**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-Q**




**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934.**





**For
      the quarterly period ended March 31, 2006**




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




**For
      the Transition Period from** **** **to** **** **.**




**Commission
      file number: 1-15831**










**MCF
      CORPORATION**


**(Exact
      Name of Registrant as Specified in its Charter)**




**Delaware**
            
            **11-2936371****(State
                or Other Jurisdiction of**
              **Incorporation
                or Organization)**
            
            **(I.R.S.
                Employer**
              **Identification
                No.)****600
                California Street, 9th Floor**
              **San
                Francisco, CA**
            
            **94108****(Address
                of Principal Executive Offices)**
            
            **(Zip
                Code)**




**(415)
      248-5600**


**(Registrant's
      Telephone Number, Including Area Code)**







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 o No x




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





Large
                accelerated filero
            
            Accelerated
                filerx
            
            Non-accelerated
                filero




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





The
      number of shares of Registrant's common stock outstanding as of May 8, 2006
      was
      73,764,711.













**Form
      10-Q**


**For
      the Three Months Ended March 31, 2006**


**Page**
                **No.**PART
                  I FINANCIAL INFORMATIONITEM
                  1. Financial Statements (unaudited)Condensed
                  Consolidated Statements of Operations For the Three Months Ended
                  March 31,
                  2006 and 2005
              
              2Condensed
                  Consolidated Statements of Financial Condition as of March 31,
                  2006 and
                  December 31, 2005
              
              3Condensed
                  Consolidated Statements of Cash Flows For the Three Months Ended
                  March 31,
                  2006 and 2005
              
              4Notes
                  to Condensed Consolidated Financial Statements
              
              5ITEM
                  2. Management's Discussion and Analysis of Financial Condition
                  and Results
                  of Operations
              
              15ITEM
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              
              25ITEM
                  4. Controls and Procedures
              
              25PART
                  II OTHER INFORMATIONITEM
                  1. Legal Proceedings
              
              26ITEM
                  1A. Risk Factors
              
              26ITEM
                  2. Recent Sales of Unregistered Securities
              
              32ITEM
                  6. Exhibits and Reports on Form 8-K
              
              33Signatures
              
              34Certifications





1





**PART
      I.  FINANCIAL INFORMATION**


**Item
      1.   Financial Statements (unaudited)**




**MCF
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(unaudited)**





**Three
                Months Ended March 31,****2006**
            
            **2005**Revenue:Commissions
            
            $
            8,698,128
            
            $
            6,021,963Principal
                transactions
            
            
            403,301
            
            
            (373,142
            )Investment
                banking
            
            
            2,425,780
            
            
            6,758,810Other
            
            
            243,992
            
            
            65,485Total
                revenue
            
            
            11,771,201
            
            
            12,473,116Operating
                expenses:Compensation
                and benefits
            
            
            9,929,945
            
            
            9,201,965Brokerage
                and clearing fees
            
            
            682,604
            
            
            521,718Professional
                services
            
            
            445,487
            
            
            271,426Occupancy
                and equipment
            
            
            402,013
            
            
            349,959Communications
                and technology
            
            
            610,088
            
            
            423,424Depreciation
                and amortization
            
            
            163,851
            
            
            105,749Travel
                and entertainment
            
            
            530,370
            
            
            307,884Other
            
            
            398,992
            
            
            415,232Total
                operating expenses
            
            
            13,163,350
            
            
            11,597,357Operating
                income (loss)
            
            
            (1,392,149
            )
            
            875,759Interest
                income
            
            
            111,661
            
            
            74,827Interest
                expense
            
            
            (69,120
            )
            
            (17,187
            )Income
                (loss) before income taxes
            
            
            (1,349,608
            )
            
            933,399Income
                tax expense
            
            
            0
            
            
            (284,974
            )Net
                income (loss)
            
            $
            (1,349,608
            )
            $
            648,425Earnings
                (loss) per share:Basic
            
            $
            (0.02
            )
            $
            0.01Diluted
            
            $
            (0.02
            )
            $
            0.01Weighted
                average common shares outstanding:Basic
            
            
            67,960,593
            
            
            65,508,467Diluted
            
            
            67,960,593
            
            
            85,485,222




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


2


**MCF
        CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**
 **(unaudited)**
  **March
                  31,**
                **2006**
              
              
              **December
                  31,**
                **2005**ASSETSCash
                  and cash equivalents
              
              $
              8,223,483
              
              $
              11,138,923Cash
                  restricted for fund investment (Note 1)
              
              
              8,602,547
              
              
              —Securities
                  owned:Marketable,
                  at fair value
              
              
              9,256,426
              
              
              8,627,543Not
                  readily marketable, at estimated fair value
              
              
              1,118,803
              
              
              1,065,743Restricted
                  cash
              
              
              630,364
              
              
              627,606Due
                  from clearing broker
              
              
              1,540,421
              
              
              973,138Accounts
                  receivable, net
              
              
              1,848,104
              
              
              2,073,195Equipment
                  and fixtures, net
              
              
              1,298,353
              
              
              1,378,235Intangible
                  assets
              
              
              442,235
              
              
              394,456Prepaid
                  expenses and other assets
              
              
              1,851,456
              
              
              1,415,574Total
                  assets
              
              $
              34,812,192
              
              $
              27,694,413LIABILITIES,
                  MINORITY INTEREST AND STOCKHOLDERS' EQUITYAccounts
                  payable
              
              $
              1,096,757
              
              $
              901,138Commissions
                  and bonus payable
              
              
              3,012,408
              
              
              4,735,892Accrued
                  liabilities
              
              
              1,682,682
              
              
              2,201,499Due
                  to clearing and other brokers
              
              
              133,245
              
              
              118,798Securities
                  sold, not yet purchased
              
              
              21,630
              
              
              41,579Capital
                  lease obligation
              
              
              794,886
              
              
              883,993Convertible
                  notes payable, net
              
              
              6,312,956
              
              
              176,741Notes
                  payable
              
              
              208,819
              
              
              231,772Total
                  liabilities
              
              
              13,263,383
              
              
              9,291,412Commitments
                  and contingenciesMinority
                  interest
              
              
              1,556,554
              
              
              —Stockholders'
                  equity:Preferred
                  stock, Series A—$0.0001 par value; 2,000,000 shares authorized; 0 shares
                  issued and outstanding as of March 31, 2006 and December 31, 2005,
                  respectively; aggregate liquidation preference of $0
              
              
              —
              
              
              —Preferred
                  stock, Series B—$0.0001 par value; 12,500,000 shares authorized; 8,750,000
                  shares issued and 0 shares outstanding as of March 31, 2006 and
                  December
                  31, 2005; aggregate liquidation preference of $0
              
              
              —
              
              
              —Preferred
                  stock, Series C—$0.0001 par value; 14,200,000 shares authorized;
                  11,800,000 shares issued and 0 shares outstanding as of March 31,
                  2006 and
                  December 31, 2005; aggregate liquidation preference of $0
              
              
              —
              
              
              —Common
                  stock, $0.0001 par value; 300,000,000 shares authorized; 73,619,711
                  and
                  71,467,118 shares issued and outstanding as of March 31, 2006 and
                  December
                  31, 2005, respectively
              
              
              7,362
              
              
              7,147Additional
                  paid-in capital
              
              
              111,516,975
              
              
              111,725,167Deferred
                  compensation
              
              
              —
              
              
              (3,146,839
              )Accumulated
                  deficit
              
              
              (91,532,082
              )
              
              (90,182,474
              )Total
                  stockholders' equity
              
              
              19,992,255
              
              
              18,403,001Total
                  liabilities, minority interest and stockholders' equity
              
              $
              34,812,192
              
              $
              27,694,413
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3
  **MCF
        CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(unaudited)**
 **Three
                    Months Ended March 31,****2006**
                
                **2005**Cash
                    flows from operating activities:Net
                    income (loss)
                
                $
                (1,349,608
                )
                $
                648,425Adjustments
                    to reconcile net income (loss) to net cash provided by (used
                    in) operating
                    activities:Depreciation
                    and amortization
                
                
                163,851
                
                
                105,749Share-based
                    compensation
                
                
                863,816
                
                
                525,670Contingent
                    share-based compensation for Catalyst acquisition
                
                
                70,325
                
                
                —Tax
                    benefits from employee stock options
                
                
                
                
                
                62,359Amortization
                    of discounts on convertible notes payable
                
                
                24,043
                
                
                2,585Amortization
                    of debt issuance costs
                
                
                1,334
                
                
                —Unrealized
                    loss on securities owned
                
                
                206,156
                
                
                40,720Other
                
                
                10,456
                
                
                —Changes
                    in operating assets and liabilities:Securities
                    owned
                
                
                (908,048
                )
                
                (1,395,462
                )Restricted
                    cash
                
                
                (2,758
                )
                
                —Due
                    from clearing broker
                
                
                (567,283
                )
                
                (255,890
                )Accounts
                    receivable
                
                
                225,091
                
                
                45,447Prepaid
                    expenses and other assets
                
                
                (437,216
                )
                
                96,858Accounts
                    payable
                
                
                195,619
                
                
                159,825Commissions
                    and bonus payable
                
                
                (1,723,484
                )
                
                1,234,489Accrued
                    liabilities
                
                
                (518,817
                )
                
                (944,159
                )Due
                    to clearing and other brokers
                
                
                14,447
                
                
                11,433Net
                    cash provided by (used in) operating activities
                
                
                (3,732,076
                )
                
                338,049Cash
                    flows from investing activities:Cash
                    restricted for fund investment
                
                
                (8,602,547
                )
                
                —Purchase
                    of equipment and fixtures
                
                
                (83,646
                )
                
                (282,886
                )Investment
                    in Catalyst
                
                
                (58,558
                )
                
                (345,368
                )Net
                    cash used in investing activities
                
                
                (8,744,751
                )
                
                (628,254
                )Cash
                    flows from financing activities:Proceeds
                    from the exercise of stock options and warrants
                
                
                277,462
                
                
                20,001Proceeds
                    from the issuance of common stock
                
                
                339,430
                
                
                325,109Proceeds
                    from the issuance of note payable ($6,112,171) and stock warrant
                    ($1,387,829)
                
                
                7,500,000
                
                
                —Minority
                    interest in fund
                
                
                1,556,554
                
                
                —Debt
                    service principal payments
                
                
                (112,059
                )
                
                (63,742
                )Net
                    cash provided by financing activities
                
                
                9,561,387
                
                
                281,368Increase
                    (decrease) in cash and cash equivalents
                
                
                (2,915,440
                )
                
                (8,837
                )Cash
                    and cash equivalents at beginning of period
                
                
                11,138,923
                
                
                17,459,113Cash
                    and cash equivalents at end of period
                
                $
                8,223,483
                
                $
                17,450,276Supplementary
                    disclosure of cash flow information:Cash
                    paid during the period:Interest
                
                $
                19,958
                
                $
                13,047Income
                    taxes
                
                $
                1,800
                
                $
                49,000Non-cash
                    investing and financing activities:Issuance
                    of non-vested stock
                
                $
                27
                
                $
                2,249,252Purchase
                    of equipment and fixtures on capital lease
                
                $
                —
                
                $
                80,168Acquisition
                    of Catalyst
                
                $
                —
                
                $
                59,487
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
  **MCF
        CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(unaudited)**
  **1.
        Significant Accounting Policies**
  *Basis
        of Presentation*
  The
        interim financial statements included herein for MCF Corporation, or the
        Company, have been prepared, without audit, pursuant to the rules and
        regulations of the Securities and Exchange Commission. In the opinion of
        management, the financial statements included in this report reflect all
        normal
        recurring adjustments that the Company considers necessary for the fair
        presentation of the results of operations for the interim periods covered
        and
        the financial position of the Company at the date of the interim statement
        of
        financial condition. Certain information and footnote disclosures normally
        included in annual financial statements prepared in accordance with accounting
        principles generally accepted in the United States have been condensed or
        omitted pursuant to such rules and regulations. However, the Company believes
        that the disclosures are adequate to understand the information presented.
        The
        operating results for interim periods are not necessarily indicative of the
        operating results for the entire year. These financial statements should
        be read
        in conjunction with the Company's 2005 audited consolidated financial statements
        and notes thereto included in the Company's Annual Report on Form 10-K for
        the
        year ended December 31, 2005.
 
 Cash
        Restricted for Fund Investment
 
 In
        March
        2006, the Company launched its first proprietary
        hedge fund managed by MCF Asset Management, LLC. The Company invested $7.5
        million into the fund as a limited partner. Accordingly ,
        the
        Company has consolidated all of the assets and liabilities of the fund,
        including $8,603,000 of cash and cash equivalents, because the Company has
        effective control of the fund that results from the large initial percentage
        interest in the limited partnership. The Company will deconsolidate the assets
        and liabilities of the fund, including the cash and cash equivalents of the
        fund, if and when effective control of the fund transfers to other investors
        in
        the future. If the Company did not have effective control of the fund as
        of
        March 31, 2006, these assets, liabilities and minority interest, including
        the
        $8,603,000 of cash and cash equivalents would not have been included in the
        Company’s consolidated statements of financial condition. Instead, the Company
        would have recorded an asset representing an investment in the fund managed
        by
        MCF Asset Management, LLC which is subject to a one year lock-up provision
        which
        makes this investment illiquid for one year.
  *Securities
        Owned*
 
 “Securities
        owned” and “Securities sold, but not yet purchased” in the consolidated
        statements of financial condition consist of financial instruments carried
        at
        fair value or amounts that approximate fair value, with related unrealized
        gains
        or losses recognized in the results of operations. The fair value of a financial
        instrument is the amount at which the instrument could be exchanged in a
        current
        transaction between willing parties, other than in a forced or liquidation
        sale.
 
