Investments") and EquityStation,  Inc.
("EquityStation"),  two of our subsidiaries,  are broker-dealers registered with
the Securities  and Exchange  Commission  ("SEC"),  and members of the Financial
Industry Regulatory  Authority  ("FINRA") (formerly the National  Association of
Securities  Dealers) 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 vFinance's financial
statements from their respective  transaction dates, affecting the comparability
of its results of  operations  in the years ended  December 31,  2007,  2006 and
2005, as discussed in the sections that follow.  See Note 4,  "Acquisitions," to
our  Consolidated  Financial  Statements  included in this Annual Report on Form
10-K for further  information about the Sterling  Financial  Acquisition and the
Global Acquisition.

                                      -34-


<PAGE>

The largest  portion of our revenues,  63%, 62% and 72% in 2007,  2006 and 2005,
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%,
25% and 16% of our  revenues  through  trading  profits  generated in our market
making  activities  in 2007,  2006 and 2005,  respectively.  The majority of our
remaining revenues are derived primarily from investment banking-related success
and consulting fees.

We reported a net loss of $1.7  million  ($0.03 per basic and diluted  share) in
2007,  compared to $2.2 million ($0.04 per basic and diluted share) in 2006. Our
revenues increased $12.0 million in 2007, or 31%, principally as a result of the
addition of new brokers from the Sterling Financial Acquisition and the addition
of independent brokers in 2007 and 2006. 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
also increased.  Our  depreciation  and  amortization  expense also increased by
$325.5 thousand in 2007,  primarily as a result of amortization expense recorded
in connection with the Sterling Financial Acquisition.

We reported a net loss of $2.2  million  ($0.04 per basic and diluted  share) in
2006,  compared to $1.1 million ($0.03 per basic and diluted share) in 2005. Our
revenues increased $12.6 million in 2006, or 49%, principally as a result of the
Sterling Financial Acquisition and improved market conditions for its 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
partially  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.

                                      -35-

<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 2006 and 2005 having been
restated:
<TABLE>
<CAPTION>
                                                              As of and for the Years Ended December 31,
                                         ---------------------------------------------------------------------------------
                                             2007       2006        Change         %       2005       Change         %
                                                     (Restated)                 Change   (Restated)               Change
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

 Revenues:
<S>                                       <C>         <C>          <C>          <C>      <C>          <C>          <C>
   Commissions - agency                   $25,622.6   $20,323.7    $ 5,298.9    26.1 %   $15,941.2    $4,382.5     27.5 %
   Trading profits                         12,707.4     9,606.0      3,101.4    32.3 %     4,177.4     5,428.6    130.0 %
   Success fees                             5,691.9     4,481.3      1,210.6    27.0 %     2,108.6     2,372.7    112.5 %
   Other brokerage related income           6,204.1     3,546.0      2,658.1    75.0 %     2,837.6       708.4     25.0 %
   Consulting fees                            204.9       375.4       (170.5)  (45.4)%       523.6      (148.2)   (28.3)%
   Other                                      167.8       220.3        (52.5)  (23.8)%       340.4      (120.1)   (35.3)%
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

        Total revenues                     50,598.7    38,552.7     12,046.0    31.2 %    25,928.8    12,623.9     48.7 %
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------
 Compensation, commissions and benefits    41,713.0    31,232.0     10,481.0    33.6 %    20,313.3    10,918.7     53.8 %
 Clearing and transaction costs             4,425.1     4,337.2         87.9     2.0 %     2,977.2     1,360.0     45.7 %
 General and administrative costs           3,992.8     3,158.8        834.0    26.4 %     2,332.8       826.0     35.4 %
 Occupancy and equipment costs              1,053.3     1,166.6       (113.3)   (9.7)%       743.3       423.3     56.9 %
 Depreciation and amortization              1,284.2       958.7        325.5    34.0 %       446.3       512.4    114.8 %
 Goodwill impairment                              -           -            -         -       420.0      (420.0)  (100.0)%
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

        Total operating costs              52,468.4    40,853.3     11,615.1    28.4 %    27,232.9    13,620.4     50.0 %
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

   Loss from operations                    (1,869.7)   (2,300.6)       430.9   (18.7)%    (1,304.1)     (996.5)    76.4 %
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

 Other income (expenses):
   Interest income                             43.7        85.3        (41.6)  (48.8)%        82.6         2.7      3.3 %
   Interest expense                           (80.5)      (59.7)       (20.8)   34.8 %       (30.7)      (29.0)    94.5 %
   Dividend income                             11.3        22.5        (11.2)  (49.8)%         5.9        16.6    281.4 %
   Other income (expense), net                149.2        76.8         72.4    94.3 %       104.8       (28.0)   (26.7)%
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

        Total other income (expense)          123.7       124.9         (1.2)   (1.0)%       162.6       (37.7)   (23.2)%
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

 Loss before income taxes                  (1,746.0)   (2,175.7)       429.7   (19.7)%    (1,141.5)   (1,034.2)    90.6 %
 Income tax benefit (provision)                   -           -            -       -             -           -        -
                                         ----------- -----------  -----------  -------- ----------- -----------  ---------

   Net loss                              $ (1,746.0) $ (2,175.7)     $ 429.7   (19.7)%   $(1,141.5)  $(1,034.2)    90.6 %
                                         =========== ===========  ===========  ======== =========== ===========  =========

</TABLE>


                                      -36-


<PAGE>

Revenues
<TABLE>
<CAPTION>

                                                            As of and for the Years Ended December 31,
                                     -------------------------------------------------------------------------------------------
                                         2007          2006          Change      % Change      2005        Change      % Change
                                                   (Restated)                               (Restated)
                                     ------------- ------------  -------------  ---------- ------------ -----------  -----------
 Revenues:
<S>                                    <C>          <C>             <C>              <C>    <C>           <C>              <C>
   Commissions - agency                $ 25,622.6   $ 20,323.7      $ 5,298.9        26 %   $ 15,941.2    $4,382.5         27 %
   Trading profits                       12,707.4      9,606.0        3,101.4        32 %      4,177.4     5,428.6        130 %
   Success fees                           5,691.9      4,481.3        1,210.6        27 %      2,108.6     2,372.7        113 %
   Other brokerage related income         6,204.1      3,546.0        2,658.1        75 %      2,837.6       708.4         25 %
   Consulting fees                          204.9        375.4         (170.5)      (45)%        523.6      (148.2)       (28)%
   Other                                    167.8        220.3          (52.5)      (24)%        340.4      (120.1)       (35)%
                                     ------------- ------------  -------------  ---------- ------------ -----------  -----------

        Total revenues                 $ 50,598.7   $ 38,552.7     $ 12,046.0        31 %   $ 25,928.8    12,623.9         49 %
                                     ============= ============  =============  ========== ============ ===========  ===========
</TABLE>


In 2007, total revenues  increased $12.0 million,  or 31%, as a result of higher
agency  commissions,  increased  trading  profits  and other  brokerage  related
income,  all driven  primarily  by the addition of new brokers in 2007 and 2006.
Additionally,  success  fees from  investment  banking  increased  27%,  or $1.2
million,  primarily  as a result of an increase in  investment  banking  revenue
during the fourth  quarter,  when we  completed a  substantial  capital  raising
transaction.

In 2006, total revenues  increased $12.6 million,  or 49%, primarily as a result
of the Sterling  Financial  Acquisition  and more favorable  market  conditions.
Approximately  43% of the $12.6 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.

Operating Expenses
<TABLE>
<CAPTION>

                                                                    As of and for the Years Ended December 31,
                                       --------------------------------------------------------------------------------------------
                                           2007          2006          Change       % Change     2005         Change     % Change
                                                      (Restated)                              (Restated)
                                       ------------- ------------  ------------  ----------- ------------ ------------  -----------

<S>                                       <C>          <C>           <C>               <C>     <C>          <C>               <C>
 Compensation, commissions and benefits   $41,713.0    $31,232.0     $10,481.0         34 %    $20,313.3    $10,918.7         54 %
 Clearing and transaction costs             4,425.1      4,337.2          87.9          2 %      2,977.2      1,360.0         46 %
 General and administrative costs           3,992.8      3,158.8         834.0         26 %      2,332.8        826.0         35 %
 Occupancy and equipment costs              1,053.3      1,166.6        (113.3)       (10)%        743.3        423.3         57 %
 Depreciation and amortization              1,284.2        958.7         325.5         34 %        446.3        512.4        115 %
 Goodwill impairment                              -            -             -            -        420.0       (420.0)       (100)%
                                       ------------- ------------  ------------  ----------- ------------ ------------  -----------

        Total operating costs             $52,468.4    $40,853.3     $11,615.1         28 %    $27,232.9    $13,620.4         50 %
                                       ============= ============  ============  =========== ============ ============  ===========

</TABLE>

                                      -37-

<PAGE>


     Compensation, commissions and benefits.

Compensation, commissions and benefits increased $10.5 million, or 34%, in 2007.
Compensation,  commissions  and  benefits  are  correlated  with  our  revenues,
primarily agency  commissions,  trading profits and success fees from investment
banking,  which increased by 28% in the aggregate in 2007.  Additional increases
in  compensation,   commissions  and  benefits  are  primarily  attributable  to
incentive compensation provided to new brokers.

Compensation, commissions and benefits increased $10.9 million, or 54%, in 2006,
primarily  as a result of  increased  agency  commissions,  trading  profits and
success fees from investment banking, which increased by 55% in the aggregate in
2006. We also recorded  $448.2  thousand of  compensation  expense in connection
with the adoption of SFAS No. 123R, effective January 1, 2006, compared to $19.4
thousand recorded in 2005. 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.

Clearing and transaction costs.

Clearing  and  transaction  costs  increased  $87.9  thousand  in  2007,  or 2%,
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,  largely offset by a shift in our revenue
mix to lower-cost institutional trading transactions.

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.

General and administrative costs.

General and  administrative  expenses increased $834.0 thousand in 2007, or 26%,
primarily  as a  result  of legal  fees and  settlement  costs  associated  with
arbitration   and   litigation   matters  in  2007  and  the  expansion  of  our
Sarbanes-Oxley and Gramm-Leach-Bliley  compliance programs.  Remaining increases
resulted from temporary labor and other increased  professional  fees to support
our growth.

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.

Occupancy and equipment costs.

Occupancy  and equipment  expenses  decreased  $113.3  thousand in 2007, or 10%,
primarily  because in December 2006 we subleased  office space  acquired under a
lease assumed in connection with the Sterling Financial Acquisition.


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.


Depreciation and amortization.

Depreciation  and  amortization  increased  $325.5  thousand  in  2007,  or 34%,
primarily as a result of the amortization  expense  associated with the customer
relationships  from the Sterling  Acquisition  depreciation  expense  related to
property and equipment  additions,  including  computer  equipment under capital
leases.

                                      -38-

<PAGE>

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.

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,
2007 or 2006.

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,  2007 and 2006 will not be realized  based on the
scheduling of deferred tax liabilities and projected taxable income.  The amount
of the deferred tax assets actually realized,  however,  could vary if there are
differences in the timing or amount of future reversals of existing deferred tax
liabilities or changes in the actual amounts of future taxable income. Should we
determine  that we will be able to realize all or part of the deferred tax asset
in the future,  an  adjustment to the deferred tax asset will be recorded in the
period such determination is made.

We did not record a provision for income taxes in 2007, 2006 or 2005 as a result
of the net loss we recorded in those periods.

In  July  2006,  the  Financial   Accounting  Standards  Board  ("FASB")  issued
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
Interpretation of FASB Statement 109" ("FIN 48"). This Interpretation prescribes
a consistent  recognition threshold and measurement standard, as well as a clear
criteria for subsequently recognizing, derecognizing and measuring tax positions
for financial  statement  purposes.  The  Interpretation  also requires expanded
disclosure  with  respect  to   uncertainties  as  they  relate  to  income  tax
accounting.  FIN 48 was effective for fiscal years  beginning after December 15,
2006.  Management has evaluated all of its tax positions and determined that FIN
48 did not have a  material  impact on our  financial  position  or  results  of
operations.


