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, 2010





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





For the
Transition Period from ____________ to ____________.





Commission
file number: 1-15831





MERRIMAN
CURHAN FORD GROUP, INC.


(Exact
Name of Registrant as Specified in its Charter)





Delaware
              
              11-2936371(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              
              (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  x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes   o
No   o





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




Large
      accelerated filer  o
              
              Accelerated
      filer  oNon-accelerated
      filer  o
              
              Smaller
      reporting company  x





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





The
number of shares of Registrant’s common stock outstanding as of May 13, 2010 was 13,549,082.










Merriman Curhan Ford Group, Inc.


Index




Page No.PART
      I FINANCIAL INFORMATIONITEM
      1. Financial Statements (unaudited)Consolidated
      Statements of Operations For the Three Months Ended March 31, 2010 and
      2009
                  
                  3Consolidated
      Statements of Financial Condition as of March 31, 2010 and
      2009
                  
                  4Consolidated
      Statements of Cash Flows For the Three Months Ended March 31, 2010 and
      2009
                  
                  5Notes
      to Consolidated Financial Statements
                  
                  6ITEM
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
                  
                  27ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  
                  44ITEM
      4. Controls and Procedures
                  
                  45PART
      II OTHER INFORMATIONITEM
      1. Legal Proceedings
                  
                  46ITEM
      1A. Risk Factors
                  
                  48ITEM
      6. Exhibits
                  
                  49Signatures
                  
                  50Certifications


2




PART
I.  FINANCIAL INFORMATION





ITEM
1.   Financial Statements (unaudited)





MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited)




Three
      Months EndedMarch
      31,
                            
                            
                            March
      31,2010
                            
                            
                            2009Revenue:Commissions
                            
                            $
                            10,428,255
                            
                            
                            $
                            9,117,928Principal
      transactions
                            
                            
                            (206,781
                            )
                            
                            
                            (842,536
                            )Investment
      banking
                            
                            
                            6,046,673
                            
                            
                            
                            1,216,417Advisory
      and other
                            
                            
                            239,373
                            
                            
                            
                            558,813Total
      revenue
                            
                            
                            16,507,520
                            
                            
                            
                            10,050,622Operating
      expenses:