 Fair
        values of the financial instruments are generally obtained from quoted market
        prices in active markets, broker or dealer price quotations, or alternative
        pricing sources with reasonable levels of price transparency. To the extent
        certain financial instruments trade infrequently or are non-marketable
        securities and, therefore, have little or no price transparency, the Company
        values these instruments based on management’s estimates. The fair value of
        these securities is subject to a high degree of volatility and may be
        susceptible to significant fluctuation in the near term. Securities that
        contain
        restrictions are stated at a discount to the value of readily marketable
        securities. Stock warrants are carried at a discount to fair value as determined
        by using the Black-Scholes Option Pricing model.
 
 *Commissions
        and Principal Transactions Revenue*
 
 Commissions
        revenue includes revenue resulting from executing stock exchange-listed
        securities, over-the counter securities and other transactions as agent for
        the
        Company’s clients. Principal transactions consist of a portion of dealer spreads
        attributed to the Company’s securities trading activities as principal in
        NASDAQ-listed and other securities, and include transactions derived from
        activities as a market-maker. Additionally, principal transactions include
        gains
        and losses resulting from market price fluctuations that occur while holding
        positions in trading security inventory.
 
 Commissions
        revenue and related clearing expenses are recorded on a trade-date basis
        as
        security transactions occur. Principal transactions in regular-way trades
        are
        recorded on the trade date, as if they had settled. Profit and loss arising
        from
        all securities and commodities transactions entered into for the account
        and
        risk of the Company are recorded on a trade-date basis.
  5
  **MCF
        CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**
  *Investment
        Banking Revenue*
  Investment
        banking revenue includes underwriting and private placement agency fees earned
        through the Company’s participation in public offerings and private placements
        of equity and convertible debt securities and fees earned as financial advisor
        in mergers and acquisitions and similar transactions. Underwriting revenue
        is
        earned in securities offerings in which the Company acts as an underwriter
        and
        includes management fees, selling concessions and underwriting fees. Management
        fees are recorded on the offering date, selling concessions on settlement
        date,
        and underwriting fees at the time the underwriting is completed and the related
        income is reasonably determinable. Syndicate expenses related to securities
        offerings in which the Company acts as underwriter or agent are deferred
        until
        the related revenue is recognized. Merger and acquisition fees and other
        advisory service revenue are generally earned and recognized only upon
        successful completion of the engagement. Underwriting revenue is presented
        net
        of related expenses. Unreimbursed expenses associated with private placement
        and
        advisory transactions are recorded as expenses as incurred.
 
 As
        co-manager for registered equity underwriting transactions, management must
        estimate the Company’s share of transaction related expenses incurred by the
        lead manager in order to recognize revenue. Transaction related expenses
        are
        deducted from the underwriting fee and therefore reduces the revenue that
        is
        recognized as co-manager. Such amounts are adjusted to reflect actual expenses
        in the period in which the Company receives the final settlement, typically
        90
        days following the closing of the transaction.
 
 *Share-Based
        Compensation Expense*
 
 On
        January 1, 2006, the Company adopted Statement of Financial Accounting
        Standards (SFAS) 123(R), “Share-Based Payment,” which requires the measurement
        and recognition of compensation expense, based on estimated fair values,
        for all
        share-based awards, made to employees and directors, including stock options,
        non-vested stock, and participation in the Company’s employee stock purchase
        plan. In March 2005, the Securities and Exchange Commission issued Staff
        Accounting Bulletin (SAB) No. 107 relating to SFAS 123(R). The Company
        has applied the provisions of SAB 107 in its adoption of SFAS
        123(R).
 
 The
        Company adopted SFAS 123(R) using the modified prospective application
        transition method, as of January 1, 2006, the first day of the Company’s
        fiscal year 2006. The Company’s consolidated financial statements as of and for
        the three months ended March 31, 2006 reflect the impact of SFAS 123(R).
        In
        accordance with the modified prospective application transition method, the
        Company’s consolidated financial statements for prior periods have not been
        restated to reflect, and do not include, the impact of SFAS 123(R). Share-based
        compensation expense recognized under SFAS 123(R) for the three months ended
        March 31, 2006 was $ 934,000 ,
        which
        includes $70,000 of share-based compensation issued in connection with the
        acquisition of Catalyst (see Note 4).
  Prior
        to
        the adoption of SFAS 123(R), the Company accounted for share-based awards
        to
        employees and directors using the intrinsic value method in accordance with
        Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock
        Issued to Employees,” as allowed under SFAS 123, “Accounting for Stock-Based
        Compensation.” Share-based compensation expense of $526,000 for the three months
        ended March 31, 2005 was solely related to non-vested stock awards and stock
        options granted with intrinsic value that the Company had been recognizing
        in
        its consolidated statements of operations in accordance with the provisions
        set
        forth above. In accordance with the intrinsic value method, no share-based
        compensation expense was otherwise recognized in the Company’s consolidated
        statements of operations because the exercise price of nearly all of the
        Company’s stock options granted to employees and directors equaled the fair
        market value of the underlying stock at the grant date.
  SFAS
        123(R) requires companies to estimate the fair value of share-based awards
        on
        the date of grant using an option-pricing model. The value of the portion
        of the
        award that is ultimately expected to vest is recognized as expense in the
        Company’s consolidated statements of operations over the requisite service
        periods. Share-based compensation expense recognized in the Company’s
        consolidated statement of operations for the three months ended March 31,
        2006
        includes compensation expense for share-based awards granted (i) prior to,
        but not yet vested as of December 31, 2005, based on the grant date fair
        value estimated in accordance with the provisions of SFAS 123, and
        (ii) subsequent to December 31, 2005, based on the grant date fair
        value estimated in accordance with the provisions of SFAS 123(R). Compensation
        expense for all share-based awards subsequent to December 31, 2005 is
        recognized using the straight-line single-option method. Because share-based
        compensation expense is based on awards that are ultimately expected to vest,
        share-based compensation expense has been reduced to account for estimated
        forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time
        of
        grant and revised, if necessary, in subsequent periods if actual forfeitures
        differ from those estimates. In the Company’s pro forma information required
        under SFAS 123 for periods prior to fiscal 2006, the Company accounted for
        forfeitures as they occurred.
  6
  **MCF
        CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**
  To
        calculate option-based compensation under SFAS 123(R), the Company used the
        Black-Scholes option pricing model, which it had previously used for valuation
        of option-based awards for its pro forma information required under SFAS
        123 for
        periods prior to fiscal 2006. The Company’s determination of fair value of
        option-based awards on the date of grant using the Black-Scholes model is
        affected by the Company’s stock price as well as assumptions regarding a number
        of subjective variables. These variables include, but are not limited to
        the
        Company’s expected stock price volatility over the term of the awards, and
        actual and projected employee stock option exercise behaviors.
  No
        tax
        benefits were attributed to the share-based compensation expense because
        a
        valuation allowance was maintained for all net deferred tax assets.
 
 *Income
        Taxes*
 
 The
        Company uses the asset and liability method of accounting for income taxes.
        Deferred tax assets and liabilities are recognized for the estimated future
        tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax
        bases. Deferred tax assets and liabilities are measured using enacted tax
        rates
        expected to apply to taxable income in the years in which those temporary
        differences are expected to be recovered or settled. A valuation allowance
        is
        recorded to reduce deferred tax assets to an amount whose realization is
        more
        likely than not. The effect on deferred tax assets and liabilities of a change
        in tax rates is recognized in the consolidated statements of operations in
        the
        period that includes the enactment date.
 
 *Segment
        Reporting*
 
 SFAS
        No. 131, *Disclosures about Segments of an Enterprise and Related
        Information,* establishes annual and interim reporting standards for operating segments
        of a
        company. It also requires entity-wide disclosures about the products and
        services an entity provides, the material countries in which it holds assets
        and
        reports revenue, and its major customers. The Company organizes its operations
        into four operating segments for the purpose of making operating decisions
        or
        assessing performance. These operating segments are organized along operating
        subsidiaries, Merriman Curhan Ford & Co., MCF Asset Management, LLC and
        MCF Wealth Management, LLC, as well as corporate support. Accordingly, the
        Company operates in four reportable operating segments in the United States.
 
 *Reclassification*
  Certain
        prior year amounts have been reclassified to conform to current year
        consolidated financial statement presentation.
 
 **2.
        Issuance of Debt**
 
 On
        March
        7, 2006, the Company completed
        a $7.5 million private placement of a variable rate secured convertible
        debenture with a detachable stock warrant. The issue was placed with Midsummer
        Investment, Ltd. The Company invested the proceeds in one of the proprietary
        funds managed by MCF Asset Management, LLC, a wholly owned subsidiary. The
        debenture bears interest at a variable rate based on the annual investment
        performance of the investment in the proprietary funds managed by MCF Asset
        Management, LLC. The interest rate can be zero or a positive number and is
        based
        on the investment performance for each separate calendar year.
 
 The
        debenture is convertible into the Company’s common stock at a conversion price
        of $1.41 per share, subject to certain anti-dilutive adjustments. Specifically,
        if the Company issues common stock at an effective price below $1.41, then
        the
        conversion price of the debenture will be reduced to equal this new effective
        price. This anti-dilution provision excludes certain exempt issuances, such
        as
        employee stock options. Midsummer may elect to convert the debenture into
        common
        stock of the Company at the conversion price at any time following the closing
        date. The Company may redeem all or part of the debenture after three years
        at
        110% of the principal amount being redeemed. The Company may elect to force
        conversion of the debenture into common stock if the Company’s common stock
        trades above $4.94 for 20 consecutive trading days. The debenture contains
        covenants that may preclude the Company from issuing additional debt over
        a
        specified limit, entering into certain new liens on company assets, repurchasing
        stock or paying dividends when the debenture remains outstanding with balance
        of
        at least $2 million. The maturity date of the notes is December 31, 2010.
        Stock
        warrants to purchase 1,875,000 shares of common stock at $1.41 per share
        were
        also issued to the investor. The stock warrants have a six year term. The
        stock
        warrant includes a similar anti-dilution provision for subsequent common
        stock
        issuance at prices below $1.41 per share.
  7
 
  MCF
          CORPORATION **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**
 The
        $7,500,000 raised in the transaction described above is accounted for under
        generally accepted accounting principles, primarily APB 14, “Accounting for
        Convertible Debt and Debt Issued with Stock Purchase Warrants”, SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities”, EITF Issue 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios”, and EITF Issue 00-19, “Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company’s Own Stock”. The Company has accounted for this transaction as the
        issuance of convertible debt, an embedded derivative referred to as a
        participation interest obligation, and a detachable stock warrant.  The
        $7,500,000 has been allocated to these individual instruments based on their
        relative fair value as determined by management.
  As
        a result, the convertible debenture is carried on the
        statements of financial condition net of a $1,388,000 discount for the stock
        warrant.  The value of the stock warrant has also been recorded as an
        increase to additional paid-in capital. The stock warrant discount results
        in an effective interest rate of 13.6% that will be amortized to interest
        expense over the term of the debenture.  The participation interest
        obligation of $2,154,000 is also treated as a discount to the convertible
        debenture and is based on a forecast of future cash flows to be paid to the
        lender discounted at a risk adjusted yield.  As of March 31, 2006, the
        Company estimates that the implicit rate on this obligation will be 27.6%. 
The participation interest obligation is carried in the statements of financial
        condition at fair value and the Company will reassess fair value of the
        participation interest obligation at the end of each reporting period with
        adjustments recorded to interest expense. The allocation to the three
        separate instruments is subject to further analysis to be completed in the
        second quarter of 2006; however, management does not expect that an adjustment,
        if any, would be material to the financial statements.
  **3.
        Share-Based Compensation Expense**
 
 *Stock
        Options*
 
 The
        1999
        Stock Option Plan, 2000 Stock Option and Incentive Plan, 2001 Stock Option
        and
        Incentive Plan, 2003 Stock Option and Incentive Plan and 2004 Non-Qualified
        Stock Option and Inducement Plan, collectively the Option Plans, permit the
        Company to grant employees, outside directors, and consultants incentive
        stock
        options, nonqualified stock options or stock purchase rights to purchase
        shares
        of the Company’s common stock. The Option Plans do not permit the exercise of
        non-vested stock options, and therefore as of March 31, 2006 and
        December 31, 2005 there were no shares subject to repurchase.
 
 As
        of
        March 31, 2006, there were 32,600,000 shares authorized for issuance under
        the Option Plans, and 4,290,000 shares authorized for issuance outside of
        the
        Option Plans. As of March 31, 2006, 1,999,178 shares were available for
        future option grants under the Option Plans. There were no shares available
        for
        future option grants outside of the Options Plans. Compensation expense for
        stock options during the three months ended March 31, 2006 was
        $322,000.
 