Transactions with Affiliates

During 2006, we recorded a $215.0 thousand charge to write-off  amounts due from
an unconsolidated  subsidiary,  Center for Innovative  Entrepreneurship ("CIE"),
for expenses we incurred on its behalf.  We provide  office space and management
and administrative services to CIE through an agreement under which we should be
reimbursed the costs of providing  these  services.  We accrued a receivable for
reimbursements  totaling  $215.0  thousand  through  December 31, 2006 under the
expectation  that CIE would  generate  cash flows  sufficient  to  provide  cash
reimbursement.  While preparing our Consolidated  Financial Statements as of and
for the year ended December 31, 2006, we determined that recovery of this $215.0
thousand was  unlikely,  and that  reimbursements  for these costs in the future
would  be  uncertain  until  CIE   demonstrates  an  ability  to  reimburse  us.
Accordingly,  we wrote-off the entire receivable balance and currently recognize
amounts reimbursed by CIE under the cost recovery method. We expect to terminate
this arrangement in 2008.

                                      -39-

<PAGE>

Also during  2006,  we paid $161.9  thousand  for a 4.9% equity  interest in The
Cluster Competitiveness Group, S.A, a company that provides economic feasibility
services.  We  made  this  investment  because  we  believed  that  through  its
relationship, we could benefit from the introduction to investment banking needs
of the clients of this  affiliate,  and may make further  investments  in future
periods, although we have no commitment to do so.

On January 1, 2003, we entered into an agreement with JSM Capital  Holding Corp.
("JSM"), a retail brokerage  operation  headquartered in New York and founded by
John S.  Matthews  (who also was, at the same time,  named the  President of our
Retail  Brokerage  Division).  We issued JSM  warrants to  purchase  1.0 million
shares of our common  stock at an exercise  price of $0.20 in exchange for a 19%
equity  interest  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
in the aggregate. In August 2005, our relationship with JSM was terminated,  and
we fully impaired the  investment in JSM in the fourth quarter of 2005,  when it
was determined  that JSM had no remaining  material  assets or  operations.  Mr.
Matthews  filed  an  arbitration  action  against  us  in  connection  with  the
termination of the relationship, which was settled in July 2007. Pursuant to the
terms of the settlement  agreement,  we paid $75.0  thousand to Mr.  Matthews in
2007 and are obligated to make further payments  totaling $225.0 thousand to Mr.
Matthews.  See Note 13 to our  Consolidated  Financial  Statements  for  further
discussion of the arbitration action and subsequent settlement.

Liquidity and Capital Resources

Historically,  we have  satisfied  our liquidity  and  regulatory  capital needs
through the  issuance of equity and debt  securities.  As of December  31, 2007,
liquid assets  consisted  primarily of cash and cash equivalents of $5.5 million
and marketable securities of $817.4 thousand, for a total of $6.3 million, which
represents a $1.1 million  increase over the $5.2 million in liquid assets as of
December 31, 2006. As of December 31, 2007, vFinance had long-term capital lease
obligations of $297.5 thousand, net of current obligations of $247.0 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
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,  2007,
vFinance Investments had net capital of $1.48 million, which was $481.7 thousand
in excess of its required  net capital of $1.0  million.  EquityStation  had net
capital of $543.4  thousand  that was $443.4  thousand in excess of its required
net capital of $100.0 thousand.

vFinance  Investments'  percentage of aggregate  indebtedness to net capital was
289.6% in 2007.  EquityStation's  percentage  of aggregate  indebtedness  to net
capital was 35.8% in 2007. 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.

                                      -40-

<PAGE>

For the periods  ended  December  31, 2007 and 2006,  we had gross  deferred tax
assets of $5.7 million and $5.3 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 $1.2  million,  $(222.2)
thousand and $(828.9)  thousand  during 2007, 2006 and 2005,  respectively.  The
major components of these changes are discussed below.

Cash  provided  by (used  in)  operating  activities  was $1.6  million  in 2007
compared to $370.9 thousand in 2006 and $(673.3) thousand in 2005. 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
marketable  securities.  Cash provided by operating activities increased by $1.3
million in 2007,  primarily  as a result of the decrease in our net loss in 2007
and an increase  in our accrued  liabilities,  consisting  primarily  of accrued
compensation paid during the first quarter of 2008.

Cash provided by operating  activities  was $370.9  thousand in 2006 compared to
cash used in operating  activities  of $673.3  thousand in 2005,  primarily as a
result of a $405.2  thousand  decrease in amounts due from clearing  brokers,  a
$285.0 thousand  decrease in accounts  receivable and a $716.0 thousand increase
in accrued  compensation paid during the first quarter of 2007, partially offset
by a $428.0 increase in marketable securities.

Cash used in investing activities in 2007 was $106.9 thousand compared to $384.6
thousand in 2006 and $125.7 thousand in 2005. Cash used in investing  activities
consisted  of  capital  expenditures  of  $106.9,  $222.7  thousand,  and $125.7
thousand in 2007, 2006 and 2005,  respectively,  excluding non-cash additions to
property and equipment through capital leases. Cash used in investing activities
in  2006  also  included  a  $161.9  thousand  investment  in an  unconsolidated
affiliate.

Cash used in financing activities in 2007 was $281.1 thousand compared to $208.5
thousand in 2006 and $29.9 thousand in 2005.  Cash used in financing  activities
was comprised of repayments of capital lease obligations  related to new capital
lease agreements for computer equipment, which we entered into during 2007, 2006
and 2005.

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.

                                      -41-

<PAGE>

Contractual Obligations

The following table summarizes our future contractual commitments as of December
31,  2007,  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          2008        2009 - 2010   2011 - 2012     Therafter
                                 -------------  -------------  ------------  -------------  --------------

<S>                                 <C>            <C>            <C>           <C>               <C>
Capital lease obligations           $   544.5      $   247.0      $  297.5      $       -         $     -
Operating lease obligations           4,628.5        1,358.5       1,348.3        1,295.0           626.7
                                 -------------  -------------  ------------  -------------  --------------

Total                               $ 5,173.0      $ 1,605.5      $1,645.8      $ 1,295.0         $ 626.7
                                 =============  =============  ============  =============  ==============

</TABLE>


Off Balance-Sheet Arrangements

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

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:

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.   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 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.

                                      -42-

<PAGE>

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.  "Securities  owned" and "Securities sold, not yet purchased" on our
Consolidated Balance Sheets are carried at market value, with related unrealized
gains and losses recognized in our results of operations.  vFinance  Investments
relies upon its clearing firms to provide it with these market  values,  because
the  clearing  firms use market data  services  that  provide  market  values of
securities based on current market prices.

New Accounting Pronouncements

See Notes 1 and 12 to 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.


                                      -43-

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                            Page

Report of Independent Registered Public Accounting Firm ..................... 45

Audited Financial Statements:

Consolidated Statements of Financial Condition as of
December 31, 2007 and 2006 (Restated)........................................ 46

Consolidated Statements of Operations for the years ended
     December 31, 2007, 2006 (Restated) and 2005 (Restated) ................. 47

Consolidated Statements of Shareholders' Equity for the years ended
     December 31, 2007, 2006 (Restated) and 2005(Restated)................... 48

Consolidated Statements of Cash Flows for the years ended
     December 31, 2007, 2006(Restated) and 2005(Restated).................... 49

Notes to Consolidated Financial Statements .................................. 50






                                      -44-

<PAGE>

Report of Independent Registered Public Accounting Firm


To the Board of Directors
vFinance Inc., & Subsidiaries

We have audited the accompanying  consolidated  statement of financial condition
of  vFinance  Inc.  and  Subsidiaries  as of  December  31,  2007  and  2006 (as
restated), and the related consolidated statements of operations,  shareholders'
equity and cash flows for the years ended December 31, 2007,  2006 (as restated)
and  2005  (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.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the purposes of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly, we express no such opinion. An audit includes examining
on a  test  basis,  evidence  supporting  the  amount  and  disclosures  in  the
consolidated  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. and
Subsidiaries  as of December 31, 2007, and 2006 (as restated) and the results of
their  operations  and their cash flows for the years ended  December  31, 2007,
2006 (as  restated)  and 2005  (as  restated),  in  conformity  with  accounting
principles generally accepted in the United States of America.


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


Boca Raton, Florida
March 5, 2008


                                      -45-

<PAGE>


                         VFINANCE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                               AS OF DECEMBER 31,

                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                              2007                 2006
                                                                                                (Restated)
                                                                       -------------------  ----------------

 Assets:
     Current assets:
<S>                                                                             <C>               <C>
      Cash and cash equivalents                                                 $ 5,454.1         $ 4,205.2
      Due from clearing broker                                                      631.0             299.9
      Securities owned:
        Marketable securities, at market value                                      817.4           1,009.4
        Not readily marketable securities, at estimated fair value                  451.6             563.9
      Accounts receivable, net of allowance of $60.0 thousand and $0                155.6             123.8
      Forgivable loans - employees, current portion                                  26.7              58.8
      Notes receivable - employees                                                    8.4             128.0
      Prepaid expenses and other current assets                                     156.4             184.0
                                                                       -------------------  ----------------

           Total current assets                                                   7,701.2           6,573.0
                                                                       -------------------  ----------------

    Property and equipment, net                                                     800.8             661.0
    Customer relationships, net                                                   3,287.6           4,115.4
    Other assets                                                                    580.0             443.0
                                                                       -------------------  ----------------

           Total assets                                                        $ 12,369.6        $ 11,792.4
                                                                       ===================  ================

Liabilities and shareholders' equity:
     Current liabilities:
      Accounts payable                                                            $ 693.9           $ 821.7
      Accrued compensation                                                        3,305.6           2,394.6
      Other accrued liabilities                                                   1,548.1             800.7
      Securities sold, not yet purchased                                            177.4              41.6
      Capital lease obligations, current portion                                    247.0             210.8
      Other                                                                         272.3             348.5
                                                                       -------------------  ----------------

           Total current liabilities                                              6,244.3           4,617.9
                                                                       -------------------  ----------------

    Capital lease obligations, long term                                            297.5             125.6

Shareholders' Equity:
    Preferred stock $0.01 par value, 2.5 million shares
      authorized, 0 shares issued and outstanding                                       -                 -
    Common stock $0.01 par value, 100,000,000 shares authorized
      54,829,876 and 54,579,876 shares issued and outstanding                       548.3             545.8
    Additional paid-in capital                                                   31,668.3          31,145.9
    Accumulated deficit                                                         (26,388.8)        (24,642.8)
                                                                       -------------------  ----------------

           Total shareholders' equity                                             5,827.8           7,048.9
                                                                       -------------------  ----------------

           Total liabilities and shareholders' equity                          $ 12,369.6        $ 11,792.4
                                                                       ===================  ================

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

                                      -46-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                  2007         2006 (Restated)   2005 (Restated)
                                                           ---------------- ------------------- ----------------
 Revenues:
<S>                                                              <C>               <C>               <C>
    Commissions - agency                                         $25,622.6         $20,323.7         $15,941.2
    Trading profits                                               12,707.4           9,606.0           4,177.4
    Success fees                                                   5,691.9           4,481.3           2,108.6
    Other brokerage related income                                 6,204.1           3,546.0           2,837.6
    Consulting fees                                                  204.9             375.4             523.6
    Other                                                            167.8             220.3             340.4
                                                           ---------------- ----------------- -----------------

         Total revenues                                           50,598.7          38,552.7          25,928.8
                                                           ---------------- ----------------- -----------------

 Operating expenses:
     Compensation, commissions and benefits                       41,713.0          31,232.0          20,313.3
     Clearing and transaction costs                                4,425.1           4,337.2           2,977.2
     General and administrative costs                              3,992.8           3,158.8           2,332.8
     Occupancy and equipment costs                                 1,053.3           1,166.6             743.3
     Depreciation and amortization                                 1,284.2             958.7             446.3
     Goodwill impairment                                                 -                 -             420.0
                                                           ---------------- ----------------- -----------------