 The
        following table is a summary of the Company’s stock option activity for the
        three months ended March 31, 2006:
  OptionsOutstanding
                  
                  WeightedAverage
                      Exercise PriceBalance
                      as of December 31, 2005
                  
                  
                  23,270,046
                  
                  $
                  0.89Granted
                  
                  
                  656,000
                  
                  
                  1.06Exercised
                  
                  
                  (287,084
                  )
                  
                  (0.30
                  )Canceled
                  
                  
                  (224,735
                  )
                  
                  (2.09
                  )Balance
                      as of March 31, 2006
                  
                  
                  23,414,227
                  
                  $
                  0.89Exercisable
                      as of March 31, 2006
                  
                  
                  18,774,784
                  
                  $
                  0.86
 
 The
        total
        intrinsic value of options exercised during the three months ended March
        31,
        2006 was $247,000.
  8
 
  MCF
          CORPORATION **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**
 The
        following table summarizes information with respect to stock options outstanding
        at March 31, 2006:
  Options
                    Outstanding at March 31, 2006
                
                Vested
                    Options at March 31, 2006Range
                    of Exercise Price
                
                Number
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Life
                    (Years)
                
                Weighted
                  Average
                  Exercise
                  Price
                
                Aggregate
                  Intrinsic
                  Value
                
                Number
                
                Weighted
                  Average
                    Exercise
                  Price
                
                Aggregate
                  Intrinsic
                  Value$0.05
                    — $0.50
                
                
                14,645,189
                
                
                6.86
                
                $
                0.42
                
                
                14,349,356
                
                
                13,918,694
                
                $
                0.43
                
                
                13,555,416$0.51
                    — $1.00
                
                
                2,142,020
                
                
                6.58
                
                $
                0.59
                
                
                1,730,966
                
                
                1,727,956
                
                
                0.55
                
                
                1,462,196$1.01
                    — $2.00
                
                
                4,557,365
                
                
                8.82
                
                $
                1.29
                
                
                511,792
                
                
                1,058,481
                
                
                1.51
                
                
                —$2.01
                    — $4.00
                
                
                1,794,653
                
                
                4.60
                
                $
                3.15
                
                
                —
                
                
                1,794,653
                
                
                3.15
                
                
                —$4.01
—
$7.00
                
                
                275,000
                
                
                3.91
                
                $
                7.00
                
                
                —
                
                
                275,000
                
                
                7.00
                
                
                —23,414,227
                
                
                7.01
                
                $
                0.89
                
                
                16,592,115
                
                
                18,774,784
                
                $
                0.86
                
                
                15,017,612
  As
        of
        March 31, 2006, total unrecognized compensation expense related to unvested
        stock options was $2,987,000. This amount is expected to be recognized as
        expense over a weighted-average period of 1.5 years.
  *Non-Vested
        Stock*
  At
        the
        date of grant, the recipient of non-vested stock has most of the rights of
        a
        stockholder other than voting rights, subject to certain restrictions on
        transferability and a risk of forfeiture. Non-vested shares typically vest
        over
        a two to four year period beginning on the date of grant. The fair value
        of
        non-vested stock is equal to the market value of the shares on the date of
        grant. The Company recognizes the compensation expense for non-vested stock
        on a
        straight-line basis over the requisite service period. Compensation expense
        for
        non-vested stock during the three months ended March 31, 2006 and 2005 was
        $454,000 and $506,000, respectively.
 
 The
        following table is a summary of the Company’s non-vested stock activity for the
        three months ended March 31, 2006:  Non-Vested
                    Stock
                    Outstanding
                  
                  Weighted
                    Average
                    Grant
                      Date
                    Fair
                      Value
                  
                  Intrinsic
                    Value
                      at
                    March
                      31, 2006Balance
                      as of December 31, 2005
                  
                  
                  4,069,878
                  
                  $
                  1.12Granted
                  
                  
                  345,000
                  
                  
                  1.05Vested
                  
                  
                  (251,093
                  )
                  
                  (1.26
                  )Canceled
                  
                  
                  (65,000
                  )
                  
                  (1.26
                  )Balance
                      as of March 31, 2006
                  
                  
                  4,098,785
                  
                  $
                  1.10
                  
                  $
                  5,738,299
 The
        total
        intrinsic value of non-vested stock which vested during the three months
        ended
        March 31, 2006 was $317,000.
  As
        of
        March 31, 2006, total unrecognized compensation expense related to
        non-vested stock was $2,738,000. This expense is expected to be recognized
        over
        a weighted-average period of 1.1 years.
 
 9
 
  MCF
          CORPORATION **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**
 *2002
        Employee Stock Purchase Plan*
 
 The
        Company offers an Employee Stock Purchase Plan, or ESPP, to its employees.
        As of
        March 31, 2006, 2,550,124 shares have been authorized by the stockholders
        of the
        Company for issuance under the ESPP, of which 1,816,974 have been issued.
        Compensation expense for ESPP during the three months ended March 31, 2006
        was
        $87,000.
 
 Under
        the
        ESPP, eligible employees may enroll in a 24-month offer period during certain
        open enrollment periods. New offer periods begin February 15 and
        August 15 of each year. Each offer period consists of four, six-month
        purchase periods during which employee payroll deductions are accumulated.
        These
        deduction amounts, which are subject to certain limitations, are accumulated,
        and, at the end of each purchase period, are used to purchase shares of common
        stock. The purchase price of the shares is 15% less than the fair market
        value
        on either the first day of an offer period or the last day of a purchase
        period,
        whichever is lower. If the fair market value on the purchase date is less
        than
        the fair market value on the first day of an offer period, then participants
        automatically commence a new 24-month offer period. The ESPP has a ten-year
        term.
 
 As
        of
        March 31, 2006, unrecognized compensation expense related to the ESPP was
        $575,000. This amount is expected to be recognized as expense over a
        weighted-average period of 1.5 years.
 
 *Share-Based
        Compensation under SFAS 123(R) for Fiscal 2006 and APB 25 for Fiscal
        2005*
 
 On
        January 1, 2006, the Company adopted SFAS 123(R), which requires the
        measurement and recognition of compensation expense, based on estimated fair
        values, for all share-based payments awards made to the Company’s employees and
        directors including stock options, non-vested stock, and stock purchased
        under
        the Company’s ESPP.


Prior
      to
      the adoption of SFAS 123(R), the Company accounted for share-based awards to
      employees and directors using the intrinsic value method in accordance with
      APB
      25, as allowed under SFAS 123, “Accounting for Stock-Based Compensation.”
Share-based compensation expense of $526,000 for the three months ended March
      31, 2005 was solely related to share-based awards resulting from stock options
      granted with intrinsic value and non-vested stock awards that the Company had
      been recognizing in its consolidated statements of operations in accordance
      with
      the provisions set forth above. In accordance with the intrinsic value method,
      no share-based compensation expense was otherwise recognized in the Company’s
      consolidated statements of operations because the exercise price of nearly
      all
      of the Company’s stock options granted to employees and directors equaled the
      fair market value of the underlying stock at the grant date.





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





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





Three
                Months
              Ended
              March
                31, 2005Net
                income — as reported
            
            $
            648,425Add:
                Stock-based employee compensation expense included in reported net
                income
            
            
            19,203Less:
                Stock-based employee compensation expense determined under fair value
                method
            
            
            (368,989
            )Net
                income — pro forma
            
            $
            298,639Net
                income per share, as reported:Basic
            
            $
            0.01Diluted
            
            $
            0.01Net
                income per share, pro forma:Basic
            
            $
            0.00Diluted
            
            $
            0.00





10
 
  MCF
        CORPORATION **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**


The
      pro
      forma share based compensation expense for the three months ended March 31,
      2005
      has increased by $38,000 since it was initially disclosed in the Quarterly
      Report on Form 10-Q for the first quarter of 2005. The increase primarily
      relates to the accounting for the contingent shares issuable to the Catalyst
      Shareholder that is subject to performance conditions (see Note 4). The Company
      determined in 2005 that the issuance of the common stock over the service period
      is probable and should have disclosed $23,000 per month as pro forma expense
      from March to December 2005.





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




The
      weighted average fair value of the non-vested stock granted under the Company’s
      stock option plans for the first three months of 2006 and 2005 was $1.05 and
      $1.62 per share, respectively. The fair value of the non-vested stock award
      is
      estimated on the date of grant using the intrinsic value method.





The
      weighted average fair value of each option granted for the three months ended
      March 31, 2006 and 2005 was $0.72 and $0.85, respectively. The fair value
      of each option award is estimated on the date of grant using the Black-Scholes
      Option Pricing Model, with the following assumptions for the three months ended
      March 31, 2006 and 2005:




Three
                Months Ended March 31,2006
            
            2005Expected
                volatility
            
            
            86
            %
            
            100
            %Expected
                life (years)
            
            
            4.69
            
            
            2.00Risk-free
                interest rate
            
            
            4.55
            %
            
            3.23
            %Expected
                dividend yield
            
            
            0.0
            %
            
            0.0
            %





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




Consistent
      with SFAS 123(R) and SAB 107, the Company considered the historical volatility
      of its stock price in determining its expected volatility, and, finding this
      to
      be reliable, determined that the historical volatility would result in the
      best
      estimate of expected volatility. Because the Company does not have any traded
      options or other traded financial instruments such as convertible debt, implied
      volatilities are not available.





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





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





The
      dividend yield assumption is based on the Company’s history and expectation of
      dividend payouts.





As
      share-based compensation expense recognized in the consolidated statement of
      operations for the three months ended March 31, 2006 is based on awards
      ultimately expected to vest, it has been reduced for estimated forfeitures.
      Forfeitures were estimated based on the Company’s historical
      experience.





*Assumptions
      for option-based awards under SFAS 123*





Prior
      to
      the first quarter of fiscal 2006, the Company considered the historical
      volatility of its stock price in determining its expected volatility. The
      risk-free interest rate was based upon assumption of interest rates appropriate
      for the term of the Company’s employee stock options. The dividend yield
      assumption was based on the Company’s history and expectation of dividend
      payouts. Forfeitures prior to the first quarter of fiscal 2006 were accounted
      for as they occurred.





11
 
  MCF
        CORPORATION **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**
 **(unaudited)**


**4.
      Contingent Consideration**




In
      February 2005, the Company acquired Catalyst Financial Planning &
Investment Management, Inc., or Catalyst, a registered investment advisor with
      over $100 million in assets under management at the time of acquisition. The
      purchase consideration for Catalyst consisted of both cash and common stock
      that
      will be paid over a three year period. The Company paid to the sole shareholder
      of Catalyst, or Catalyst Shareholder, $330,000 as initial consideration at
      the
      closing and placed into escrow 555,195 shares of common stock to be issued
      over
      the three year period following the closing date. The
      issuance of these shares is conditioned upon the Catalyst Shareholder being
      a
      full-time employee at the anniversary dates. The Catalyst Shareholder is
      entitled to additional consideration that can be payable in either cash or
      common stock at the Catalyst Shareholder’s option. The additional consideration
      will be based on a multiple of revenue growth at the end of the first three
      anniversary dates from the closing. However, if the Catalyst revenue declines
      during the three years following the closing, the Catalyst Shareholder will
      forego some of the initial consideration based on a multiple of revenue decline
      at the end of the first three anniversary dates.





With
      the
      adoption of SFAS 123(R) in January 2006, the Company is treating the 555,195
      common shares as a non-vested stock grant that vests over three years, subject
      to performance conditions. The Company has determined that the issuance of
      the
      common stock over the service period is probable and will record an expense
      of
      $23,000 per month over the three year service period. During the three months
      ended March 31, 2006, the Company recorded a charge to compensation and benefits
      expense in the amount of $70,000. At the first anniversary date in February
      2006, the Company issued 185,065 shares of common stock from escrow and paid
      $59,000 to the Catalyst Shareholder for additional consideration that resulted
      from growth in the Catalyst revenue. The additional consideration was recorded
      as an increase in the intangible assets acquired.





**5.
      Income Taxes**




The
      effective tax rate for the three months ended March 31, 2006 and 2005 was
      approximately 0% and 31%. The effective tax rate for 2006 and 2005 reflects
      the
      utilization of approximates $2,000,000 of the Company’
      net operating loss carryforwards.





**6.
      Earnings (loss) per Share**




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




Three
                Months Ended March 31,2006
            
            2005Net
                income (loss) available to common stockholders - basic
            
            $
            (1,349,608
            )
            $
            648,425Interest
                and dividends on dilutive securities
            
            
            —
            
            
            4,084Net
                income (loss) available to common stockholders - diluted
            
            $
            (1,349,608
            )
            $
            652,509Weighted-average
                number of common shares - basic
            
            
            67,960,593
            
            
            65,508,467Exercise
                or conversion of all potentially dilutive common shares
                outstanding
            
            
            —
            
            
            19,976,755Weighted-average
                number of common shares - diluted
            
            
            67,960,593
            
            
            85,485,222Basic
                net income (loss) per share
            
            $
            (0.02
            )
            $
            0.01Diluted
                net income (loss) per share
            
            $
            (0.02
            )
            $
            0.01





Basic
      earnings (loss) per share is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding, excluding 4,082,000 shares
      of non-vested stock. Diluted earnings per share is calculated by dividing net
      income, plus interest and dividends on dilutive securities, by the weighted
      average number of common shares used in the basic earnings per share calculation
      plus the number of common shares that would be issued assuming exercise or
      conversion of all potentially dilutive common shares outstanding, including
      non-vested stock. Diluted loss per share is unchanged from basic loss per share
      for the three months ended March 31, 2006 because the addition of common shares
      that would be issued assuming exercise or conversion would be
      anti-dilutive.




Shares
      used in the diluted net income per share computation in the above table include
      the dilutive impact of the Company's stock options and warrants. The impact
      of
      the Company's stock options and warrants on shares used for the diluted earnings
      per share computation is calculated based on the average share price of the
      Company's common stock for each period using the treasury stock method. Under
      the treasury stock method, the tax-effected proceeds that would be
      hypothetically received from the exercise of all stock options and warrants
      with
      exercise prices below the average share price of the Company's common stock
      are
      assumed to be used to repurchase shares of the Company's common stock. The
      dilutive impact of the Company's stock options and warrants was calculated
      using
      an average price of the Company's common stock of $1.11 and $1.61 per share
      for
      the three months ended March 31, 2006 and 2005.  Because the Company
      reported a net loss during three months ended March 31, 2006, the Company
      excluded the impact of all stock options and warrants in the computation of
      dilutive earnings per share, as their effect would be
      anti-dilutive.