         Total operating costs                                    52,468.4          40,853.3          27,232.9
                                                           ---------------- ----------------- -----------------

    Loss from operations                                          (1,869.7)         (2,300.6)         (1,304.1)
                                                           ---------------- ----------------- -----------------

 Other income (expenses):
    Interest income                                                   43.7              85.3              82.6
    Interest expense                                                 (80.5)            (59.7)            (30.7)
    Dividend income                                                   11.3              22.5               5.9
    Other income (expense), net                                      149.2              76.8             104.8
                                                           ---------------- ----------------- -----------------

         Total other income (expenses)                               123.7             124.9             162.6
                                                           ---------------- ----------------- -----------------

 Loss before income taxes                                         (1,746.0)         (2,175.7)         (1,141.5)
 Income tax benefit (provision)                                          -                 -                 -
                                                           ---------------- ----------------- -----------------

    Net loss                                                    $ (1,746.0)       $ (2,175.7)       $ (1,141.5)
                                                           ================ ================= =================

    Net loss per share: basic and diluted                          $ (0.03)          $ (0.04)          $ (0.03)
                                                           ================ ================= =================

    Weighted average number of shares outstanding:                54,805.2          48,714.8          40,049.7
    basic and diluted
                                                           ================ ================= =================

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

                                      -47-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 and 2005

                                 (In thousands)
<TABLE>
<CAPTION>


                                               Common Stock  Common  Additional    Deferred     Accumulated    Total
                                                  Shares      Stock   Paid-In    Compensation     Deficit   Shareholders'
                                                              Amount  Capital                                 Equity
                                               -----------------------------------------------------------------------

<S>                                                <C>       <C>      <C>          <C>        <C>           <C>
Balance at December 31, 2004 (Restated)            39,721.1  $ 397.2  $ 27,065.5   $ (19.4)   $ (21,325.6)  $ 6,117.7
Net loss (Restated)                                       -        -           -         -       (1,141.5)   (1,141.5)
Exercise of stock options                             555.0      5.5       108.0         -              -       113.5
Amortization of deferred compensation                     -        -           -      19.4              -        19.4
                                               ------------- -------- ----------- --------- -------------- -----------

Balance at December 31, 2005 (Restated)            40,276.1    402.7    27,173.5         -      (22,467.1)    5,109.1
Net loss (Restated)                                       -        -           -         -       (2,175.7)   (2,175.7)
Stock-based compensation expense                          -        -       448.2         -              -       448.2
Issuance of shares in conjunction with acquisition
  of Sterling Financial Group (Note 4)             13,000.0    130.0     3,276.0         -              -     3,406.0
Issuance of shares in arbitration settlements       1,303.8     13.1       248.2         -              -       261.3
                                               ------------- -------- ----------- --------- -------------- -----------

Balance at December 31, 2006 (Restated)            54,579.9    545.8    31,145.9         -      (24,642.8)    7,048.9
Net loss                                                  -        -           -         -       (1,746.0)   (1,746.0)
Stock-based compensation expense                          -        -       474.9         -              -       474.9
Issuance of shares for services rendered              250.0      2.5        47.5         -              -        50.0
                                               ------------- -------- ----------- --------- -------------- -----------

Balance at December 31, 2007                       54,829.9  $ 548.3  $ 31,668.3       $ -    $ (26,388.8)  $ 5,827.8
                                               ============= ======== =========== ========= ============== ===========

</TABLE>

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

                                      -48-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                       2007               2006           2005
                                                                                       (Restated)     (Restated)
                                                                 ------------------ --------------- --------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
<S>                                                                     <C>            <C>            <C>
Net loss                                                                $ (1,746.0)    $ (2,175.7)    $ (1,141.5)
    Adjustments to reconcile net loss to
     net cash provided by (used in) operating activities:
       Non-cash fees received                                             (1,822.5)      (1,974.1)        (487.5)
       Non-cash compensation paid                                          1,480.3        1,350.5          158.1
       Depreciation and amortization                                       1,284.1          958.7          446.3
       Issuance of equity for services rendered                               50.0              -              -
       Issuance of equity in arbitration settlements                             -          261.3              -
       Provision for doubtful accounts                                        60.0              -           69.7
       Stock-based compensation                                              474.9          448.2           19.4
       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                                72.9           36.3            6.6
       Changes in operating assets and liabilities:
        (Increase) decrease in:
         Accounts receivable                                                 (91.8)         285.0         (393.4)
         Forgivable loans                                                    (40.8)         (95.1)             -
         Due from clearing broker                                           (331.1)         405.2          (38.0)
         Notes receivable - employees                                        119.6          (60.5)         101.1
         Investments in marketable securities                                192.0         (428.0)          95.7
         Investments in not readily marketable securities                    454.5          483.3          177.0
         Other current assets                                                 27.6          (54.0)         (32.1)
         Other assets and liabilities, net                                  (213.2)         (83.0)         (79.5)
        Increase (decrease) in:
         Accounts payable and accrued liabilities                          1,530.6          798.6          (50.1)
         Securities sold, not yet purchased                                  135.8           (0.8)         (25.1)
                                                                 ------------------ -------------- --------------

 Cash provided by (used in) operating activities                           1,636.9          370.9         (673.3)
                                                                 ------------------ -------------- --------------

 CASH USED IN INVESTING ACTIVITIES:
     Purchase of property and equipment                                     (106.9)        (222.7)        (125.7)
     Investment in unconsolidated affiliate                                      -         (161.9)             -
                                                                 ------------------ -------------- --------------

 Cash used in investing activities                                          (106.9)        (384.6)        (125.7)
                                                                 ------------------ -------------- --------------

 CASH PROVIDED BY (USED IN) FINANCING ACTIVTIES:
     Repayments of capital lease obligations                                (281.1)        (208.5)        (143.4)
     Proceeds from exercise of common stock options                              -              -          113.5
                                                                 ------------------ -------------- --------------

 Cash used in financing activities                                          (281.1)        (208.5)         (29.9)
                                                                 ------------------ -------------- --------------

 Increase (decrease) in cash and cash equivalents                          1,248.9         (222.2)        (828.9)
 Cash and cash equivalents at beginning of year                            4,205.2        4,427.4        5,256.3
                                                                 ------------------ -------------- --------------

 Cash and cash equivalents at end of year                                $ 5,454.1      $ 4,205.2      $ 4,427.4
                                                                 ================== ============== ==============
</TABLE>

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

                                      -49-
<PAGE>


                         VFINANCE, INC. AND SUBSIDIARIES
                   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  financial  services  company  that
specializes in high growth opportunities.  Its three principal lines of business
are: (1) offering full service retail brokerage to approximately 12,000 high net
worth and  institutional  clients,  (2) providing  investment  banking,  merger,
acquisition  and  advisory  services  to micro,  small and  mid-cap  high growth
companies,  and (3) trading  securities,  including making markets in over 3,500
micro and small cap stocks and providing liquidity in the United States Treasury
marketplace.  In addition to the Company's core business,  it offers information
services on its website. vFinance Investments, Inc. ("vFinance Investments") and
EquityStation,  Inc.  ("EquityStation"),  both subsidiaries of the Company,  are
broker-dealers  registered with the Securities and Exchange  Commission ("SEC"),
and members of Financial Industry  Regulatory  Authority ("FINRA") (formerly the
National  Association of Securities  Dealers) 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 2006 and 2005 Consolidated Financial Statements have
been  reclassified  to  conform  to the  presentation  in the 2007  Consolidated
Financial Statements.  Such  reclassifications did not have a material impact on
the presentation of the overall financial statements.

     Restatement

     As previously described in the Company's Annual Report on Form 10-K for the
year ended  December 31, 2006, the Company  recorded  adjustments as a result of
comments from the staff of the SEC to reclassify  marketable securities received
as compensation  for investment  banking  services from "trading  securities" to
"available-for-sale"  securities,  effective  January  1,  2002  as  part  of  a
restatement. As a result of this reclassification, non-cash unrealized gains and
losses  related  to  the  securities  classified  as   available-for-sale   were
reclassified from the determination of net income (loss) to other  comprehensive
income (loss), a component of shareholders' equity.

     On November 12, 2007, after  reconsidering the adjustments to the financial
statements described in the previous paragraph,  management  determined that the
reclassification  suggested  by the staff of the SEC  should  not have been made
and, as a result,  the  Company  revised the  previously  restated  Consolidated
Financial Statements as of and for the years ended December 31, 2006, 2005, 2004
and 2003.

                                      -50-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Additionally,  as previously  described in the  Company's  Annual Report on
Form 10-K for the year ended  December 31, 2006, it was the Company's  policy to
reduce the market value of  investments  in  restricted  stock by 25% to reflect
such restrictions. On December 11, 2007, after discussions with the staff of the
SEC  and  after  considering  applicable  accounting  guidance  related  to  the
valuation of restricted securities, the Company concluded that the 25% valuation
reduction was not consistent with generally  accepted  accounting  principles in
the United States.  As a result of this  determination,  the Company has revised
its  previously  restated  Consolidated  Financial  Statements as of and for the
years ended December 31, 2006, 2005, 2004 and 2003 to remove the effects of this
policy.

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

                                                         Beginning Equity - December 31, 2004
                                -----------------------------------------------------------------------------------------------
                                                                       Effect of Restatement
                                                       ----------------------------------------------------------
                                    As Reported -
                                 December 31, 2006        2004           2003           2002      Cumulative         Restated
                                     Form 10-K                                                      Total
                                --------------------   -----------   ------------   -----------  --------------  --------------

<S>                                     <C>                <C>             <C>           <C>            <C>         <C>
Accumlated deficit                      $ (21,016.4)       (219.7)         (42.6)        (46.9)         (309.2)     $(21,325.6)
Accumulated other comprehensive loss    $    (341.2)        170.7          123.6          46.9           341.2      $        -
Total shareholders' equity              $   6,085.7         (49.0)          81.0             -            32.0      $  6,117.7

</TABLE>




                                      -51-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     The following tables present a summary of the effects from each of these
adjustments on the restated Consolidated Financial Statements in 2006 and 2005:

<TABLE>
<CAPTION>
                                                      For the Year Ended December 31, 2006
                                                 ----------------------------------------------
                                                     As Reported
                                                  December 31, 2006    Effect of
                                                      Form 10-K       Restatement    Restated
                                                 -------------------  ----------  -------------
Statements of Operations:
<S>                                                      <C>            <C>         <C>
Success fees                                             $  4,523.5     $ (42.2)    $  4,481.3
Total revenues                                             38,594.9       (42.2)      38,552.7
Loss from operations                                       (2,258.4)      (42.2)      (2,300.6)
Loss before income taxes                                   (2,133.5)      (42.2)      (2,175.7)
Net loss                                                 $ (2,133.5)      (42.2)    $ (2,175.7)
                                                 ===================              =============

Net loss per share - basic and diluted                   $    (0.04)    $     -     $    (0.04)
                                                 ===================              =============

Wt. avg.shares outstanding - basic and diluted             48,714.8                   48,714.8
                                                 ===================              =============
</TABLE>
<TABLE>
<CAPTION>

                                                      For the Year Ended December 31, 2005
                                                 ----------------------------------------------
                                                     As Reported
                                                  December 31, 2006    Effect of
                                                      Form 10-K       Restatement    Restated
                                                 -------------------  ----------  -------------
Statements of Operations:

<S>                                                  <C>              <C>          <C>
Success fees                                         $ 2,250.5        $ (141.9)    $  2,108.6
Total revenues                                        26,070.7          (141.9)      25,928.8
Loss from operations                                  (1,162.2)         (141.9)      (1,304.1)
Loss before income taxes                                (999.6)         (141.9)      (1,141.5)
Net loss                                             $  (999.6)         (141.9)    $ (1,141.5)
                                                 ==============                  =============

Net loss per share - basic and diluted               $   (0.02)        $ (0.01)    $    (0.03)
                                                 ==============                  =============

Wt. avg.shares outstanding - basic and diluted        40,049.7                       40,049.7
                                                 ==============                  =============
</TABLE>

     In addition to the effects of the restatement noted above, as a consequence
of reverting to the financial  statement  presentation used by the Company prior
to the restatement,  securities  received as compensation for investment banking
services  have  been  classified  as  "marketable  securities"  or "not  readily
marketable securities",  as appropriate,  with realized and unrealized gains and
losses related to these securities  included in the  determination of net income
(loss) in the Consolidated Statements of Operations.