12




**MCF
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**


**(unaudited)**







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




Three Months Ended March 31,2006
            
            2005Stock
                options and warrants excluded due to the exercise price exceeding
                the
                average fair value of the Company’s
                common stock during the period
            
            
            7,461,279
            
            
            6,083,359Weighted
                average non-vested stock, stock options and stock warrants, calculated
                using the treasury stock method, that were excluded due to the Company
                reporting a net loss during the period
            
            
            15,672,070
            
            
            —Weighted
                average shares issuable upon conversion of the convertible notes
                payable
            
            
            2,477,541
            
            
            —Weighted
                average shares contingently issuable
            
            
            952,857
            
            
            —Total
                common stock equivalents excluded from diluted net income (loss)
                per
                share
            
            
            26,563,747
            
            
            6,083,359





**7.
      Regulatory Requirements**




Merriman
      Curhan Ford & Co. is a broker-dealer subject to Rule 15c3-1 of the
      Securities and Exchange Commission, which specifies uniform minimum net capital
      requirements, as defined, for their registrants. As of March 31, 2006, Merriman
      Curhan Ford & Co. had regulatory net capital, as defined, of $8,589,000,
      which exceeded the amount required by $7,761,000. Merriman Curhan Ford & Co.
      is exempt from Rules 15c3-3 and 17a-13 under the Securities Exchange Act of
      1934
      because it does not carry customer accounts, nor does it hold customer
      securities or cash.




**8.
      Minority Interest**





In
      March
      2006, the Company launched its first proprietary
      hedge fund managed by MCF Asset Management, LLC, a wholly owned subsidiary
      of
      the Company. The Company invested the proceeds from the $7.5 million private
      placement of secured convertible debenture and stock warrant into the fund
      as a
      limited partner. As
      of
      March 31, 2006, the Company’s limited partnership interest represented 83% of
      the fund. Accordingly, the Company has consolidated all of the assets and
      liabilities of the fund because the Company has effective control of the fund
      that results from the large initial percentage interest in the limited
      partnership. The Company will deconsolidate the assets and liabilities of the
      fund and carry the limited partnership interest at fair value if and when
      effective control of the fund transfers to other investors in the future. This
      should occur when the Company’s limited partnership interest represents less
      than 50% of the fund. The Company has recorded the minority interest on the
      consolidated statements of financial position as of March 31, 2006 which
      reflects the minority investors’ interest in the fund’s assets and
      liabilities.





By
      consolidating the assets and liabilities of the fund as of March 31, 2006,
      the
      Company recorded in the consolidated statements of financial condition
      $8,603,000 of cash and cash equivalents, $479,000 of marketable securities
      owned, $20,000 of due from clearing broker, $10,000 in accounts payable and
      $1,557,000 in minority interest. If the Company did not have effective control
      of the fund as of March 31, 2006, these assets, liabilities and minority
      interest, including the $8,603,000 of cash and cash equivalents would not have
      been included in the Company’s consolidated statements of financial condition.
      Instead, the Company would have recorded an asset representing an investment
      in
      the fund managed by MCF Asset Management, LLC in the amount of $7,535,000.
      The
      investment in the fund includes a one year lock-up provision which makes this
      investment illiquid for one year.


13





**MCF
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED**


**(unaudited)**




**9.
      Segment Reporting**





The
      Company considers it capital markets, asset management, wealth management and
      corporate support operations to be four separately reportable segments. The
      capital markets segment includes the Company’s investment banking and
      institutional brokerage operations. Asset management includes the Company’s fee
      based asset management operations. The Company’s asset management segment was
      initiated in March 2006 with the launching of the first proprietary fund managed
      by MCF Asset Management, LLC. Accordingly, there is no comparable 2005 financial
      information for this segment. Wealth management includes the Company’s fee based
      financial planning and investment management operations. The Company’s wealth
      management segment was initiated subsequent to completing the acquisition of
      Catalyst in February 2005. The corporate support segment includes overhead
      costs
      that are not directly allocated to the other operating segments. The accounting
      policies of these segments are the same as those described in Note 1. There
      are
      no significant revenue transactions between the segments. The Company’s revenue
      from foreign operations was deminimus during the three months ended March 31,
      2006 and 2005. The following table presents the financial information for the
      Company’s segments for the three months ended March 31, 2006 and
      2005.




CapitalMarkets
              
              AssetManagement
              
              WealthManagement
              
              CorporateSupport
              
              ConsolidatedTotals2006Total
                  revenue
              
              $
              11,528,577
              
              $
              31,725
              
              $
              210,899
              
              $
              —
              
              $
              11,771,201Compensation
                  and benefits
              
              
              (7,776,544
              )
              
              (101,352
              )
              
              (196,172
              )
              
              (1,855,877
              )
              
              (9,929,945
              )Non-compensation
                  related expenses
              
              
              (1,892,894
              )
              
              (44,734
              )
              
              (69,634
              )
              
              (1,226,143
              )
              
              (3,233,405
              )Operating
                  income (loss)
              
              $
              1,859,139
              
              $
              (114,361
              )
              $
              (54,907
              )
              $
              (3,082,020
              )
              $
              (1,392,149
              )2005Total
                  revenue
              
              $
              12,408,710
              
              $
              —
              
              $
              64,406
              
              $
              —
              
              $
              12,473,116Compensation
                  and benefits
              
              
              (7,541,941
              )
              
              —
              
              
              (45,406
              )
              
              (1,614,618
              )
              
              (9,201,965
              )Total
                  expense
              
              
              (1,300,843
              )
              
              (106
              )
              
              (17,663
              )
              
              (1,076,780
              )
              
              (2,395,392
              )Pre-tax
                  income (loss)
              
              $
              3,565,926
              
              $
              (106
              )
              $
              1,337
              
              $
              (2,691,398
              )
              $
              875,759




**10.
      Subsequent Events**





In
      May
      2005, the Company entered into a stock purchase agreement with Ascend Services
      Ltd., or Ascend. The Company issued 1,078,749 shares of common stock and Ascend
      issued an unsecured promissory note payable to the Company in the amount of
      $1.5
      million. The shares were initially held in escrow. Upon Ascend achieving
      specified milestones related to its credit standing, the 1,078,749 shares of
      common stock were be released from escrow in three installments of 359,583
      shares each and provided to Ascend. Upon satisfaction of the conditions
      specified in the escrow agreement and simultaneous with the release of the
      related stock certificates, the related amount of the promissory note became
      effective and started accruing interest. The promissory note accrued interest
      at
      10% per annum and matured on February 28, 2006.





Ascend
      attempted to raise capital financing in order to enter the reinsurance business.
      In May 2005, the Company released the first installment of 359,583 shares
      of common stock to Ascend while the related promissory note with a face value
      of
      $500,000 became effective. In December 2005, the Company learned that
      Ascend had not been able to execute on their business plan and would not likely
      have the financial resources to repay the $500,000 note receivable at maturity.
      As a result, the Company recorded a charge to other operating expense in 2005
      to
      write-off the $500,000 note receivable balance. In February 2006, Ascend
      defaulted on the repayment of the note receivable. The remaining 719,166 shares
      of common stock were returned to the Company from escrow on February 28,
      2006.





In
      April
      2006, the Company entered into a settlement agreement with Ascend Holdings
      Ltd.,
      Ascend Services Ltd., and other parties with debt obligations from the Ascend
      group of companies. A private equity firm acquired all of the assets of the
      Ascend group of companies and as a term of that acquisition satisfied the legacy
      debt obligations of the Ascend group of companies, including the Company’s
      $500,000 note receivable. As a result, the Company reversed the $500,000 charge
      to write-off the note receivable balance upon the receipt of $500,000 in April
      2006.




14


**ITEM 2
       Management’s Discussion
      and
      Analysis of Financial Condition and Results of
      Operations**





This
      Quarterly Report on Form 10-Q, including this Management's Discussion and
      Analysis of Financial Condition and Results of Operations contains
      forward-looking statements regarding future events and our future results that
      are based on current expectations, estimates, forecasts, and projections about
      the industries in which we operate and the beliefs and assumptions of our
      management. Words such as “may,” “will,” “should,” “expects,” “anticipates,”
“targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “predicts,” “potential” or “continue,” variations of such words,
      and similar expressions are intended to identify such forward-looking
      statements. In addition, any statements that refer to projections of our future
      financial performance, our anticipated growth and trends in our businesses,
      and
      other characterizations of future events or circumstances, are forward-looking
      statements. Readers are cautioned that these forward-looking statements are
      only
      predictions and are subject to risks, uncertainties, and assumptions that are
      difficult to predict. Therefore, actual results may differ materially and
      adversely from those expressed in any forward-looking statements. Readers are
      referred to risks and uncertainties identified under **“** Risk
      Factors” beginning on Page 24 and elsewhere herein. We undertake no obligation
      to revise or update publicly any forward-looking statements for any
      reason.




**Company
      Overview**




MCF
      Corporation is a financial services holding company that provides investment
      research, capital markets services, corporate and venture services, investment
      banking, asset management and wealth management through its operating
      subsidiaries, Merriman Curhan Ford & Co., MCF Asset Management, LLC and
      MCF Wealth Management, LLC. We are focused on providing a full range of
      specialized and integrated services to institutional investors and corporate
      clients.





**Merriman
      Curhan Ford & Co.**





Merriman
      Curhan Ford & Co. is a securities broker-dealer and investment bank
      focused on fast growing companies and institutional investors. Our mission
      is to
      become a leader in the researching, advising, financing and trading of fast
      growing companies under $2 billion in market capitalization. We provide
      investment research, brokerage and trading services primarily to institutions,
      as well as advisory and investment banking services to corporate clients. We
      are
      focused on providing a full range of specialized and integrated services,
      including:





·  Equity
      Research


·  Sales
      and Trading


·  Specialized Trade Execution


·  Market
      Making


·  Equity
      Capital Markets


·  Corporate and Venture Services


·  Public
      Offerings


·  Private
      Placements


·  Mergers
      and Acquisitions


·  Strategic Advisory Services





By
      the
      end of the 1990’s, many of the investment banks that previously served this
      niche were acquired by large commercial banks and subsequently refocused to
      serve larger clients and larger transactions. We are gaining market share by
      originating differentiated research for our institutional investor clients
      and
      providing specialized services for our fast-growing corporate clients.





**MCF
      Asset Management, LLC**





MCF
      Asset
      Management, LLC, or MCFAM, creates investment products for both institutional
      and high-net worth clients. Through the corporate and professional resources
      of
      MCF Corporation, MCFAM has developed an institutional-standard investment
      management platform. We launched our first fund in March 2006.





We
      believe both institutions and wealthy individuals will continue to shift more
      of
      their investment dollars into alternative asset class strategies. It is our
      intent to help our clients in their investment process by offering access to
      alternative investment strategies, as well as certain niche based long-only
      strategies.  We plan to establish our own alternative investment products
      and evaluate opportunities to acquire and partner with managers of
      alternative asset investments.




15


**MCF
      Wealth Management, LLC**





Through
      MCF Wealth Management LLC, we provide a tailored, integrated offering of
      personal financial services to help corporate executives and high-net-worth
      clients achieve their financial goals through our fee-based investment advisory
      firms, such as Catalyst Financial Planning and Investment Management. Catalyst
      was the first registered investment advisor to be acquired by MCF Wealth
      Management in 2005. Today, Catalyst counsels more than 70 clients and manages
      over $130 million in assets. MCF Wealth Management, LLC continues to evaluate
      acquisitions of existing wealth management businesses, as well as
      organically grow assets under management through client referrals and Merriman
      Curhan Ford & Co.’s client base.




**Business
      Environment**




The
      business environment during the first quarter of 2006 was favorable due to
      a
      combination of factors including an expanding US economy, improved corporate
      profitability and low unemployment. The economy, as measured by GDP, grew at
      the
      fastest pace since the summer of 2003. Despite these favorable factors, high
      energy prices, increasing interest rates and a weakening housing market
      continued to be concerns during the quarter.


Small-caps
        surged during the quarter, with the benchmark Russell 2000® Index returning
        13.94%. The Russell 2000® Growth Index gained 13.50%, and outdistanced their
        mid- and large-cap counterparts. Average daily trading volume on the Nasdaq
        increased 4% in the first quarter of 2006, compared to the first quarter
        of 2005
        quarter. Small-cap US-completed M&A volumes increased 17% compared to the
        first quarter of 2005. Total small-cap equity issuance volumes increased
        105%
        while initial public offering volumes increased 42% compared to the 2005
        quarter.


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




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




**Executive
      Overview**




Revenue
      recognized in the first quarter 2006 was $11,771,000, which was 6% lower than
      the first quarter of 2005. Commission revenue grew by 44% over the prior year
      and principal transactions revenue swung to a profit during the current quarter,
      while investment banking was 64% lower. Net loss for the three months ended
      March 31, 2006 was $0.02 per diluted share which was down from net income of
      $0.01 per diluted share for the three months ended March 31, 2005. The decline
      in our profitability resulted from lower investment banking revenue that
      produces a larger gross margin and increased compensation and benefits expense
      due in part to the expensing of stock options in connection with our adoption
      of
      SFAS 123(R). In March 2006, we launched our first proprietary fund managed
      by
      MCF Asset Management, LLC. We are working on three additional funds to be
      introduced in 2006. We view asset management as an important part of our
      strategy to increase our recurring revenue and diversify our
      business.