                                      -52-

<PAGE>


                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

     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
$60.0 thousand and $0 at December 31, 2007 and 2006, respectively.

     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  $24.8  thousand  and $30.7  thousand  at  December  31,  2007 and 2006,
respectively,  and is included in Other Current  Liabilities in the Consolidated
Balance Sheets.

     Securities Owned

     As of December 31, 2007 and 2006, marketable securities consisted primarily
of publicly traded unrestricted common stock, municipal securities and corporate
bonds  the  Company  buys and sells in  market-making  and  trading  activities.
Marketable  securities  are stated at fair market  value,  based on  information
obtained from the Company's  clearing firms and nationally  recognized  exchange
values.

                                      -53-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Not readily  marketable  securities consist of publicly traded common stock
restricted as to resale and common stock  purchase  warrants,  both of which are
typically received as compensation for investment  banking services.  Restricted
stock and stock  purchase  warrants may be sold to certain  qualified  investors
prior to the  removal  of the  resale  restrictions,  as  dictated  by Rule 144.
Restricted stock,  including restricted stock obtained as a result of exercising
common stock purchase  warrants,  remains  classified as not readily  marketable
until the  removal of all resale  restrictions,  typically  within a year of the
Company's  receipt of the security  unless subject to a  registration  statement
with a later effective date.  Market valuations of restricted stock are based on
market  prices,  as reported  by a major  exchange  such as the NASDAQ  Bulletin
Board, NASDAQ OTC or other similar nationally recognized exchange.

     Unrealized  gains or losses on securities  owned 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 instruments are
sold. Net realized and unrealized gains (losses) related to securities owned and
traded were $12.7 million, $9.6 million and $4.2 million in 2007, 2006 and 2005,
respectively.

     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 Consolidated 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.

     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,  net is $548.6  thousand  and  $321.6  thousand  (net of  accumulated
depreciation)  of computer  equipment  acquired under capital leases at December
31, 2007 and 2006, respectively.

     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.

                                      -54-

<PAGE>

     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  assumed an operating  lease for property  located in
Boca Raton,  Florida, as a term of the Sterling Financial  Acquisition (see Note
4). 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. For additional  information,  see Note
17 to the Consolidated Financial Statements.

     Intangible Assets

     The Company accounts for business combinations using the purchase method of
accounting,  in  accordance  with  Statement of Financial  Accounting  Standards
("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.


     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, 2007 or 2006.


     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.

                                      -55-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Other Accrued Liabilities

     As of December 31, 2007 and 2006, other accrued  liabilities were comprised
primarily of (i) $518.3  thousand and $70.0 thousand,  respectively,  in accrued
settlements and settlement  reserves for open  litigation,  (ii) $429.5 thousand
and $306.0  thousand,  respectively,  in accrued  bonus  payable and (iii) $96.3
thousand and $76.0 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 collectability 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 retail
brokerage 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.

     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.   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  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.

     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 were made in accordance
with individual compensation agreements, which vary on a banker by banker basis.
At December  31, 2007 and 2006,  the Company did not hold any  securities  to be
distributed in a future period as compensation.

                                      -56-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     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.

     In December 2004, the Financial  Accounting Standards Board ("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 the  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation".

                                                                       2005
                                                                   ------------

Net income (loss), as reported                                      $ (1,141.5)
Pro forma stock-based compensation expense, net of taxes                (544.0)
                                                                   ------------

Pro forma net income (loss)                                         $ (1,685.5)
                                                                   ============

Basic and diluted net income (loss) per share, as reported          $    (0.02)
Pro forma stock-based compensation expense                          $    (0.01)
Pro forma net income earnings (loss) per share - basic and diluted  $    (0.03)

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

                                      -57-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

     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.

     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,  2007 and 2006,  the balance of the
forgivable loans was $26.7 thousand and $58.8 thousand, 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, as it relates to financial assets
and liabilities,  is effective for financial  statements issued for fiscal years
beginning  after  November 15,  2007,  and interim  periods  within those fiscal
years. On February 12, 2008, the FASB issued FSP No. FAS 157-2,  "Effective Date
of FASB Statement No. 157," which delayed the effective date of SFAS No. 157 for
all  nonfinancial  assets and  nonfinancial  liabilities,  except those that are
recognized or disclosed at fair value in the financial statements on at least an
annual  basis,  until  January  1, 2009 for  calendar  year-end  entities.  Upon
adoption,  the provisions of SFAS No. 157 are to be applied  prospectively  with
limited  exceptions.  The  adoption  of SFAS No. 157 is not  expected  to have a
material impact on our Consolidated Financial Statements.

                                      -58-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

     As of January 1, 2007,  the Company also adopted 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." The adoption of SFAS No. 155 did not have a material impact on our
Consolidated Financial Statements.

     In February  2007,  the FASB issued  SFAS No. 159,  "Fair Value  Option for
Financial Assets and Financial Liabilities", which permits entities to choose to
measure many  financial  instruments  and certain other items at fair value that
are not  currently  required  to be  measured  at  fair  value  and  establishes
presentation  and  disclosure  requirements  designed to facilitate  comparisons
between entities that choose different measurement  attributes for similar types
of assets and liabilities.  SFAS No. 159 is effective for fiscal years beginning
after  November 15,  2007.  The Company is  currently  evaluating  the effect of
adopting SFAS No. 159 on its Consolidated Financial Statements.

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

     In December  2007, the FASB issued SFAS No. 141 (revised  2007),  "Business
Combinations" ("SFAS No. 141R"). SFAS No. 141R is a revision to SFAS No. 141 and
includes  substantial  changes to the  acquisition  method  used to account  for
business  combinations  (formerly the "purchase  accounting" method),  including
broadening  the  definition  of a business,  as well as revisions to  accounting
methods for  contingent  consideration  and other  contingencies  related to the
acquired  business,   accounting  for  transaction  costs,  and  accounting  for
adjustments to provisional  amounts  recorded in connection  with  acquisitions.
SFAS  No.141R  retains  the  fundamental  requirement  of SFAS No.  141 that the
acquisition  method of accounting be used for all business  combinations and for
an acquirer to be  identified  for each business  combination.  SFAS No. 141R is
effective for periods beginning on or after December 15, 2008, and will apply to
all business  combinations  occurring  after the effective  date. The Company is
currently evaluating the requirements of SFAS No. 141R.

     The  FASB  also  issued  SFAS  No.  160,   "Non-controlling   Interests  in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51,  Consolidated  Financial  Statements" in December  2007.  This Statement
amends ARB No. 51 to establish new standards that will govern the (1) accounting
for and reporting of  non-controlling  interests in partially owned consolidated
subsidiaries  and  (2) the  loss of  control  of  subsidiaries.  Non-controlling
interest  will be  reported  as part of  equity  in the  consolidated  financial
statements.  Losses will be allocated to the non-controlling  interest,  and, if
control is maintained,  changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS No. 160 is effective for periods beginning after
December 15, 2008. The Company is currently  evaluating the requirements of SFAS
No. 160.

                                      -59-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


2.       MERGER AGREEMENT

     On November 7, 2007,  the Company  entered  into an  Agreement  and Plan of
Merger (the "Merger Agreement") with National Holdings Corporation ("National").
Pursuant to the Merger Agreement, upon the closing of the Merger (the "Effective
Date"),  each share of the Company's common stock outstanding  immediately prior
to the closing of the Merger  (other than shares held by National or the Company
or any of the Company's  stockholders who properly exercise  dissenters'  rights
under  Delaware law) will  automatically  be converted into the right to receive
0.14 shares of National common stock, plus any cash in lieu of fractional shares
of National common stock.

     Each option to purchase  shares of the Company's  common stock  outstanding
upon the Effective  Date will be converted into options to acquire the number of
shares of National  common stock  determined  by  multiplying  (i) the number of
shares of the Company's common stock  underlying each  outstanding  stock option
immediately  prior to the effective  time of the Merger by (ii) 0.14, at a price
per share of National  common stock equal to (i) the exercise price per share of
each stock option otherwise  purchasable pursuant to the stock option divided by
(ii) 0.14.  Each  warrant  to  purchase  shares of the  Company's  common  stock
outstanding  on the Effective Date will be exercisable to purchase the number of
shares of National  common stock  determined  by  multiplying  (i) the number of
shares of the Company's common stock underlying each outstanding warrant by (ii)
0.14,  at a price per share of National  common stock equal to (i) the aggregate
exercise  price of such  outstanding  warrant to purchase the  Company's  common
stock  divided by (ii) the number of shares of National  common  stock for which
such warrant is exercisable, as determined above.

     Completion  of the  Merger is  subject  to  various  customary  conditions,
including,  among others, (i) requisite approvals of the Company's stockholders,
(ii)  completion  by  National  of a  private  placement  of  equity  securities
resulting in gross proceeds of at least $3 million,  (iii)  effectiveness of the
registration  statement for the National  securities to be issued in the Merger,
(iv) absence of any suit, proceeding or investigation  challenging or seeking to
restrain  or  prohibit  the  Merger,  and (v)  FINRA  and any  other  applicable
regulatory approvals. No assurance can be given that the Company will consummate
a merger with National.

                                      -60-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


3.       PROPERTY AND EQUIPMENT

     At December 31, 2007 and 2006, property and equipment, net, consisted of
the following:

                                               2007          2006
                                          ------------- -------------

Furniture and fixtures                      $     90.8    $     90.8
Equipment                                        791.4         727.5
Capital leases - computer equipment            1,193.7         704.5
Leasehold improvements                           174.8         174.8
Software                                         257.8         214.8
                                          ------------- -------------

                                               2,508.5       1,912.4
Less: accumulated depreciation                (1,707.7)     (1,251.4)
                                          ------------- -------------

Property and equipment, net                 $    800.8    $    661.0
                                          ============= =============

     The  Company  recorded  depreciation  expense  of $456.3  thousand,  $386.3
thousand and $299.6  thousand in the years ended  December  31,  2007,  2006 and
2005, 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. 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  of the  acquired  customer
relationships  are included in the  Company's  results of  operations  since the
acquisition in May 2006.

                                      -61-


<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     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 (Restated)     Sterling           Adjustments        Pro Forma
                                                  ------------------- -----------------  -----------------  ---------------

<S>                                                     <C>                <C>                  <C>             <C>
Total revenue                                           $ 38,552.7         $ 3,759.4            $     -         $ 42,312.1
Income (loss) from operations                             (2,300.6)             48.0             (340.6)          (2,593.2)
Net income (loss)                                         (2,175.7)             48.0             (340.6)          (2,468.3)
                                                  -----------------                    -----------------  -----------------

Loss per share - basic and diluted                      $    (0.04)                             $ (0.07)         $   (0.05)
                                                  =================                    =================  =================

Wt. avg. shares outstanding - basic and diluted           48,714.8                              4,642.9           53,357.7
                                                  =================                    =================  =================

                                                                                   2005
                                                  -------------------------------------------------------------------------
                                                  vFinance (Restated)      Sterling         Adjustments         Pro Forma
                                                  ------------------- -----------------  -----------------  ---------------

Total revenue                                           $ 25,928.8         $ 9,954.5            $     -         $ 35,883.3
Income (loss) from operations                             (1,304.1)            447.6             (681.2)          (1,537.7)
Net income (loss)                                         (1,141.5)            447.6             (681.2)          (1,375.1)
                                                  -----------------                    -----------------  -----------------

Loss per share - basic and diluted                         $ (0.03)                             $ (0.05)        $    (0.03)
                                                  =================                    =================  =================

Wt. avg. shares outstanding - basic and diluted           40,049.7                             13,000.0           53,049.7
                                                  =================                    =================  =================
</TABLE>


5.       CUSTOMER RELATIONSHIPS

     At December 31, 2007 and 2006, customer  relationships totaled $3.3 million
and $4.1 million,  net of  accumulated  amortization  of $1.6 million and $737.4
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 $827.9  thousand,  $572.4 thousand and $146.7
thousand in the years ended December 31, 2007, 2006 and 2005, respectively.