16


**Results
      of Operations**




The
      following table sets forth a summary of financial highlights for the three
      months ended March 31, 2006 and 2005:




**Three
                  Months Ended March 31,****2006**
            
            **2005**Revenue:Commissions
            
            $
            8,698,128
            
            $
            6,021,963Principal
                transactions
            
            
            403,301
            
            
            (373,142
            )Investment
                banking
            
            
            2,425,780
            
            
            6,758,810Other
            
            
            243,992
            
            
            65,485Total
                revenue
            
            
            11,771,201
            
            
            12,473,116Operating
                expenses:Compensation
                and benefits
            
            
            9,929,945
            
            
            9,201,965Brokerage
                and clearing fees
            
            
            682,604
            
            
            521,718Professional
                services
            
            
            445,487
            
            
            271,426Occupancy
                and equipment
            
            
            402,013
            
            
            349,959Communications
                and technology
            
            
            610,088
            
            
            423,424Depreciation
                and amortization
            
            
            163,851
            
            
            105,749Travel
                and entertainment
            
            
            530,370
            
            
            307,884Other
            
            
            398,992
            
            
            415,232Total
                operating expenses
            
            
            13,163,350
            
            
            11,597,357Operating
                income (loss)
            
            
            (1,392,149
            )
            
            875,759Interest
                income
            
            
            111,661
            
            
            74,827Interest
                expense
            
            
            (69,120
            )
            
            (17,187
            )Income
                (loss) before income taxes
            
            
            (1,349,608
            )
            
            933,399Income
                tax expense
            
            
            0
            
            
            (284,974
            )Net
                income (loss)
            
            $
            (1,349,608
            )
            $
            648,425Adjustments:Interest
                income
            
            
            (111,661
            )
            
            (74,827
            )Interest
                expense
            
            
            69,120
            
            
            17,187Income
                tax expense
            
            
            
            
            
            284,974Depreciation
                and amortization
            
            
            163,851
            
            
            105,749Share-based
                payments
            
            
            934,141
            
            
            525,670EBITDA
            
            $
            (294,157
            )
            $
            1,507,178





Our
      revenue during the first quarter of 2006 decreased $702,000 or 6%, from the
      first quarter of 2005 reflecting a drop in investment banking revenue, partially
      offset by growth in commissions and principal transactions revenue. We incurred
      a net loss of $1,350,000 during the three months ended March 31, 2006 as
      compared to net income of $648,000 for the similar period in 2005. Our earnings
      before interest, taxes, depreciation and amortization were negative $294,000
      for
      the first quarter of 2006 and positive $1,507,000 for the first quarter of
      2005.




Earnings
      before interest, taxes, depreciation and amortization, or EBITDA, is a key
      metric we use in evaluating our financial performance. EBITDA is considered
      a
      non-GAAP financial measure as defined by Regulation G promulgated by the SEC
      pursuant to the Securities Act of 1933, as amended. We consider EBITDA an
      important measure of our ability to generate cash flows to service debt, fund
      capital expenditures and fund other corporate investing and financing
      activities. EBITDA eliminates the non-cash effect of tangible asset depreciation
      and amortization of intangible assets and stock-based compensation. EBITDA
      should be considered in addition to, rather than as a substitute for, pre-tax
      income, net income and cash flows from operating activities.




17


*Commissions
      and Principal Transactions Revenue*





Our
      broker-dealer activity includes the following:





·
            Commissions—Commissions
                include revenue resulting from executing stock trades for exchange-listed
                securities, over-the-counter securities and other transactions as
                agent.





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





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




Three
                  Months Ended March 31,2006
              
              2005**Revenue:**Commissions
              
              $
              8,698,128
              
              $
              6,021,963Principal
                  transactions:Customer
                  principal transactions, proprietary trading and market
                  making
              
              
              687,932
              
              
              (530,719
              )Investment
                  portfolio
              
              
              (284,631
              )
              
              157,577Total
                  principal transactions revenue
              
              $
              403,301
              
              $
              (373,142
              )**Transaction
                  Volumes:**Number
                  of shares traded
              
              
              262,748,118
              
              
              220,949,930Number
                  of active clients
              
              
              391
              
              
              385




Commission
      revenue amounted to $8,698,000 or 74%, of our revenue during the first three
      months of 2006, representing a 44% increase over $6,022,000 recognized during
      the first three months of 2005. The growth in commissions was due to a
      broad based increase in trading
      volumes across key research sectors including broadband communications
      technology, Internet applications and services, next-generation energy, retail
      and apparel, and wireless communications technology.  Also contributing to
      the commission growth was a significatnt increase in productivity among our
      sales and trading professionals, as well as an increase in the number of
      companies under research coverage to 152 as of March 31, 2006 from 137 at March
      31, 2005.  As of May 8, 2006, research names under coverage have grown to
      168 with plans to exceed 200 by the end of the year. Additionally,
      revenue from our Institutional Cash Distributors, or ICD, group grew by $637,000
      over the first quarter of 2005 as the assets brokered by ICD has more than
      doubled over the past year. During the first quarter of 2006 and 2005, no single
      brokerage customer accounted for more than 10% of our revenue.




Principal
      transactions revenue, including market making and proprietary trading, amounted
      to $688,000, or 6%, of our revenue during the first quarter of 2006,
      representing a 230% increase compared to ($531,000) recognized during the first
      quarter of 2005. The majority of this revenue resulted from principal
      transactions with customers. The fair value of our investment portfolio, which
      primarily consists of stock warrants and restricted common stock that we earn
      in
      connection with our investment banking activities, decreased in value by
      $285,000 during the first quarter of 2006.




18


***Investment
      Banking Revenue***




Our
      investment banking activity includes the following:





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





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




The
      following table sets forth our revenue and transaction volumes from our
      investment banking activities during the three months ended March 31, 2006
      and
      2005:




Three
                  Months Ended March 31,2006
              
              2005**Revenue:**Capital
                  raising
              
              $
              1,904,895
              
              $
              6,593,685Financial
                  advisory
              
              
              520,885
              
              
              165,125Total
                  investment banking revenue
              
              $
              2,425,780
              
              $
              6,758,810**Transaction
                  Volumes:**Public
                  offerings:Total
                  transaction amounts by issuer
              
              
              401,980,000
              
              
              66,225,000Capital underwriting participation
              
              
              31,623,000
              
              
              12,292,000Number
                  of transactions
              
              
              2
              
              
              2Private
                  placements:Capital
                  raised
              
              
              5,000,000
              
              
              183,994,000Number
                  of transactions
              
              
              2
              
              
              6




Our
      investment banking revenue amounted to $2,426,000, or 21% of our revenue during
      the three months ended March 31, 2006, representing a 64% decrease compared
      to
      $6,759,000 recognized during the three months ended March 31, 2005. During
      2005,
      46% of our investment banking revenue was recognized during the first quarter
      which was dominated by two significant private placement transactions. We
      believe that first quarter investment banking revenue has historically been
      the
      lowest during the year and that the first quarter of 2005 was unusually high.
      During the first quarter 2006, one investment banking customer accounted for
      11%
      of our revenue. During the first quarter 2005, two investment banking customers
      each accounted for more than 10% of our revenue, and combined accounted for
      34%.





***Compensation
      and Benefits Expenses***





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




19


The
        following table sets forth the major components of our compensation and benefits
        for the three months ended March 31, 2006 and 2005:
  Three
                  Months Ended March 31,2006
              
              2005Incentive
                  compensation and discretionary bonuses
              
              $
              5,646,317
              
              $
              5,820,297Salaries
                  and wages
              
              
              2,210,275
              
              
              1,989,976Share-based
                  payments
              
              
              934,141
              
              
              525,670Payroll
                  taxes, benefits and other
              
              
              1,139,212
              
              
              866,022Total
                  compensation and benefits
              
              $
              9,929,945
              
              $
              9,201,965Total
                  compensation and benefits as a percentage of revenue
              
              
              84
              %
              
              74
              %Cash
                  compensation and benefits as a percentage of revenue
              
              
              76
              %
              
              70
              %
 
 The
        amount of compensation and benefits expense that we incur during a given
        period
        is largely dependent upon the level of revenue recognized during that period,
        since most of our employees are paid based on a percentage of the revenue
        attributed to their efforts. The
        increase in compensation and benefits expense of $728,000, or 8%, from 2005
        to
        2006 was due primarily to higher non-cash share-based compensation, payroll
        taxes resulting from FICA tax expense that will decline in future months
        as
        statutory limits are met, and salaries and employee benefits as we have added
        headcount since the first quarter of 2005. Our headcount has increased from
        132
        at March 31, 2005 to 164 at March 31, 2006. During the three months ended
        March
        31, 2006, no sales professional accounted for more than 10% of our revenue,
        while one sales professional accounted for 11% of our revenue during the
        three
        months ended March 31, 2005.
 
 The
        three
        months ended March 31, 2006 represents our first fiscal period following
        adoption of SFAS 123(R), “Share-Based Payment,” which requires that we
        recognize compensation expense on our consolidated statement of operations
        for
        all share-based awards made to employees and directors based on estimated
        fair
        values. We have adopted SFAS 123(R) using the modified prospective application
        transition method, and accordingly have not restated financial statements
        for
        prior periods to include the impact of SFAS 123(R). To determine the valuation
        of share-based awards under SFAS 123(R), we continue to use the Black-Scholes
        option pricing model that we utilized to determine our pro forma share-based
        compensation in prior periods. Share-based compensation was $934,000 during
        the
        three months ended March 31, 2006, which included $70,000 from the issuance
        of
        common stock as contingent consideration to the Catalyst Shareholder. Additional
        information regarding our adoption of SFAS 123(R) during the three months
        ended
        March 31, 2006 is set forth in the notes to the financial statements above
        and
        in “Critical Accounting Policies and Estimates” below.
 
 ***Other
        Operating Expenses***
 
 Brokerage
        and clearing fees include trade processing expenses that we pay to our clearing
        broker and execution fees that we pay to floor brokers and electronic
        communication networks. Merriman Curhan Ford & Co. is a fully-disclosed
        broker-dealer, which has engaged a third party clearing broker to perform
        all of
        the clearance functions. The clearing broker-dealer processes and settles
        the
        customer transactions for Merriman Curhan Ford & Co. and maintains the
        detailed customer records. Additionally, security trades are executed by
        third-party broker-dealers and electronic trading systems. These expenses
        are
        almost entirely variable with commission revenue and the volume of brokerage
        transactions. Our brokerage and clearing fees increased by $161,000, or 31%
        during the first quarter of 2006 as compared to the first quarter of 2005
        which
        is slightly lower than the rate of growth in our commission revenue.
 
 Professional
        services expense includes legal fees, accounting fees, expenses related to
        investment banking transactions, consulting fees and recruiting fees. Many
        of
        these expenses, such as legal and accounting fees, are to a large extent
        fixed
        in nature. The increase of $174,000 or 64%, from the first quarter of 2005
        to
        the first quarter of 2006 was primarily attributed to increased auditing
        and tax
        consulting services.
 
 Occupancy
        and equipment includes rental costs for our office facilities and equipment,
        as
        well as equipment, software and leasehold improvement expenses. These expenses
        are largely fixed in nature. The increase of $52,000, or 15%, from the first
        quarter of 2005 to the first quarter of 2006 resulted mostly from facility
        maintenance and related services.
  20
  Communications
        and technology expense includes voice, data and Internet service fees, and
        data
        processing costs. While variable in nature, these tend to be more correlated
        to
        headcount than revenue. The increase of $187,000, or 44%, from the first
        quarter
        of 2005 to the first quarter of 2006 was due to network connections and market
        data service fees incurred in our sales and trading operations. The higher
        costs
        are the result of increased headcount and the expansion of our offices.
  Depreciation
        and amortization expense primarily relate to the depreciation of our computer
        equipment and leasehold improvements. Depreciation and amortization is mostly
        fixed in nature. The increase of $58,000, or 55%, from the first quarter
        of 2005
        to the first quarter of 2006 was due to increased capital expenditures during
        2005, including leasehold improvements, to facilitate our growth and
        expansion.
 
 Travel
        and entertainment expense results from business development activities across
        our various businesses. The increase of $222,000, or 72%, from the first
        quarter
        of 2005 to the first quarter of 2006 was due mostly to increased investment
        banking and capital markets activity.
  Other
        operating expense includes professional liability and property insurance,
        printing and copying, business licenses and taxes, office supplies and other
        miscellaneous office expenses. The decrease of approximately $16,000, or
        4%,
        from the first quarter of 2005 to the first quarter of 2006 was attributed
        to a
        favorable outcome from a trading dispute, partially offset by higher marketing
        and recruiting expenses.
 
 ***Income
        Tax Expense***
  The
        effective tax rate for the three months ended March 31, 2006 and 2005 was
        approximately 0% and 31%. The effective tax rate for 2006 and 2005 reflects
        the
        utilization of approximately $2,000,000 the Company's net operating
        loss carryforwards.
 
 ***Off-Balance
        Sheet Arrangements***
 
 We
        were
        not a party to any off-balance sheet arrangements during the three months
        ended
        March 31, 2006 and 2005. In particular, we do not have any interest in so-called
        limited purpose entities, which include special purpose entities and structured
        finance entities.
  ***Issuance
        of Debt***
 In
          March
          2006, we completed
          a $7.5 million private placement of a variable rate secured convertible
          debenture with a detachable stock warrant. The issue was placed with Midsummer
          Investment, Ltd. We invested the proceeds in one of the proprietary funds
          managed by MCF Asset Management, LLC, our wholly-owned subsidiary. The
          debenture
          bears interest at a variable rate based on the annual investment performance
          of
          the fund. Stock warrants to purchase 1,875,000 shares of common stock at
          $1.41
          per share were also issued to the investor. The stock warrants have a six
          year
          term. See Note 2 to the condensed consolidated financial statements for
          additional information.
 
 We
          have
          accounted for this transaction as the issuance of convertible debt, an
          embedded
          derivative referred to as a participation interest obligation, and a detachable
          stock warrant. The $7,500,000 has been allocated to these individual instruments
          based on their relative fair value as determined by management.
 
 As
          a
          result, the convertible debenture is carried on the statements of financial
          condition net of a $1,388,000 discount for the stock warrant. The value
          of the
          stock warrant has also been recorded as an increase to additional paid-in
          capital. The stock warrant discount results in an effective interest rate
          of
          13.6% that will be amortized to interest expense over the term of the
          debenture. The participation interest obligation is also treated as a
          discount to the debenture and is based on a forecast of future cash flows
          to be
          paid to the lender discounted at a risk adjusted yield. As of March 31,
          2006,
          the Company estimates that the implicit rate on this obligation will be
          27.6%.
          The participation interest obligation is carried in the statements of financial
          condition at fair value and the Company will reassess fair value of the
          participation interest obligation at the end of each reporting period with
          adjustments recorded to interest expense. The
          allocation to the three separate instruments is subject to further analysis
          to
          be completed in the second quarter of 2006.
 
 21
 ***Minority
          Interest***
 
 In
          March
          2006, the Company launched its first proprietary
          hedge fund managed by MCF Asset Management, LLC, our wholly owned subsidiary.
          We
          invested the proceeds from the $7,500,000 private placement of secured
          convertible debenture and stock warrant into the fund as a limited partner. As
          of
          March 31, 2006, our limited partnership interest represented 83% of the
          fund.
          Accordingly, we have consolidated all of the assets and liabilities of
          the fund
          because we have effective control of the fund that results from the large
          initial percentage interest in the limited partnership. We will deconsolidate
          the assets and liabilities of the fund and carry the limited partnership
          interest at fair value if and when effective control of the fund transfers
          to
          other investors in the future. This should occur when our limited partnership
          interest represents less than 50% of the fund. We have recorded the minority
          interest on the consolidated statements of financial position as of March
          31,
          2006 which reflects the minority investors’ interest in the fund’s assets and
          liabilities.
 
 By
          consolidating the assets and liabilities of the fund as of March 31, 2006,
          we
          recorded in our consolidated statements of financial condition $8,603,000
          of
          cash and cash equivalents, $479,000 of marketable securities owned, $20,000
          of
          due from clearing broker, $10,000 in accounts payable and $1,557,000 in
          minority
          interest. If we did not have effective control of the fund as of March
          31, 2006,
          these assets, liabilities and minority interest, including the $8,603,000
          of
          cash and cash equivalents would not have been included in our consolidated
          statements of financial condition. Instead, we would have recorded an asset
          representing an investment in the fund managed by MCF Asset Management,
          LLC in
          the amount of $7,535,000. The investment in the fund includes a one year
          lock-up
          provision which makes this investment illiquid for one
          year.
 ***Commitments***
 
 The
        following is a table summarizing our significant commitments as of
        March 31, 2006, consisting of debt payments related to convertible notes
        payable, non-convertible notes payable, capital leases and future minimum
        lease
        payments under all non-cancelable operating leases with initial or remaining
        terms in excess of one year.
 
 **Notes**
                **Payable**
              
              **Operating**
                **Leases**
              
              **Capital**
                **Leases**2006
              
              $
              80,081
              
              $
              1,387,540
              
              $
              320,6822007
              
              
              106,775
              
              
              1,576,328
              
              
              349,1292008
              
              
              243,990
              
              
              973,746
              
              
              197,0442009
              
              
              —
              
              
              608,178
              
              
              —2010
              
              
              7,500,000
              
              
              644,248
              
              
              —Thereafter
              
              
              —
              
              
              562,251
              
              
              —Total
                  commitments
              
              $
              7,930,846
              
              $
              5,752,291
              
              $
              866,855
  22
  **Critical
        Accounting Policies and Estimates**
  The
        consolidated financial statements are prepared in accordance with accounting
        principles generally accepted in the United States, which require us to make
        estimates and judgments that affect the reported amounts of assets, liabilities,
        revenues and expenses, and related disclosure of contingent assets and
        liabilities. On an on-going basis, we evaluate our estimates, including those
        related to the valuation of securities owned and deferred tax assets. We
        base
        our estimates on historical experience and on various other assumptions that
        are
        believed to be reasonable under the circumstances, the results of which form
        the
        basis for making judgments about the carrying values of assets and liabilities
        that are not readily apparent from other sources. Actual results could differ
        from those estimates. We believe the following critical accounting policies
        affect our more significant judgments and estimates used in the preparation
        of
        our consolidated financial statements.
  *Valuation
        of Securities Owned*
  “Securities
        owned” and “Securities sold, but not yet purchased” in our consolidated
        statements of financial condition consist of financial instruments carried
        at
        fair value or amounts that approximate fair value, with related unrealized
        gains
        or losses recognized in our results of operations. The use of fair value
        to
        measure these financial instruments, with related unrealized gains and losses
        recognized immediately in our results of operations, is fundamental to our
        financial statements and is one of our most critical accounting policies.
        The
        fair value of a financial instrument is the amount at which the instrument
        could
        be exchanged in a current transaction between willing parties, other than
        in a
        forced or liquidation sale.
 
 Fair
        values of our financial instruments are generally obtained from quoted market
        prices in active markets, broker or dealer price quotations, or alternative
        pricing sources with reasonable levels of price transparency. To the extent
        certain financial instruments trade infrequently or are non-marketable
        securities and, therefore, have little or no price transparency, we value
        these
        instruments based on management’s estimates. The fair value of these securities
        is subject to a high degree of volatility and may be susceptible to significant
        fluctuation in the near term. Securities that contain restrictions are stated
        at
        a discount to the value of readily marketable securities. Stock warrants
        are
        carried at a discount to fair value as determined by using the Black-Scholes
        Option Pricing model.
  *Revenue
        Recognition*
  Commissions
        revenue and related clearing expenses are recorded on a trade-date basis
        as
        security transactions occur. Principal transactions in regular-way trades
        are
        recorded on the trade date, as if they had settled. Profit and loss arising
        from
        all securities and commodities transactions entered into for the account
        and
        risk of our company are recorded on a trade-date basis.
 
 Investment
        banking revenue includes underwriting and private placement agency fees earned
        through our participation in public offerings and private placements of equity
        and convertible debt securities and fees earned as financial advisor in mergers
        and acquisitions and similar transactions. Underwriting revenue is earned
        in
        securities offerings in which we act as an underwriter and includes management
        fees, selling concessions and underwriting fees. Management fees are recorded
        on
        the offering date, selling concessions on settlement date, and underwriting
        fees
        at the time the underwriting is completed and the related income is reasonably
        determinable. Syndicate expenses related to securities offerings in which
        the
        Company acts as underwriter or agent are deferred until the related revenue
        is
        recognized. Merger and acquisition fees and other advisory service revenue
        are
        generally earned and recognized only upon successful completion of the
        engagement. Underwriting revenue is presented net of related expenses.
        Unreimbursed expenses associated with private placement and advisory
        transactions are recorded as expenses as incurred.
 
 As
        co-manager for registered equity underwriting transactions, management must
        estimate our share of transaction related expenses incurred by the lead manager
        in order to recognize revenue. Transaction related expenses are deducted
        from
        the underwriting fee and therefore reduces the revenue that is recognized
        as
        co-manager. Such amounts are adjusted to reflect actual expenses in the period
        in which we receive the final settlement, typically 90 days following the
        closing of the transaction.
  23
  *Stock-Based
        Compensation*
  On
        January 1, 2006, we adopted SFAS 123(R), “Shared-Based Payment,” which
        requires the measurement and recognition of compensation expense, based on
        estimated fair values, for all share-based awards, made to employees and
        directors, including stock options, non-vested stock, and participation in
        our
        employee stock purchase plan. Share-based compensation expense recognized
        in our
        consolidated statement of operations for the three months ended March 31,
        2006
        includes compensation expense for share-based awards granted (i) prior to,
        but not yet vested as of December 31, 2005, based on the grant date fair
        value estimated in accordance with the provisions of SFAS 123, and
        (ii) subsequent to December 31, 2005, based on the grant date fair
        value estimated in accordance with the provisions of SFAS 123(R).
 
 We
        estimate the fair value of stock options granted using the Black-Scholes
        option
        pricing method. This option pricing model requires the input of highly
        subjective assumptions, including the option’s expected life and the price
        volatility of the underlying stock. The expected life of employee stock options
        represents the weighted-average period the stock options are expected to
        remain
        outstanding. The
        Company calculated the expected term using the lattice model with specific
        assumptions about the suboptimal exercise behavior, post-vesting termination
        rates and other relevant factors. The expected stock price volatility was
        determined using the historical volatility of our common stock. The fair
        value
        is then amortized on a straight-line basis over the requisite service periods
        of
        the awards, which is generally the vesting period.
 
 Because
        share-based compensation expense is based on awards that are ultimately expected
        to vest, it has been reduced to account for estimated forfeitures. SFAS 123(R)
        requires forfeitures to be estimated at the time of grant and revised, if
        necessary, in subsequent periods if actual forfeitures differ from those
        estimates. In our pro forma information required under SFAS 123 for the periods
        prior to fiscal 2006, we accounted for forfeitures as they occurred. Changes
        in
        these inputs and assumptions can materially affect the measure of estimated
        fair
        value of our share-based compensation.
  *Deferred
        Tax Valuation Allowance*
  We
        account for income taxes in accordance with the provision of SFAS No.
        109, *Accounting for Income Taxes* ,
        which
        requires the recognition of deferred tax assets and liabilities at tax rates
        expected to be in effect when these balances reverse. Future tax benefits
        attributable to temporary differences are recognized to the extent that the
        realization of such benefits is more likely than not. We have concluded that
        it
        is more likely than not that our deferred tax assets as of March 31, 2006
        and
        2005 will not be realized based on the scheduling of deferred tax liabilities
        and projected taxable income. The amount of the deferred tax assets actually
        realized, however, could vary if there are differences in the timing or amount
        of future reversals of existing deferred tax liabilities or changes in the
        actual amounts of future taxable income. Should we determine that we will
        be
        able to realize all or part of the deferred tax asset in the future, an
        adjustment to the deferred tax asset will be recorded in the period such
        determination is made.
 
 **Liquidity
        and Capital Resources**
  Historically,
        we have satisfied our liquidity and regulatory capital needs through the
        issuance of equity and debt securities. As of March 31, 2006 liquid assets
        consisted primarily of cash and cash equivalents and marketable securities.
        Excluding the assets of the proprietary fund managed by MCF Asset Management,
        LLC that is being consolidated for financial statement purposes until we
        no
        longer exercise effective control over the fund, liquid assets of amounted
        to
        $17,001,000 as of March 31, 2006. This consisted of $8,223,000 in cash and
        cash
        equivalents and $8,778,000 in marketable securities.
 
 Merriman
        Curhan Ford & Co., as a broker-dealer, is subject to Rule 15c3-1
        of the Securities Exchange Act of 1934, which specifies uniform minimum net
        capital requirements, as defined, for their registrants. As of March 31,
        2006,
        Merriman Curhan Ford & Co. had regulatory net capital, as defined, of
        $8,589,000, which exceeded the amount required by $7,761,000.
 
 Cash
        and
        cash equivalents decreased by $2,915,000 during the three months ended March
        31,
        2006. Cash used in our operating activities was $3,732,000 which primarily
        represents the payment of employee bonuses earned in 2005, the net loss for
        the
        quarter adjusted for non-cash expenses including share-based payments, and
        the
        increase in marketable securities owned. Cash used in investing
        activities amounted to $8,745,000 which consisted of the investment in
        proprietary fund managed by MCF Asset Management, LLC, purchases of
        equipment and fixtures and the contingent payment to the Catalyst Shareholder.
        Cash proceed from our financing activities was $9,561,000 which included
        the
        proceeds from the $7,500,000 convertible debenture, the minority interest
        in the fund and proceeds related to issuance of common stock in connection
        with our employee stock purchase plan and stock option and warrant
        exercises.
 
 We
        believe that our existing cash balances and investments will be sufficient
        to
        meet our liquidity and capital spending requirements, both for the next twelve
        months as well as for the long-term. However, we may require additional capital
        investment to fund our working capital if we incur future operating losses.
        We
        cannot be certain that additional debt or equity financing will be available
        when required or, if available, that we can secure it on terms satisfactory
        to
        us.
  24


**Item  3.  
      **Quantitative
      and Qualitative Disclosures About Market
      Risk****




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




*Equity
      Price Risk*




The
      potential for changes in the market value of our trading positions is referred
      to as “market risk.” Our trading positions result from proprietary trading
      activities. Equity price risks result from exposures to changes in prices and
      volatilities of individual equities and equity indices. We seek to manage this
      risk exposure through diversification and limiting the size of individual
      positions within the portfolio. The effect on earnings and cash flows of an
      immediate 10% increase or decrease in equity prices generally is not
      ascertainable and could be positive or negative, depending on the positions
      we
      hold at the time. We do not establish hedges in related securities or
      derivatives.




*Interest
      Rate Risk*




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




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




*Foreign
      Currency Risk*




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




**Item  4. 
        **Controls
        and Procedures****





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





Based
      on
      their evaluation of the Company's disclosure controls and procedures (as defined
      in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
      1934), the Principal Executive Officer and Principal Financial Officer of the
      Company have concluded that the disclosure controls and procedures are effective
      as of March 31, 2006.





**Changes
      in internal controls -** There
      was no change in the Company's internal control over financial reporting (as
      defined in Rules 13a-15(d) and 15d-15(d) of the Exchange Act) that occurred
      during the quarter ended March 31, 2006, that materially affected, or is
      reasonably likely to materially affect, the Company's internal control over
      financial reporting.





25





**PART
      II.   OTHER INFORMATION**





**Item  1.**
            **Legal Proceedings**




**Westerman
      v. Western Capital Financial Group—NASD Arbitration**





In
      May 2005, our broker-dealer subsidiary Merriman Curhan Ford & Co.
      was served with a claim in NASD Arbitration by Ms. Westerman. The claim
      names Western Capital Financial Group as one of several defendants. Western
      Capital Financial Group is the predecessor name of
      Merriman Curhan Ford & Co., the California corporation. The
      Western Capital Financial Group name was effective from June 26, 1986 to
      July 14, 1998.





This
      claim arises from Ms. Westerman’s purchase of a variable annuity product in
      January 1990 from a predecessor of our broker-dealer subsidiary. MCF
      Corporation acquired Merriman Curhan Ford & Co. in December 2001.
      The Claimant alleges that a registered representative improperly recommended
      that she move her investment to different products on two
      occasions.