     The  approximate  future  amortization  expense  related to these  customer
relationships is as follows (in thousands):


                        2008            $828.0
                        2009            $828.0
                        2010            $828.0
                        2011            $402.0
                        2012            $147.0
                        Thereafter      $254.6


                                      -62-
<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

6.       NET CAPITAL REQUIREMENT

     Both  vFinance  Investments  and  EquityStation  are  subject  to the SEC's
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, 2007, vFinance Investments had net capital of $1.48 million,  which
was $481.7  thousand  in excess of its  required  net  capital of $1.0  million.
EquityStation  had net capital of $543.4  thousand  that was $443.4  thousand in
excess of its required net capital of $100.0 thousand.

     vFinance Investments'  percentage of aggregate  indebtedness to net capital
was 289.6% in 2007.  EquityStation's percentage of aggregate indebtedness to net
capital was 35.8% in 2007. 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 May 12, 2006, the Company and 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
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 the Effective Date of the Merger,  Mr. Sokolow's  present  employment as
the Company's  Chairman and Chief Executive  Officer and his present  employment
agreement  with the  Company  dated  November  16,  2004,  as  amended,  will be
terminated.  Accordingly,  pursuant  to  the  terms  of  Mr.  Sokolow's  present
employment  agreement with the Company dated November 16, 2004, as amended,  Mr.
Sokolow  will be entitled  to a lump sum cash  payment of  $1,150,000  as of the
Effective Date. On the Effective Date, the Company will enter into an employment
termination  agreement with Mr. Sokolow.  See Note 2 for additional  information
about the Merger.

                                      -63-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     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,  as defined in the  Resignation  Agreement,
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.
The closing of the Merger with  National  will not result in a Change in Control
for purposes of the Resignation Agreement.

     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.

     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, 2007 and 2006, there was no Preferred Stock outstanding.

                                      -64-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             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 settlements. A summary of the warrant activity for the years ended
December 31, 2007, 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>
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
                                                                                ============
Issued                                   3,206.8     $ 0.12     0.11 - 0.35
Exercised                                      -
Expired                                 (3,299.7)    $ 0.11            0.11
                                  ---------------

Outstanding at December 31, 2007         3,866.8     $ 0.18     0.11 - 2.15         3,856.8
                                  ===============                               ============
</TABLE>

     The following table summarizes  information concerning warrants outstanding
at December 31, 2007:


                                     Weighted
                                      Average           Weighted
   Exercise         Number           Remaining          Average
    Prices       Outstanding        Contractual         Exercise
                                       Life              Price
--------------------------------------------------------------------

     $  0.11           2,606.8         1.84
     $  0.15             750.0         0.12
     $  0.30             100.0         2.14
     $ 0.625             400.0         3.63
     $ 2.250              10.0         0.84
                ---------------

                       3,866.8         1.71              $0.18
                ===============                      ===============


                                      -65-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     There were 3.2 million and 3.3  million  warrants  issued in 2007 and 2006,
respectively.  There  were no  warrants  issued in 2005.  The  weighted  average
issue-date  fair value of warrants  issued  equaled  $0.12 and $0.13 in 2007 and
2006,  respectively.  As of December 31, 2007, the aggregate  intrinsic value of
the Company's outstanding and exercisable warrants was $238.5 thousand.

9.       STOCK OPTIONS

     During  2007 and 2006,  the Company  recorded  $474.9  thousand  and $448.2
thousand,  respectively,  of  compensation  expense  (included as  Compensation,
commission  and benefits  costs in the  Consolidated  Statements 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:

                                          2007                      2006
                                          ----                      ----

     Risk-free interest rate          3.75% - 4.75%             4.25% - 5.25%

     Expected dividend yield                -                         -

     Expected term                      Five years               Five years

     Expected volatility              63.3% - 85.3%             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  granted 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 2007:
<TABLE>
<CAPTION>
                                                                                  Weighted
                                                                                  Average
                                                                   Weighted       Remaining
                                                                   Average       Contractual     Aggregate
                                                                   Exercise         Terms        Intrinsic
                                               Shares               Price          (Years)         Value
                                             ---------------  ---------------- --------------- ---------------

<S>                                             <C>              <C>               <C>           <C>
Options outstanding at beginning of year        15,578.7         $   0.20
Granted                                          5,335.0         $   0.20
Exercised                                              -         $      -
Forfeited and expired                           (4,133.8)        $   0.21
                                             ---------------
Options outstanding at end of year              16,779.9         $   0.19           3.32           $ 181.70
                                             ===============
Options exercisable at end of year               7,635.3         $   0.19           2.84           $ 113.70
Options available for future grants                    -
</TABLE>


                                      -66-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     The weighted-average  grant-date fair value of stock options granted during
2007,  2006 and  2005 was  $0.20,  $0.14  and  $0.13,  respectively.  The  total
intrinsic  value of stock  options  exercised  during 2005 was $113.5  thousand.
There were no stock options exercised in 2007 or 2006.

     A summary of non-vested stock option transactions is as follows for 2007:

                                          Shares        Weighted Average
                                                         Grant Date Fair
                                                        Value (per share)
                                      --------------  -----------------------
Nonvested at beginning of period           11,026.2           $ 0.20
Granted                                     5,335.0           $ 0.20
Vested                                     (3,062.8)          $ 0.20
Forfeited and expired                      (4,133.8)          $ 0.21
                                      --------------
Nonvested at end of period                  9,164.6           $ 0.20
                                      ==============

     As of December  31,  2007,  there was $1.14  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 2007 was $715.0 thousand.

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:
<TABLE>
<CAPTION>

                                                             Year Ended December 31,
                                                     --------------------------------------
                                                          2007         2006         2005
                                                     ------------ ------------ ------------

<S>                                                     <C>          <C>          <C>
Weighted average shares outstanding - basic             54,805.2     48,714.8     40,049.7
Effect of dilutive stock options and warrants                  -            -            -
                                                     ------------ ------------ ------------
Weighted average shares outstanding - diluted           54,805.2     48,714.8     40,049.7
                                                     ============ ============ ============
</TABLE>


     As of December  31,  2007,  2006 and 2005 the Company had 20.6  million and
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 2007,
2006 and 2005.

                                      -67-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


11.      DEBT AND CAPITAL LEASE OBLIGATIONS

     Capital lease obligations at December 31, 2007 consisted of the following:

        Obligations under capital lease         544.5
               Less: current maturities        (247.0)
                                             ----------
                                              $ 297.5
                                             ==========

     Future minimum lease payments for equipment under capital leases at
December 31, 2007 are as follows:

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

                                             2008      $ 277.8
                                             2009        210.2
                                             2010        110.6
                                             2011            -
                                             2012            -
                                       Thereafter            -
                                                   ------------

                     Total minimum lease payments        598.6
              Less: amounts representing interest        (54.1)
                                                   ------------

      Present value of net minimum lease payments        544.5
                            Less: current portion       (247.0)
                                                   ------------

                                                       $ 297.5
                                                   ============

12.      INCOME TAXES

     The  components of the Company's tax provision for the years ended December
31, 2007, 2006 and 2005 were as follows:

                                   2007         2006         2005
                                ------------ ------------ ------------

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

                                   $    -       $    -       $    -
                                ============ ============ ============

                                      -68-


<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     The reconciliation of the income tax computed at the U.S. Federal statutory
rate to income tax expense for the period  ended  December  31,  2007,  2006 and
2005:

                                               2007        2006        2005
                                           ----------- ----------- -----------

Tax benefit at statutory rate of 35%         $ (611.1)   $ (761.5)   $ (399.5)
State income taxes, net of Federal benefit      (56.7)      (70.7)      (37.1)
Nondeductible expenses                          258.1        75.4       609.9
Change in valuation allowance                   409.7       756.8      (173.3)
                                           ----------- ----------- -----------

Net income tax expense (benefit)             $      -    $      -    $      -
                                           =========== =========== ===========

     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:

                                                         2007          2006
                                                   ------------- -------------

 Deferred tax assets:
   Net operating loss carry-forwards                  $ 4,881.9     $ 4,823.2
   Deferred rent                                           58.6          66.0
   Allowance for doubtful accounts                         22.9             -
   Stock options                                          171.4         171.0
   Impairment of investment in JSM                         30.6          30.0
   Accrued bonuses                                        164.7         117.0
   Depreciation and amortization                          319.9          49.0
   Deferred revenue                                        19.1          34.0
   Reserve for settlements                                 72.7          37.0
                                                   ------------- -------------

                                                        5,741.8       5,327.2
 Valuation allowance                                   (5,741.8)     (5,327.2)
                                                   ------------- -------------

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

     Net operating loss  carry-forwards  totaled  approximately $12.8 million at
December 31, 2007.  The net  operating  loss  carry-forwards  can be utilized or
expire if not utilized through the tax year ending in 2027. After  consideration
of all the evidence, both positive and negative,  management has recorded a full
valuation  allowance at December 31, 2007 and 2006,  due to the  uncertainty  of
realizing the deferred tax assets. The valuation  allowance  incresead by $414.6
during the year ended December 31, 2007.

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

                                      -69-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     In July  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes - an  interpretation of FASB Statement No. 109 ("FIN
48").  This  Interpretation  prescribes a consistent  recognition  threshold and
measurement standard, as well as a clear criteria for subsequently  recognizing,
derecognizing and measuring tax positions for financial statement purposes.  The
Interpretation  also requires expanded  disclosure with respect to uncertainties
as they relate to income tax  accounting.  FIN 48 is effective  for fiscal years
beginning  after  December 15, 2006.  Management  has  evaluated  all of its tax
positions  and  determined  that FIN 48 did not have a  material  impact  on the
Company's  financial  position  or results of  operations  during its year ended
December 31, 2007.

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.

     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, 2007,  the  contingent  obligation of the Company  associated
with this Clearing Agreement was $680.0 thousand.

     In May 2007,  EquityStation received notification from Merrill Lynch Pierce
Fenner & Smith, Broadcort Division ("Merrill") that effective September 22, 2007
it  intended  to  terminate  its  clearing  agreement  with  EquityStation,   in
accordance with the clearing  agreement.  On September 4, 2007, Merrill extended
the termination date to October 23, 2007 and granted an additional  extension on
October 8, 2007 until November 30, 2007.  This  termination  did not result in a
material  impact  to its  Consolidated  Financial  Statements,  as it  signed  a
clearing agreement with Penson Financial  Services,  Inc. ("Penson Clearing") on
September 7, 2007,  and also  executed a Tri-party  Clearing  Agreement  through
vFinance  Investments to clear some of its business through  National  Financial
Services.  Clearing has commenced with Penson Clearing and through the Tri-party
agreement.

                                      -70-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


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

                             2008      $ 1,358.5
                             2009          728.2
                             2010          620.1
                             2011          635.1
                             2012          660.0
                       Thereafter          626.6
                                   --------------

                            Total        4,628.5
           Less: sublease rentals         (486.4)
                                   --------------

                                       $ 4,142.1
                                   ==============



     Total rent expense under operating leases,  including space rental, totaled
$1.4 million,  $1.0 million and $726.3 thousand for the years ended December 31,
2007, 2006 and 2005, respectively.

     In February 2008, we received notification from the sublessee that occupies
14,000 square feet of office space the Company assumed in the Sterling Financial
Acquisition that it was insolvent and would be unable to perform its obligations
under the sublease. See Note 17.

     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   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,  2007,  the  Company has accrued  approximately
$110.0 thousand for these matters.  The Company has recently  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.