Claimant
      alleges a theory of predecessor liability against Merriman Curhan
      Ford & Co. Claimant prays for monetary damages in excess of $300,000
      against the eleven named respondents. On May 1, 2006, we reached settlement
      with
      Claimant who accepted $8,500 to resolve the dispute. Merriman Curhan Ford &
Co. will be dismissed from the arbitration.





**In
      re Odimo Incorporated Securities Litigation** ***.***





Merriman
      Curhan Ford & Co. is a defendant in a purported class action suit
      brought in connection with a registered offering involving Odimo Incorporated
      in
      which we served as co-manager for the company. The complaint, filed in the
      17 th Judical
      Circuit Court for Broward County in Florida on September 30, 2005, alleges
      violations of federal securities laws against Odimo and certain of its officers
      as well as the company’s underwriters, including us, based on alleged
      misstatements and omissions in the registration statement. Recently, similar
      cases were consolidated and lead plaintiff’s counsel was assigned. Thereafter,
      an amended complaint was filed and the underwriters, including Merriman Curhan
      Ford & Co., were not named as defendants.  This matter is now
      resolved.





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




Item
      1A.
      Risk Factors




Investing
        in our securities involves a high degree of risk. In addition to the other
        information contained in this quarterly report, including reports we
        incorporate by reference, you should consider the following factors before
        investing in our securities.
 
 ***It
        is difficult to evaluate our business and prospects because we have a limited
        operating history.***
 
 We
        began
        actively engaging in providing securities brokerage and investment banking
        services in January 2002. This was an entirely new business for us, and was
        a complete break with our previous business, the bandwidth brokerage business.
        Accordingly, we have a limited operating history on which to base an evaluation
        of our business and prospects. Our prospects must be considered in light
        of the
        risks, expenses and difficulties frequently encountered by fast growing
        companies in their early stage of development. We cannot assure you that
        we will
        be successful in addressing these risks and our failure to do so could have
        a
        material adverse effect on our business and results of operations.
 
 26
 ***We
        may not be able to maintain a positive cash flow and
        profitability.***
 
 Our
        ability to maintain a positive cash flow and profitability depends on our
        ability to generate and maintain greater revenue while incurring reasonable
        expenses. This, in turn, depends, among other things, on the development
        of our
        securities brokerage and investment banking business, and we may be unable
        to
        maintain profitability if we fail to do any of the following:
 
 ·  establish, maintain and increase our client base;
 
 ·  manage the quality of our services;
 
 ·  compete effectively with existing and potential competitors;
 
 ·  further develop our business activities;
 
 ·  manage
        expanding operations; and
 
 ·  attract and retain qualified personnel.
 
 We
        cannot
        be certain that we will be able to sustain or increase a positive cash flow
        and
        profitability on a quarterly or annual basis in the future. Our inability
        to
        maintain profitability or positive cash flow could result in disappointing
        financial results, impede implementation of our growth strategy or cause
        the
        market price of our common stock to decrease. Accordingly, we cannot assure
        you
        that we will be able to generate the cash flow and profits necessary to sustain
        our business expectations, which makes our ability to successfully implement
        our
        business plan uncertain.
 
 Because
        we are a developing company, the factors upon which we are able to base our
        estimates as to the gross revenue and the number of participating clients
        that
        will be required for us to maintain a positive cash flow and any additional
        financing that may be needed for this purpose are unpredictable. For these
        and
        other reasons, we cannot assure you that we will not require higher gross
        revenue, and an increased number of clients, securities brokerage and investment
        banking transactions, and/or more time in order for us to complete the
        development of our business that we believe we need to be able to cover our
        operating expenses, or obtain the funds necessary to finance this development.
        It is more likely than not that our estimates will prove to be inaccurate
        because actual events more often than not differ from anticipated events.
        Furthermore, in the event that financing is needed in addition to the amount
        that is required for this development, we cannot assure you that such financing
        will be available on acceptable terms, if at all.
 
 ***The
        markets for securities brokerage and investment banking services are highly
        competitive. If we are not able to compete successfully against current and
        future competitors, our business and results of operations will be adversely
        affected.***
 
 We
        are
        engaged in the highly competitive financial services and investment industries.
        We compete with large Wall Street securities firms, securities subsidiaries
        of
        major commercial bank holding companies, U.S. subsidiaries of large foreign
        institutions, major regional firms, smaller niche players, and those offering
        competitive services via the Internet. Many competitors have greater personnel
        and financial resources than we do. Larger competitors are able to advertise
        their products and services on a national or regional basis and may have
        a
        greater number and variety of distribution outlets for their products, including
        retail distribution. Discount and Internet brokerage firms market their services
        through aggressive pricing and promotional efforts. In addition, some
        competitors have much more extensive investment banking activities than we
        do
        and therefore, may possess a relative advantage with regard to access to
        deal
        flow and capital.
  27
  Increased
        pressure created by any current or future competitors, or by our competitors
        collectively, could materially and adversely affect our business and results
        of
        operations. Increased competition may result in reduced revenue and loss
        of
        market share. Further, as a strategic response to changes in the competitive
        environment, we may from time to time make certain pricing, service or marketing
        decisions or acquisitions that also could materially and adversely affect
        our
        business and results of operations. We cannot assure you that we will be
        able to
        compete successfully against current and future competitors. In addition,
        new
        technologies and the expansion of existing technologies may increase the
        competitive pressures on us.
 
 ***We
        may experience reduced revenue due to declining market volume, securities
        prices
        and liquidity, which can also cause counterparties to fail to
        perform.***
 
 Our
        revenue may decrease in the event of a decline in the market volume of
        securities transactions, prices or liquidity. Declines in the volume of
        securities transactions and in market liquidity generally result in lower
        revenue from trading activities and commissions. Lower price levels of
        securities may also result in a reduction in our revenue from corporate finance
        fees, as well as losses from declines in the market value of securities held
        by
        us in trading. Sudden sharp declines in market values of securities can result
        in illiquid markets and the failure of counterparties to perform their
        obligations, as well as increases in claims and litigation, including
        arbitration claims from customers. In such markets, we may incur reduced
        revenue
        or losses in our principal trading, market-making, investment banking, and
        advisory services activities.
 
 ***We
        may experience significant losses if the value of our marketable security
        positions deteriorates.***
 
 We
        conduct securities trading, market-making and investment activities for our
        own
        account, which subjects our capital to significant risks. These risks include
        market, credit, counterparty and liquidity risks, which could result in losses
        for us. These activities often involve the purchase, sale or short sale of
        securities as principal in markets that may be characterized as relatively
        illiquid or that may be particularly susceptible to rapid fluctuations in
        liquidity and price. Trading losses resulting from such trading could have
        a
        material adverse effect on our business and results of operations.
 
 ***We
        may experience significant fluctuations in our quarterly operating results
        due
        to the nature of our business and therefore may fail to meet profitability
        expectations.***
 
 Our
        revenue and operating results may fluctuate from quarter to quarter and from
        year to year due to a combination of factors, including:
 
 ·    the
        level
        of institutional brokerage transactions and the level of commissions we receive
        from those transactions;
 
 ·    the
        valuations of our principal investments;
 
 ·
              the
                  number of capital markets transactions completed by our clients,
                  and the
                  level of fees we receive from those transactions;
                  and
 
 ·
              variations
                  in expenditures for personnel, consulting and legal expenses, and
                  expenses
                  of establishing new business units, including marketing and technology
                  expenses.
 
 We
        record
        revenue from a capital markets advisory transaction only when we have rendered
        the services, the client is contractually obligated to pay and collection
        is
        probable; generally, most of the fee is earned only upon the closing of a
        transaction. Accordingly, the timing of our recognition of revenue from a
        significant transaction can materially affect our quarterly operating
        results.
 
 ***We
        have registered one of our subsidiaries as a securities broker-dealer and,
        as
        such, are subject to substantial regulations. If we fail to comply with these
        regulations, our business will be adversely affected.***
 
 Because
        we have registered Merriman Curhan Ford & Co. with the Securities and
        Exchange Commission, or SEC, and the National Association of Securities
        Dealers, Inc., or NASD, as a securities broker-dealer, we are subject to
        extensive regulation under federal and state laws, as well as self-regulatory
        organizations. The principal purpose of regulation and discipline of
        broker-dealers is the protection of customers and the securities markets
        rather
        than protection of creditors and stockholders of broker-dealers. The Securities
        and Exchange Commission is the federal agency charged with administration
        of the
        federal securities laws. Much of the regulation of broker-dealers, however,
        has
        been delegated to self-regulatory organizations, such as the NASD and national
        securities exchanges. The NASD is our primary self-regulatory organization.
        These self-regulatory organizations adopt rules, which are subject to SEC
        approval, that govern the industry and conduct periodic examinations of member
        broker-dealers. Broker-dealers are also subject to regulation by state
        securities commissions in the states in which they are registered. The
        regulations to which broker-dealers are subject cover all aspects of the
        securities business, including net capital requirements, sales methods, trading
        practices among broker-dealers, capital structure of securities firms, record
        keeping and the conduct of directors, officers and employees. The SEC and
        the
        self-regulatory bodies may conduct administrative proceedings, which can
        result
        in censure, fine, suspension or expulsion of a broker-dealer, its officers
        or
        employees. If we fail to comply with these rules and regulations, our
        business may be materially and adversely affected.
  28
 
 The
        regulatory environment in which we operate is also subject to change. Our
        business may be adversely affected as a result of new or revised legislation
        or
        regulations imposed by the SEC, other United States or foreign governmental
        regulatory authorities or the NASD. We also may be adversely affected by
        changes
        in the interpretation or enforcement of existing laws and rules by these
        governmental authorities and the NASD.
 
 ***Our
        business may suffer if we lose the services of our executive officers or
        operating personnel.***
 
 We
        depend
        on the continued services and performance of D. Jonathan Merriman, our Chairman
        and Chief Executive Officer, for our future success. We currently have an
        employment agreement with Mr. Merriman, which ends on January 1, 2007,
        but can be terminated by either party on 60 days’ notice. The agreement contains
        provisions that obligate us to make certain payments to Mr. Merriman and
        substantially reduce vesting periods of options granted to him if we should
        terminate him without cause or certain events resulting in a change of control
        of our Board were to occur.
 
 In
        addition to Mr. Merriman, we are currently managed by a small number of key
        management and operating personnel. Our future success depends, in part,
        on the
        continued service of our key executive, management and technical personnel,
        and
        our ability to attract highly skilled employees. Our business could be harmed
        if
        any key officer or employee were unable or unwilling to continue in his or
        her
        current position. From time to time we have experienced, and we expect to
        continue to experience, difficulty in hiring and retaining highly skilled
        employees. Competition for employees in our industry is significant. If we
        are
        unable to retain our key employees or attract, integrate or retain other
        highly
        qualified employees in the future, such failure may have a material adverse
        effect on our business and results of operations.
 
 ***Our
        business is dependent on the services of skilled professionals, and may suffer
        if we can not recruit or retain such skilled
        professionals.***
 
 During
        the three months ended March 31, 2006, no single sales professional accounted
        for more than 10% of our revenue. We have a number of revenue producers employed
        by our various businesses. We do not have employment contracts with these
        employees. The loss of one or more of these employees could adversely affect
        our
        business and results of operations.
 
 ***Our
        compensation structure may negatively impact our financial condition if we
        are
        not able to effectively manage our expenses and cash
        flows.***
 
 We
        are
        able to recruit and retain investment banking, research and sales and trading
        professionals, in part because our business model provides that we pay our
        revenue producing employees a percentage of their earned revenue. Compensation
        and benefits is our largest expenditure and this variable compensation component
        represents a significant proportion of this expense. Compensation for our
        employees is derived as a percentage of our revenue regardless of our
        profitability. Therefore, we may continue to pay individual revenue producers
        a
        significant amount of cash compensation as the overall business experiences
        negative cash flows and/or net losses. We may not be able to recruit or retain
        revenue producing employees if we modify or eliminate the variable compensation
        component from our business model.
 
 ***We
        may be dependent on a limited number of customers for a significant portion
        of
        our revenue.***
 
 During
        the three months ended March 31, 2006, one investment banking customer accounted
        for more than 11% of our revenue. Additionally, we have been dependent on
        a
        small number of customers, for a large percentage of our revenue at some
        times
        in the past and we cannot assure you that we will not become so dependent
        again
        in the future. If we do become dependent on a single customer or small group
        of
        customers, the loss of one or more large customers could materially adversely
        affect our business and results of operations.
 