                                      -71-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     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 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.

     On or about February 28, 2005,  Knight Equity Markets,  LP ("Knight") filed
an arbitration  action (FINRA Case No. 05-01069)  against vFinance  Investments,
claiming that vFinance  Investments  received  roughly $6.5 million in dividends
that allegedly belong to Knight. vFinance Investments asserts 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.  In
January 2008, the Company settled this claim for $325.0 thousand in cash.

     On or about  September  27, 2005,  John S.  Matthews  filed an  arbitration
action (FINRA Case No. 05-014991) against the Company, claiming that the Company
wrongfully  terminated  his  independent  contract with the Company and that the
Company  "stole" his  clients and  brokers.  Mr.  Matthews  obtained a temporary
restraining  order and an agreed upon  injunction was issued by the FINRA panel.
Mr.  Matthews and JMS Capital  Holding  Corp.,  a plaintiff  in the  arbitration
action also requested  unspecified  damages resulting from the Company's alleged
improper  activity.  The  Company and Mr.  Matthews  entered  into a  settlement
agreement in July 2007 with respect to this arbitration action.  Pursuant to the
terms of the  settlement  agreement,  the  Company  paid $75.0  thousand  to Mr.
Matthews  in 2007 and is further  obligated  to make  payments  to Mr.  Matthews
totaling  $225.0  thousand.  In  connection  with this  settlement,  the Company
recorded  $250.0  thousand of  arbitration  settlement  expense (a  component of
general and administrative costs) during the year ended December 31, 2007.

                                      -72-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     In November  2007,  Nupetco  Associates,  LLC filed a customer  arbitration
action (FINRA Case No.  07-03152)  with FINRA naming  vFinance  Investments as a
co-respondent.  The statement of claim  alleges  violations of various state and
federal  securities laws. The statement of claim seeks  compensatory  damages of
approximately $510.0 thousand against vFinance Investments in addition to costs,
attorneys' fees and punitive damages.  vFinance  Investments has filed an answer
and  affirmative  defenses  and has  requested  discovery  from the  arbitration
claimant. vFinance Investments intends to vigorously defend the arbitration.

     On March 4, 2008 the Company received a customer  arbitration action (FINRA
Case No.08-00472) from Claimants,  Donald and Patricia  Halfmann.  Under FINRA's
Code of  Arbitration  Procedure,  vFinance is not  required to file a responsive
pleading until April 18, 2008.  The  Halfmanns'  Statement of Claim alleges that
Jeff Lafferty, a former broker working for vFinance Investments, opened accounts
for the Halfmanns and misappropriated  approximately  $110,000 of the Halfmanns'
funds via check  alteration and forgery while he was employed by vFinance as the
Halfmanns'  financial advisor. The Halfmanns also contend vFinance is liable for
an additional  $150,000 for investments made by the Halfmanns directly with Jeff
Lafferty after their account  transferred  out of vFinance and after  Lafferty's
resignation from vFinance, with a form U-5 filed with NASD by vFinance on August
27, 2004. Finally,  the Halfmanns' Statement of Claim requests punitive damages,
costs and attorney's  fees incurred for this action.  While vFinance  intends to
vigorously  defend against the allegations  made in the Halfmanns'  Statement of
Claim, a prediction of the likely outcome cannot be made at this time.

     The Company  engaged in a number of other legal  proceedings  incidental to
the conduct of its business. These claims aggregate a range of $80.0 thousand to
$150.0 thousand.

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, 2007, 2006 and 2005, respectively.

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>

                                                                    2007          2006           2005
                                                               ------------   ------------  -------------
 Supplemental cash flow disclosures:
<S>                                                                 <C>         <C>           <C>
 Cash paid for interest during the year                             $ 80.6      $    59.7     $     30.7
                                                               ============   ============  =============
 Cash paid for income taxes during the year                         $    -      $       -     $        -
                                                               ============   ============  =============
 Non-cash items affecting investing and financing activities:
 Acquisition of computer equipment under capital leases            $ 489.2      $   132.0      $   368.0
                                                               ============   ============  =============
 Common stock issued for acquisition                               $     -      $ 3,406.0      $       -
                                                               ============   ============  =============
</TABLE>

                                      -73-
<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


15.      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,  2007,  the Company had $4.4 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, 2007.

     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.

16.      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 2007 and 2006.
<TABLE>
<CAPTION>

                                                                                                                  Three Months
                                                    Three Months        Three Months      Three Months Ended     Ended December
                                                    Ended March 31,     Ended June 30,    September 30, 2007        31, 2007
                                                    2007 (Unaudited)    2007 (Unaudited)      (Unaudited)         (Unaudited)
                                                    ----------------------------------------------------------------------------

<S>                                                      <C>                 <C>                  <C>             <C>
Revenues, as reported                                    $ 12,019.2          $ 13,196.4           $ 11,010.3
Effect of restatement                                          21.0              (114.9)               (24.3)
                                                    ----------------  ------------------   ------------------
Revenues - restated                                      $ 12,040.2          $ 13,081.5           $ 10,986.0         $ 14,491.0
                                                    ================  ==================   ==================   ================
Income (loss) from operations, as reported                   $ 36.7            $ (128.7)            $ (700.5)
Effect of restatement                                          21.0              (114.9)               (24.3)
                                                    ----------------  ------------------   ------------------
Income (loss) from operations - restated                     $ 57.7            $ (243.6)            $ (724.8)          $ (959.0)
                                                    ================  ==================   ==================   ================
Net income (loss), as reported                               $ 37.8            $ (129.9)            $ (641.3)
Effect of restatement                                          21.0              (114.9)               (24.3)
                                                    ----------------  ------------------   ------------------
Net income (loss) - restated                                 $ 58.8            $ (244.8)            $ (665.6)          $ (894.4)
                                                    ================  ==================   ==================   ================
Net income (loss) per share - basic, as reported             $ 0.00             $ (0.00)             $ (0.01)           $ (0.02)
Effect of restatement                                             -                   -                    -                  -
                                                    ----------------  ------------------   ------------------   ----------------
Net income (loss) per share - basic - restated               $ 0.00             $ (0.00)             $ (0.01)           $ (0.02)
                                                    ================  ==================   ==================   ================
Weighted avg. shares outstanding - basic                   54,729.9            54,829.9             54,829.9           54,829.9
                                                    ================  ==================   ==================   ================
Net income (loss) per share - diluted, as reported           $ 0.00             $ (0.00)             $ (0.01)           $ (0.02)
Effect of restatement                                             -                   -                    -                  -
                                                    ----------------  ------------------   ------------------   ----------------
Net income (loss) per share - diluted - restated                $ -                 $ -              $ (0.01)           $ (0.02)
                                                    ================  ==================   ==================   ================
Weighted avg. shares outstanding - diluted                 56,125.1            54,829.9             54,829.9           54,829.9
                                                    ================  ==================   ==================   ================
</TABLE>

                                      -74-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>
<CAPTION>

                                                                                                                Three Months
                                                       Three Months       Three Months      Three Months Ended Ended December
                                                       Ended March 31,    Ended June 30,    September 30, 2006    31, 2006
                                                       2006 (Unaudited)   2006 (Unaudited)     (Unaudited)     (Unaudited)(3)
                                                       ---------------------------------------------------------------------
<S>                                                          <C>              <C>               <C>              <C>
Revenues, as reported (1)                                    $ 9,007.6        $ 9,654.5         $ 9,529.4        $ 10,403.4
Effect of restatement                                            (83.1)           (98.1)            (40.5)            179.5
                                                       ----------------  ---------------   ---------------  ----------------
Revenues - restated                                          $ 8,924.5        $ 9,556.4         $ 9,488.9        $ 10,582.9
                                                       ================  ===============   ===============  ================
Income (loss) from operations, as reported (1)                 $ 388.4         $ (361.5)         $ (433.8)       $ (1,851.5)
Effect of restatement                                            (83.1)           (98.1)            (40.5)            179.5
                                                       ----------------  ---------------   ---------------  ----------------
Income (loss) from operations - restated                       $ 305.3         $ (459.6)         $ (474.3)       $ (1,672.0)
                                                       ================  ===============   ===============  ================
Net income (loss), as reported (1)                             $ 411.6         $ (342.8)         $ (385.7)       $ (1,816.6)
Effect of restatement                                            (83.1)           (98.1)            (40.6)            179.6
                                                       ----------------  ---------------   ---------------  ----------------
Income (loss) from operations - restated                       $ 328.5         $ (440.9)         $ (426.3)       $ (1,637.0)
                                                       ================  ===============   ===============  ================
Net income (loss) per share - basic, as reported (1)            $ 0.01          $ (0.01)          $ (0.01)          $ (0.03)
Effect of restatement                                                -                -                 -                 -
                                                       ----------------  ---------------   ---------------  ----------------
Net income (loss) per share - basic - restated                  $ 0.01          $ (0.01)          $ (0.01)          $ (0.03)
                                                       ================  ===============   ===============  ================
Weighted avg. shares outstanding - basic                      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)          $ (0.03)
Effect of restatement                                                -                -                 -                 -
                                                       ----------------  ---------------   ---------------  ----------------
Net income (loss) per share - diluted - restated                $ 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 Note 18 to
the Company's  Consolidated  Financial Statements in the Company's Annual Report
on Form 10-K for the year ended December 31, 2006.

     (2)  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.

     (3) 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  paid in 2007 and a decrease in success fee  revenues  derived from
investment banking services compared to prior quarters.

                                      -75-

<PAGE>

                         VFINANCE, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


17.      SUBSEQUENT EVENTS

     In February 2008, we received notification from the sublessee that occupies
14,000 square feet of office space the Company assumed in the Sterling Financial
Acquisition that it was insolvent and would be unable to perform its obligations
under the sublease. As of March 5, 2008, this sublessee vacated the premises and
the Company  began to market the property to identify a  replacement  sublessee.
The Company does not expect the identification of a replacement sublessee or the
terms upon which the property  may be subleased to result in a material  adverse
effect to the Company's financial position or results of operations.

     On March 4, 2008 the Company received a customer  arbitration action (FINRA
Case No.08-00472) from Claimants,  Donald and Patricia  Halfmann.  Under FINRA's
Code of  Arbitration  Procedure,  vFinance is not  required to file a responsive
pleading until April 18, 2008.  The  Halfmanns'  Statement of Claim alleges that
Jeff Lafferty, a former broker working for vFinance Investments, opened accounts
for the Halfmanns and misappropriated  approximately  $110,000 of the Halfmanns'
funds via check  alteration and forgery while he was employed by vFinance as the
Halfmanns'  financial advisor. The Halfmanns also contend vFinance is liable for
an additional  $150,000 for investments made by the Halfmanns directly with Jeff
Lafferty after their account  transferred  out of vFinance and after  Lafferty's
resignation from vFinance, with a form U-5 filed with NASD by vFinance on August
27, 2004. Finally,  the Halfmanns' Statement of Claim requests punitive damages,
costs and attorney's  fees incurred for this action.  While vFinance  intends to
vigorously  defend against the allegations  made in the Halfmanns'  Statement of
Claim, a prediction of the likely outcome cannot be made at this time.



                                      -76-

<PAGE>

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

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer  and Chief  Financial  Officer,  we  conducted  an
evaluation of the  effectiveness  of the design and operation of our  disclosure
controls and  procedures,  as defined in Rules 13a-15(e) under the Exchange Act,
as of the  end of the  period  covered  by this  Annual  Report.  Based  on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded as
of December 31, 2007 that our disclosure  controls and procedures were effective
such that the information  relating to the Company,  including our  consolidated
subsidiaries,  required to be  disclosed  in our SEC  reports  (i) is  recorded,
processed,  summarized  and reported  within the time  periods  specified in SEC
rules and forms and (ii) is  accumulated  and  communicated  to our  management,
including  our  Chief  Executive  Officer  and  Chief  Financial   Officer,   as
appropriate, to allow timely decisions regarding required disclosure.

Our  management,  including  our Chief  Executive  Officer  and Chief  Financial
Officer,  does not expect that our  disclosure  controls and  procedures  or our
internal  controls will prevent all error and all fraud.  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. Due to the inherent  limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within vFinance, Inc. have been detected.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control  over  financial  reporting  (as  defined  in Rule  13a-15(f)  under the
Exchange Act). Our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2007. In making this assessment, our
management   used  the  criteria  set  forth  by  the  Committee  of  Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated
Framework.  Our  management  has concluded  that,  as of December 31, 2007,  our
internal control over financial reporting is effective based on these criteria.

This report  does not include an  attestation  report of our  registered  public
accounting   firm  regarding   internal   control  over   financial   reporting.
Management's  report was not subject to  attestation  by our  registered  public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this report.

                                      -77-

<PAGE>

Our management,  including the certifying officers, assessed, as of December 31,
2007, the  effectiveness  of our internal control over financial  reporting.  In
making this assessment,  management used the criteria set forth in the framework
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

As of December 31, 2007, our management,  including the certifying officers, has
concluded  that  we  maintained   effective   internal  control  over  financial
reporting.

This report  does not include an  attestation  report of our  registered  public
accounting   firm  regarding   internal   control  over   financial   reporting.
Management's  report was not subject to  attestation  by our  registered  public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this report.

ITEM 9B. OTHER INFORMATION.

Not Applicable.







                                      -78-

<PAGE>

                                    PART III

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

The  following  table sets forth the names,  ages and positions of our executive
officers and  directors as of March 10, 2008.  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            51          Chairman and Chief Executive Officer
Charles R. Modica             60          Director
Jorge A. Ortega               44          Director
Alan B. Levin                 44          Chief Financial Officer
Richard Campanella            56          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.

     Jorge A.  Ortega has been one of our  directors  since  June 6,  2007.  Mr.
Ortega  has  served as  President  of The  Jeffrey  Group,  Inc.,  a  marketing,
communications  and public  relations  consulting firm since February 2005. From
October  1991  to  January   2005,   Mr.   Ortega  was   Managing   Director  of
Burson-Marsteller,  LLC, a global public  relations and public affairs firm. Mr.
Ortega  received his B.A.  degree in Business  Administration  from The American
University in 1985.

                                      -79-

<PAGE>

     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  and Chief  Financial  Officer  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.

     Richard  Campanella  has been our Secretary  since  December 18, 2001.  Mr.
Campanella  currently  serves as the  President and Chief  Operating  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.  As of March 10, 2008,  Mr. Mahoney
owned  approximately 5.4 million shares of our common stock, and held options to
purchase  1.5  million  shares of our  common  stock.  Mr.  Charles  Modica  was
designated as Mr.  Mahoney's board  appointee in connection  with Mr.  Mahoney's
departure.

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.

                                      -80-

<PAGE>

     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, 2007,  our officers,  directors and  significant
stockholders  have timely filed the appropriate  form under Section 16(a) of the
Exchange  Act.,  except a Form 4 for Richard  Campanella  (one  filing) that was
subsequently  filed  and a Form 3 (one  filing)  and a Form 4 (one  filing)  for
Dennis De Marchena that have not been filed.

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  "Executive   Compensation."  Specific  information  regarding  the
compensation  earned by or paid to our Named  Executive  Officers in 2007 is set
forth in a series of tables  under the  heading  "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.

                                      -81-

<PAGE>

     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.

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.

2007 Executive Compensation Components

     For the fiscal year ended  December 31, 2007,  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.


                                      -82-

<PAGE>

     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.

     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 Chairman and Chief Executive Officer and our 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 Chairman
and Chief Executive  Officer and Chief Financial Officer are paid in cash. These
bonus provisions are intended, in accord with our compensation  philosophies and
objectives, to align executive interests with stockholder interests.

                                      -83-

<PAGE>

     Incentive  Bonus.  Our  employment  agreement  with our  Chairman and Chief
Executive Officer provides 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"

     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 Chairman and Chief Executive Officer are
paid as frequently as quarterly in cash, as directed by the Board of Directors.

     Our employment  agreement with the President and Chief Operating Officer of
vFinance Investments provides for the payment of annual incentive bonuses.

     Our employment  agreement with the President and Chief Operating Officer of
vFinance  Investments  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 Chief Financial Officer and the President
and Chief Operating  Officer of vFinance  Investments  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.

     Benefits

     Our Chairman and Chief Executive  Officer and our 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.

                                      -84-

<PAGE>

Termination-Based Compensation

     Termination

     Our  employment  agreements  with  our  Chief  Financial  Officer  and  the
President and Chief Operating Officer of vFinance  Investments are terminable at
will.  Accordingly,  we will not incur any  obligations  upon the termination of
those Named Executive Officers.

     Our employment  agreement with our 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 Chairman and Chief Executive  Officer
or our termination of our employment agreement with such Named Executive Officer
other than "For  Cause," such  employment  agreement  provides  that we would be
required to pay this Named Executive Officer a lump sum payment equal to the sum
of (a) twice the sum of his 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.

     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 Chairman and Chief
Executive Officer, Chief Financial Officer and the President and Chief Operating
Officer  of  vFinance  Investments  pursuant  to  their  respective   employment
agreements will become immediately vested.

                                      -85-

<PAGE>

     Upon a Change in Control,  we have agreed to pay to our  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 Chairman and Chief Executive Officer will become
immediately and fully vested.

     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-K.

                                                 Board of Directors

                                                 Leonard J. Sokolow
                                                 Charles R. Modica
                                                 Jorge A. Ortega

                                      -86-


<PAGE>

ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION


     Summary Compensation Table


     The following table provides  compensation  information for the years ended
December  31,  2006  and 2007  for  Named  Executive  Officers.  The  "Executive
Compensation  -  Compensation  Discussion  and Analysis"  section of this report
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 Comp.   Total
                                                               ($)          ($)(1)          ($)           ($)            ($)
                                                               (1)            (2)           (3)           (4)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>           <C>           <C>          <C>          <C>
Leonard J. Sokolow                                  2007        394,700       187,000              -          -         581,700
Chief Executive Officer                             2006        340,698       155,000        280,000      9,160         784,858
--------------------------------------------------------------------------------------------------------------------------------
Alan B. Levin (1)                                   2007        165,000        65,000              -          -         230,000
Chief Financial Officer                             2006        118,200        27,000        135,000          -         280,200
--------------------------------------------------------------------------------------------------------------------------------
Richard Campanella                                  2007        150,900       114,600              -          -         265,500
President and Chief  Operating Officer              2006        147,500         7,000              -          -         154,500
of vFinance Investments, Inc.
--------------------------------------------------------------------------------------------------------------------------------
</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 for 2006 herein  represents  actual  amounts paid for the
period from January 1, 2006 to December 31, 2006.

     (2) Bonus amounts have been determined pursuant to the bonus terms outlined
in our Named  Executive  Officers'  respective  employment  agreements.  Leonard
Sokolow  and Alan  Levin  receive  a bonus  based on the  Boards  review  of the
consolidated  quarterly  and annual EBITDA  performance,  as well as taking into
consideration  performance  in other areas such as but not  limited to,  revenue
growth  and  savings  in  operating  expenses.  These  bonus  amounts  typically
approximate  50% of the  officer's  base salary and are paid no more  frequently
than quarterly.  Richard Campanella's agreement calls for a payment equal to 10%
of Retail net profit  after all  overhead  and  expense  allocations  above $1.7
million.  This amount is  calculated  on a quarterly  basis and 50% of the bonus
payment is withheld from each quarter pending the annual audit and  verification
of the retail profits, after which time the balance is paid.

     (3) Options  amounts  have been  determined  pursuant  to the option  terms
outlined in our Named Executive Officers' respective employment agreements.

     (4) Represents health insurance contributions.

                                      -87-

<PAGE>

     Grants of Plan-Based Awards

     The Named Executive  Officers were not granted any plan-based awards during
fiscal year 2007.

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  10.7%  of  our  total
outstanding  common shares at December 31, 2007,  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
"Executive Compensation -Post-Termination / Change in Control Benefits," below.

     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.

     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.  Effective July 24, 2007, Mr. Levin's base salary was increased to
$180,000.  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.

                                      -88-

<PAGE>

     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  275,000  options  were vested as of July 1, 2007,  and 125,000
options shall vest each subsequent yearly anniversary  thereafter  provided that
Mr.  Campanella is employed on the  applicable  vesting date.  Mr.  Campanella's
employment with us is terminable at will.

Outstanding Equity Awards at Year-End

     The  following  table  shows all  outstanding  equity  awards held by Named
Executive Officers as of December 31, 2007.

                                           Option Awards
                       ---------------------------------------------------------
         Name             Number of         Number of
                          Securities        Securities
                          Underlying        Underlying
                          Unerxercied       Unexercised   Option     Option
                          Options (#),      Options (#),  Exercise   Expiration
                          Exercisable       Unxercisable  Price ($)  Date
-------------------------------------------------------------------------------
Leonard J. Sokolow        750,000            750,000       0.155    12/29/10
                          500,000          1,500,000       0.210    12/28/11
-------------------------------------------------------------------------------
                           80,000            120,000       0.180    06/13/10
Alan B. Levin              25,000             25,000       0.155    12/29/10
                          125,000            375,000       0.200    07/23/11
                          125,000            375,000       0.210    12/28/11
-------------------------------------------------------------------------------
Richard Campanella        300,000            300,000       0.170    06/30/10
-------------------------------------------------------------------------------

Option Exercises and Stock Vested

     None of our Named Executive  Officers  exercised  options or received stock
awards during the year ended December 31, 2007.

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.

                                      -89-

<PAGE>

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.

     Termination

     Our  employment  agreements  with  our  Chief  Financial  Officer  and  the
President and Chief Operating Officer of vFinance  Investments are terminable at
will.  Accordingly,  we will not incur any  obligations  upon the termination of
these Named Executive Officers.

     Our employment  agreement with our 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 Chairman and Chief Executive  Officer
or our termination of our employment agreement with such Named Executive Officer
other than "For  Cause," such  employment  agreement  provides  that we would be
required to pay this Named Executive Officer a lump sum payment equal to the sum
of (a) twice the sum of his 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.

     Assuming  our  Chairman  and  Chief  Executive  Officer's   employment  was
terminated  on  December  31,  2007  upon  his  death  or  "Disability"  or  our
termination  other than "For  Cause," we would be required to pay him a lump sum
of approximately $1.15 million.

                                      -90-

<PAGE>

     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 Chairman and Chief
Executive  Officer,  our Chief  Financial  Officer and the  President  and Chief
Operating  Officer  of  vFinance   Investments   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, 2007,  2,250,000 shares of common stock underlying  options held by
our  Chairman  and Chief  Executive  Officer,  855,000  shares  of common  stock
underlying  options held by our Chief  Financial  Officer and 300,000  shares of
common  stock  underlying  options  held by the  President  and Chief  Operating
Officer of vFinance  Investments  would have vested.  The value  received by our
Chairman  and Chief  Executive  Officer,  our Chief  Financial  Officer  and the
President and Chief Operating  Officer of vFinance  Investments  would have been
$1,675 and $6,000,  respectively,  calculated as the excess of the stock closing
value on December 31, 2007 over the total options outstanding for each executive
at the exercise price for their respective option grants.

     If consummated, the Merger with National would cause all options granted to
our Chairman and Chief Executive  Officer,  our Chief Financial  Officer and the
President  and  Chief  Operating  Officer  of  vFinance  Investments  to  become
immediately  vested.  Notwithstanding,  our Chairman and Chief Executive Officer
has agreed to waive such accelerated vesting.

     Upon a Change in Control,  we have agreed to pay to our  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 Chairman and Chief Executive Officer will become
immediately and fully vested.  Upon a Change in Control as of December 31, 2007,
we would have been  required to pay our  current  Chairman  and Chief  Executive
Officer a lump sum of approximately $1.15 million.