 ***We
        may suffer losses through our investments in securities purchased in secondary
        market transactions or private placements.***
 
 Occasionally,
        our company, its officers and/or employees may make principal investments
        in
        securities through secondary market transactions or through direct investment
        in
        companies through private placements. In many cases, employees and officers
        with
        investment discretion on behalf of our company decide whether to invest in
        our
        company’s account or their personal account. It is possible that gains from
        investing will accrue to these individuals because investments were made
        in
        their personal accounts, and our company will not realize gains because it
        did
        not make an investment. Conversely, it is possible that losses from investing
        will accrue to our company, while these individuals do not experience losses
        in
        their personal accounts because the individuals did not make investments
        in
        their personal accounts.
  29
  ***We
        may be unable to successfully integrate acquired businesses into our existing
        business and operations.***
 
 On
        February 28, 2005, we acquired Catalyst Financial Planning &
Investment Management, Inc., a registered investment advisor with over $100
        million in assets under management at the time of acquisition. We may experience
        difficulty integrating the operations of Catalyst into our existing business
        and
        operations including our accounting, finance, compensation, information
        technology and management systems. We may not be able to retain the services
        of
        Catalyst employees. These factors could result in higher than anticipated
        costs
        associated with the Catalyst acquisition. Additionally, they may cause revenue
        from the Catalyst acquisition to be lower than forecast. If costs are higher
        or
        revenue lower than we expect, our business and results of operations could
        be
        materially adversely affected. Although we have no specific plans to do so
        at
        this time, we may buy one or more other businesses in the future. If we are
        unable to successfully integrate such businesses into our existing business
        and
        operations in the future, our business and results of operations could be
        materially adversely affected
 
 ***We
        may be unable to effectively manage rapid growth that we may experience,
        which
        could place a continuous strain on our resources and, accordingly, adversely
        affect our business.***
 
 We
        plan
        to expand our operations. Our growth, if it occurs, will impose significant
        demands on our management, financial, technical and other resources. We must
        adapt to changing business conditions and improve existing systems or implement
        new systems for our financial and management controls, reporting systems
        and
        procedures and expand, train and manage a growing employee base in order
        to
        manage our future growth. We may not be able to implement improvements to
        our
        internal reporting systems in an efficient and timely manner and may discover
        deficiencies in existing systems and controls. We believe that future growth
        will require implementation of new and enhanced communications and information
        systems and training of our personnel to operate such systems. Furthermore,
        we
        may acquire existing companies or enter into strategic alliances with third
        parties, in order to achieve rapid growth. For us to succeed, we must make
        our
        existing business and systems work effectively with those of any strategic
        partners without undue expense, management distraction or other disruptions
        to
        our business. We may be unable to implement our business plan if we fail
        to
        manage any of the above growth challenges successfully. Our financial results
        may suffer and we could be materially and adversely affected if that
        occurs.
 
 ***Our
        business and operations would suffer in the event of system
        failures.***
 
 Our
        success, in particular our ability to successfully facilitate securities
        brokerage transactions and provide high-quality customer service, largely
        depends on the efficient and uninterrupted operation of our computer and
        communications systems. Our systems and operations are vulnerable to damage
        or
        interruption from fire, flood, power loss, telecommunication failures,
        break-ins, earthquake and similar events. Despite the implementation of network
        security measures, redundant network systems and a disaster recovery plan,
        our
        servers are vulnerable to computer viruses, physical or electronic break-ins
        and
        similar disruptions, which could lead to interruptions, delays, loss of data
        or
        the inability to accept and fulfill customer orders. Additionally, computer
        viruses may cause our systems to incur delays or other service interruptions,
        which may cause us to incur additional operating expenses to correct problems
        we
        may experience. Any of the foregoing problems could materially adversely
        affect
        our business or future results of operations.
 
 ***We
        are highly dependent on proprietary and third-party systems; therefore, system
        failures could significantly disrupt our business.***
 
 Our
        business is highly dependent on communications and information systems,
        including systems provided by our clearing brokers. Any failure or interruption
        of our systems, the systems of our clearing broker or third party trading
        systems could cause delays or other problems in our securities trading
        activities, which could have a material adverse effect on our operating results. In
        addition, our clearing brokers provide our principal disaster recovery system.
        We cannot assure you that we or our clearing brokers will not suffer any
        systems
        failure or interruption, including one caused by an earthquake, fire, other
        natural disaster, power or telecommunications failure, act of God, act of
        war or
        otherwise, or that our or our clearing brokers’ back-up procedures and
        capabilities in the event of any such failure or interruption will be
        adequate.
  30
  ***Our
        common stock price may be volatile, which could adversely affect the value
        of
        your shares.***
 
 The
        market price of our common stock has in the past been, and may in the future
        continue to be, volatile. A variety of events may cause the market price
        of our
        common stock to fluctuate significantly, including:
 
 ·
              variations
                  in quarterly operating results;
 
 ·
              our
                  announcements of significant contracts, milestones,
                  acquisitions;
 
 ·
              our
                  relationships with other companies;
 
 ·
              our
                  ability to obtain needed capital
                  commitments;
 
 ·
              additions
                  or departures of key personnel;
 
 ·
                  sales
                      of common stock, conversion of securities convertible into
                      common stock,
                      exercise of options and warrants to purchase common stock or
                      termination
                      of stock transfer
                      restrictions;
 
 ·
              general
                  economic conditions, including conditions in the securities brokerage
                  and
                  investment banking markets;
 
 ·
              changes
                  in financial estimates by securities analysts;
                  and
 
 ·
              fluctuation
                  in stock market price and volume.
 
 Many
        of
        these factors are beyond our control. Any one of the factors noted herein
        could
        have an adverse effect on the value of our common stock.
 
 In
        addition, the stock market in recent years has experienced significant price
        and
        volume fluctuations that have particularly affected the market prices of
        equity
        securities of many companies and that often have been unrelated to the operating
        performance of such companies. These market fluctuations have adversely impacted
        the price of our common stock in the past and may do so in the
        future.
 
 ***Our
        risk management policies and procedures may leave us exposed to unidentified
        or
        unanticipated risk.***
 
 Our
        risk
        management strategies and techniques may not be fully effective in mitigating
        our risk exposure in all market environments or against all types of
        risk.
 
 We
        are
        exposed to the risk that third parties that owe us money, securities or other
        assets will not perform their obligations. These parties may default on their
        obligations to us due to bankruptcy, lack of liquidity, operational failure,
        breach of contract or other reasons. We are also subject to the risk that
        our
        rights against third parties may not be enforceable in all circumstances.
        As a
        clearing member firm, we finance our customer positions and could be held
        responsible for the defaults or misconduct of our customers. Although we
        regularly review credit exposures to specific clients and counterparties
        and to
        specific industries and regions that we believe may present credit concerns,
        default risk may arise from events or circumstances that are difficult to
        detect
        or foresee. In addition, concerns about, or a default by, one institution
        could
        lead to significant liquidity problems, losses or defaults by other
        institutions, which in turn could adversely affect us. If any of the variety
        of
        instruments, processes and strategies we utilize to manage our exposure to
        various types of risk are not effective, we may incur losses.
 
 ***We
        could be sued in a securities class action lawsuit.***
 
 In
        the
        past, following periods of volatility in the market price of a company’s
        securities, securities class action litigation often has been instituted
        against
        that company. Such litigation is expensive and diverts management’s attention
        and resources. We can not assure you that we will not be subject to such
        litigation. If we are subject to such litigation, even if we ultimately prevail,
        our business and financial condition may be adversely affected.
 
 ***Your
        ability to sell your shares may be restricted because there is a limited
        trading
        market for our common stock.***
 
 Although
        our common stock is currently traded on the American Stock Exchange, an active
        trading market in our stock has been limited. Accordingly, you may not be
        able
        to sell your shares when you want or at the price you want.
  31
  ***Anti-takeover
        provisions of the Delaware General Corporation Law could discourage a merger
        or
        other type of corporate reorganization or a change in control even if it
        could be favorable to the interests of
        our stockholders.***
 
 The
        Delaware General Corporation Law contains provisions that may enable our
        management to retain control and resist our takeover. These provisions generally
        prevent us from engaging in a broad range of business combinations with an
        owner
        of 15% or more of our outstanding voting stock for a period of three years
        from
        the date that such person acquires his or her stock. Accordingly, these
        provisions could discourage or make more difficult a change in control or
        a
        merger or other type of corporate reorganization even if it could be favorable
        to the interests of our stockholders.
 
 ***Because
        our Board of Directors can issue common stock without stockholder approval,
        you
        could experience substantial dilution.***
 
 Our
        Board
        of Directors has the authority to issue up to 300,000,000 shares of common
        stock
        and to issue options and warrants to purchase shares of our common stock
        without
        stockholder approval in certain circumstances. Future issuance of additional
        shares of our common stock could be at values substantially below the price
        at
        which you may purchase our stock and, therefore, could represent substantial
        dilution. In addition, our Board of Directors could issue large blocks of
        our
        common stock to fend off unwanted tender offers or hostile takeovers without
        further stockholder approval.
 
 ***Our
        ability to issue additional preferred stock may adversely affect your rights
        as
        a common stockholder and could be used as an anti take-over
        device.***
 
 Our
        Articles of Incorporation authorize our Board of Directors to issue up to
        an
        additional 27,450,000 shares of preferred stock, without approval from our
        stockholders. If you hold our common stock, this means that our Board of
        Directors has the right, without your approval as a common stockholder, to
        fix
        the relative rights and preferences of the preferred stock. This would affect
        your rights as a common stockholder regarding, among other things, dividends
        and
        liquidation. We could also use the preferred stock to deter or delay a change
        in
        control of our company that may be opposed by our management even if the
        transaction might be favorable to you as a common stockholder.
 
 ***Our
        officers and directors exercise significant control over our affairs, which
        could result in their taking actions of which other stockholders do not
        approve.***
 
 Our
        executive officers and directors, and entities affiliated with them, currently
        control approximately 23% of our outstanding common stock including exercise
        of
        their options and warrants. These stockholders, if they act together, will
        be
        able to exercise substantial influence over all matters requiring approval
        by
        our stockholders, including the election of directors and approval of
        significant corporate transactions. This concentration of ownership may also
        have the effect of delaying or preventing a change in control of us and might
        affect the market price of our common stock.
 
 ***Any
        exercise of outstanding stock options and warrants will dilute then-existing
        stockholders’ percentage of ownership of our common
        stock.***
 
 We
        have a
        significant number of outstanding stock options and warrants. During 2005,
        shares issuable upon the exercise of these options and warrants, at prices
        ranging currently from approximately $0.05 to $7.00 per share, represent
        approximately 14% **** of
        our
        total outstanding stock on a fully diluted basis using the treasury stock
        method.
 
 The
        exercise of the outstanding options and warrants would dilute the then-existing
        stockholders’ percentage ownership of our common stock. Any sales resulting from
        the exercise of options and warrants in the public market could adversely
        affect
        prevailing market prices for our common stock. Moreover, our ability to obtain
        additional equity capital could be adversely affected since the holders of
        outstanding options and warrants may exercise them at a time when we would
        also
        wish to enter the market to obtain capital on terms more favorable than those
        provided by such options and warrants. We lack control over the timing of
        any
        exercise or the number of shares issued or sold if exercises occur.





**Item 
      2.    Recent Sales of Unregistered
      Securities**





On
      March
      7, 2006, MCF Corporation sold a variable
      rate secured convertible debenture, together with a stock warrant to
      purchase 1,875,000 shares of MCF Corporation common stock, for aggregate consideration
      of $7.5
      million to Midsummer Investment, Ltd. The variable rate secured convertible
      debenture and stock warrant were issued in reliance on the exemption from
      registration provided for in Regulation D of the Securities Act of 1933, as
      amended, based on offers and sales of such securities being made without any
      form of general solicitation or general advertising and only to “accredited
      investors” within the meaning of Rule 501 under the Regulation D.





The
      variable rate secured convertible debenture is convertible into MCF Corporation
      common stock at any time, initially at the conversion rate of $1.41 per share,
      subject to adjustment in the event of stock splits or stock dividends, issuance
      of MCF
      Corporation common
      stock at prices below $1.41 per share, and in certain other circumstances as
      provided in the variable rate secured convertible debenture due December 31,
      2010.





The
      stock
      warrant is exercisable for shares of MCF Corporation common stock at any
      time, subject to certain limitations on the total number of shares owned by
      Midsummer Investment, Ltd., as provided in the common stock purchase warrant.
      The warrant is initially exercisable at the price of $1.41 per share, subject
      to
      adjustment in the event of stock splits or stock dividends, issuance of MCF
      Corporation common
      stock at prices below $1.41 per share, and in certain other circumstances as
      provided in the common stock purchase warrant.





32





**Item  6.**
            **Exhibits and Reports on Form
                8-K**




(a)
            Exhibits




4.3
            Securities
              Purchase Agreement dated March 7, 2006 by and between MCF Corporation
              and
              Midsummer Investment, Ltd. (incorporated by reference to the Company’s
              current Report on Form 8-K dated March 8, 2006).4.4
            Variable
              Rate Secured Convertible Debenture Due December 31, 2010 executed by
              MCF
              Corporation in favor of Midsummer Investment, Ltd. (incorporated by
              reference to the Company’s Current Report on Form 8-K dated March 8,
              2006).4.5
            Common
              Stock Purchase Warrant dated March 7, 2006 executed by MCF Corporation
              in
              favor of Midsummer Investment, Ltd. (incorporated by reference to the
              Company’s Current Report on Form 8-K dated March 8, 2006).4.6
            Registration
              Rights Agreement dated March 7, 2006 by and between MCF Corporation
              and
              Midsummer Investment, Ltd. (incorporated by reference to the Company’s
              Current Report on Form 8-K dated March 8, 2006).4.7
            Security
              Agreement dated March 7, 2006 by and among MCF Corporation, MCF Asset
              Management LLC, MCF/NV Asset Management LLC, MCF Wealth Management
              LLC,
              Catalyst Financial Planning and Investment Management Corporation and
              Midsummer Investment, Ltd. (incorporated by reference to the Company’s
              Current Report on Form 8-K dated March 8, 2006).4.8
            Subsidiary
              Guarantee dated March 7, 2006 by and among MCF Asset Management LLC,
              MCF/NVAsset Management, LLC, MCF Wealth Management LLC, Catalyst Financial
              Planning and Investment Management Corporation and Midsummer Investment,
              Ltd. and Midsummer Investment Ltd. (incorporated by reference to the
              Company’s Current Report on Form 8-K dated March 8, 2006).31.1
            Certification
                of Principal Executive Officer Pursuant To Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.






33





**SIGNATURES**




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




MCF
                CORPORATIONMay
                8, 2006
            By:
            /s/    D.
                JONATHAN
                MERRIMAND.
                Jonathan Merriman,
              Chairman
                of the Board and Chief Executive Officer
              (Principal
                Executive Officer)




May
                8, 2005
            By:
            /s/    JOHN
              D. HIESTANDJohn
                D. Hiestand
              Chief
                Financial Officer
              (Principal
                Financial Officer)






34