     The Merger with  National  will not be considered a Change in Control under
our  Chairman  and  Chief  Executive  Officer's  employment  agreement.  However
pursuant to the  Termination  Agreement that will be executed upon the Effective
Date of the Merger,  our Chairman and Chief Executive  Officer's  employment and
his  employment  agreement with us will terminate and he will receive a lump sum
cash payment of $1,150,000.

                             Director Compensation

     The following table sets forth a summary of the compensation  earned by our
non-employee  directors and/or paid to certain of our non-employee  directors in
2007.

                     Fees Earned or Paid      Option Awards       Total
           Name            Cash ($)                ($)              ($)
-------------------  --------------------   ----------------  ---------------

Charles R. Modica         7,000                  24,000           31,000
Jorge A. Ortega           7,000                  24,000           31,000


                                      -91-

<PAGE>

Director Compensation Policy

     Each director who is not an executive  officer is entitled to an annual fee
of $12,000,  payable  quarterly.  Directors who are  executive  officers are not
entitled to an annual fee.

     On June 6, 2007,  we granted  each Mr.  Ortega and Mr.  Modica a  five-year
stock option to purchase 200,000 shares of our common stock at an exercise price
of $0.20 per share,  the closing  price of our common stock on June 6, 2007,  in
connection with their agreement to join the Board.

     The stock  options  granted to Messrs.  Ortega and Modica vest 25% per year
over four years beginning on June 6, 2008. Upon the acquisition by an individual
or company of 50.1% or more our issued and  outstanding  shares of common stock,
all options granted to Messrs. Ortega and Modica will become immediately vested.

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

Compensation Committee Interlocks and Insider Participation

     Our Board of Directors performs the equivalent  functions of a compensation
committee.  The members of our Board of  Directors  during 2007 were  Leonard J.
Sokolow,  Charles  R.  Modica  and Jorge A.  Ortega.  Mr.  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.
Messrs.  Modica and Ortega  have been  members of our Board of  Directors  since
January  and July  2007,  respectively.  Except as  otherwise  set forth in this
Annual Report on Form 10-K, we did not engage in any  transactions  with Messrs.
Sokolow,  Modica or Ortega  since  January 1, 2007 in which the amount  involved
exceeded  $120,000.  None of our executive  officers serve as director of, or in
any compensation-related capacity for, companies with which members of our Board
of Directors are affiliated.




                                      -92-

<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 10, 2008.  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 54,829,876 shares of Common Stock outstanding.
<TABLE>
<CAPTION>

                           Name of Beneficial Owner               Number of Shares    Percent
                                                                    Beneficially      of class
                                                                       Owned
                                                                (in thousands) (1)
------------------------------------------------------------   -------------------- -----------

<S>                                                                     <C>          <C>
Leonard J. Sokolow (2)                                                  7,133.0      12.7%
Charles R. Modica                                                             -         *
Jorge A. Ortega                                                               -         *
Alan B. Levin (3)                                                         430.0         *
Richard Campanella (4)                                                    425.0         *
Timothy E. Mahoney (5)                                                  4,705.0       8.4%
Highlands Group Holdings, Inc. (6)                                      2,175.0       4.0%
Sterling Financial Group of Companies, Inc. (7)                         4,934.4       9.0%
Oxir Investment Ltd. (8)                                                3,000.0       5.5%
Dennis De Marchena (9)                                                  4,738.0       8.3%

All executive officers and directors as a group (5 persons)             7,988.0       14.1%

</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  within  60 days of March  10,  2008,  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 54,829,876 shares of common stock outstanding as of March 10, 2008.

(2) Includes 5,883,010 shares of common stock issued in the names of Mr. Sokolow
and his wife,  and  1,250,000  shares of common stock  issuable upon exercise of
options  at a  weighted-average  price of $0.177 per share,  which  options  are
exercisable within 60 days of March 10, 2008.

(3) Includes  75,000  shares of common stock issued in the name of Mr. Levin and
355,000  shares  of  common  stock  issuable  upon  exercise  of  options  at  a
weighted-average price of $0.196 per share, which options are exercisable within
60 days of March 10, 2008.

                                      -93-

<PAGE>

(4) Includes 125,000 shares of common stock issued in the name of Mr. Campanella
and 300,000  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 10,
2008.

(5)  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 10, 2008. Mr.  Mahoney's  address is 68 Cayman Place,  Palm Beach Gardens,
Florida 33418.

(6) 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.

(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. Mr. Garcia has advised
us that Sterling Financial Group of Companies,  Inc. beneficially owns 4,934,436
shares of common stock.

(8) 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  us  that  Oxir  Investments  Ltd.
beneficially owns 3,000,000 shares of common stock.

(9)  Includes  2,198,091  shares  of common  stock  issued in the name of Mr. De
Marchena and 2,539,897 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 10,  2008.  Mr. De  Marchena's  address is Avenida  Boulevard  El Cafetal,
Edificio Mara,  Apartmento 01, Planta Baja,  Frente a Quinta Leonor, El Cafetel,
Caracas, Venezuela 1060.

In connection with Sterling  Financial's  acquisition of our securities,  on May
11, 2006, we and vFinance Investments entered into a voting and lockup agreement
with  Sterling  Financial,  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 designee
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.  Mr.
Garcia's  designee is Jorge Ortega.  On January 17, 2006, we also entered into a
standstill agreement with Sterling Financial, Charles Garcia and Alexis Korybut,
to provide restrictions on certain actions for a defined period of time.

                                      -94-

<PAGE>

In  connection  with the  execution of the Merger  Agreement,  National and vFin
Acquisition  Corporation  have entered into a voting  agreement  with Leonard J.
Sokolow  and  Dennis  De  Marchena,   who  own  approximately  10.7%  and  9.9%,
respectively,  of our  outstanding  shares of common stock as of March 10, 2008.
Pursuant to the agreement,  Mr. Sokolow has agreed to vote all of his shares and
Mr. De  Marchena  has  agreed to vote  2,000,000  of his  shares in favor of the
merger and against any transaction or other action that would interfere with the
merger.

Pursuant  to the Merger  Agreement,  Mark  Goldwasser,  Chairman of the board of
directors  of  National,  Christopher  Dewey,  Vice  Chairman  of the  board  of
directors of National,  and Leonard J. Sokolow, our Chairman and Chief Executive
Officer,  will  enter  into an  agreement  on the  effective  date of the Merger
Agreement to vote their shares of National for the election of each other and up
to three  designees of Mr.  Goldwasser and up to three  designees of Mr. Sokolow
until  the  earlier  to  occur  of:  (i)  National's  merger,  consolidation  or
reorganization  whereby the holders of National's voting stock own less than 50%
of the voting power of National after such  transaction;  (ii) by mutual consent
of the parties  thereto;  (iii) the date that  Messrs.  Goldwasser,  Sokolow and
Dewey own in the  aggregate  less than one  percent  of the  outstanding  voting
securities of National; (iv) upon the fifth anniversary of the agreement; or (v)
upon listing of National's  common stock on AMEX,  the NASDAQ  Capital Market or
the NASDAQ Global Market.

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2007, with
respect to compensation plans (including individual  compensation  arrangements)
under  which our equity  securities  are  authorized  for  issuance  under:  all
compensation  plans  previously  approved  by  our  security  holders;  and  all
compensation plans not previously approved by our security holders.
<TABLE>
<CAPTION>

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

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

<S>                                                               <C>                           <C>            <C>
Equity compensation plans approved by security holders                        -                  $      -                     -
Equity compensation plans not approved by security holders (1)     20,648,800.00                 $   0.18                     -
                                                                -------------------------   ----------------   --------------------
Total                                                              20,648,800.00                 $   0.18                     -
                                                                =========================   ================   ====================
</TABLE>

(1) Includes options and warrants  granted  pursuant to individual  compensation
arrangements.

                                      -95-

<PAGE>


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

     We did not engage in any transactions with related parties since January 1,
2007 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
persons'  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 and Jorge A.
Ortega  are  "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.

ITEM 14.          PRINCIPAL ACCOUNTING FEES AND SERVICES.

     During  2007  and  2006,  the  Company  incurred  the  following  fees  for
professional services rendered by our principal accountant Sherb & Co., LLP:

                                2007             2006
                          ---------------  ---------------

Audit Fees                      $ 93,000         $ 92,000
Audit-related Fees              $      -         $      -
Tax Fees                        $ 12,500         $  7,500
All Other Fees                  $ 14,100         $ 13,700
                          ---------------  ---------------

Total                           $119,600         $113,200
                          ===============  ===============


     Audit Fees

     During the years ended December 31, 2007 and 2006, the aggregate fees
billed by Sherb & Co., LLP, our principal accountants in 2007 and 2006, 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-Q and fees
related to filings with the SEC and accounting consultations during those fiscal
years were $93,000 and $92,000, respectively.

     Audit Related Fees

     During the years ended December 31, 2007 and 2006, our principal
accountants, Sherb & Co., LLP, did not provide any assurance or other audit
related services.

                                      -96-

<PAGE>

     Tax Fees

     During  the  years  ended   December  31,  2007  and  2006,  our  principal
accountants,  Sherb & Co., LLP, billed us $12,500 and $7,500, respectively,  for
the preparation of federal income tax returns and other tax related matters.

     Other Fees

     During  the  years  ended   December  31,  2006  and  2005,  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.





                                      -97-

<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).

      2.6***      Agreement and Plan of Merger dated November 7, 2007 by and
                  among The Company, National Holdings Corporation and vFin
                  Acquisition Corporation (incorporated by reference to Exhibit
                  2.1 to the Company's Current Report on Form 8-K filed with the
                  SEC on November 8, 2007).

      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).

                                      -98-

<PAGE>

 Number of
 Exhibit                              Exhibit Description


      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).

      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         Certificate of Renewal and Revival of Charter as filed with
                  the Delaware Secretary of State on November 30, 2006.

      3.9         Amended and Restated  Certificate of  Incorporation  of the
                  Company as filed with the Delaware  Secretary of State on
                  November 30, 2006.

     3.10         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).

     3.11         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).

     3.12         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).

                                      -99-

<PAGE>

 Number of
 Exhibit                              Exhibit Description


      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).


     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).

                                     -100-

<PAGE>

 Number of
 Exhibit                              Exhibit Description


     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).


    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).


                                     -101-

<PAGE>

 Number of
 Exhibit                              Exhibit Description


    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).

    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).

                                     -102-

<PAGE>

Number of
Exhibit                               Exhibit Description



    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).

    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).

                                     -103-


<PAGE>

Number of
Exhibit                               Exhibit Description


    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).


    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).

                                     -104-

<PAGE>

Number of
Exhibit                               Exhibit Description


    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).

    10.55         Voting Agreement dated November 7, 2007 by and among National
                  Holdings Corporation, vFin Acquisition Corporation, Leonard J.
                  Sokolow and Dennis De Marchena (incorporated by reference to
                  Exhibit 99.1 to the Company's Current Report on Form 8-K filed
                  with the SEC on November 8, 2007).

    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.
***  Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
     Exhibit F to the Agreement and Plan of Merger is incorporated by reference
     to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the
     SEC on November 8, 2007. The Company hereby undertakes to furnish copies of
     any of the omitted schedules upon request by the Securities and Exchange
     Commission.

                                     -105-

<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: March 12, 2008

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.



<TABLE>
<CAPTION>


            Signature                                     Capacity                                 Date
-------------------------------     --------------------------------------------------    ----------------------

<S>                                     <C>                                              <C>
                                         Chairman of the Board and Chief
/s/  Leonard J. Sokolow                  Executive Officer
--------------------------------        (Principal Executive Officer)                      March 12, 2008
Leonard J. Sokolow


/s/ Alan B. Levin                       Chief Financial Officer and (Principal
--------------------------------        Financial Officer and Principal                    March 12, 2008
Alan B. Levin                           Accounting Officer)


/s/ Charles R. Modica                   Director                                           March 12, 2008
--------------------------------
Charles R. Modica

/s/ Jorge A. Ortega                     Director                                           March 12, 2008
--------------------------------
Jorge A. Ortega
</TABLE>

                                     -106-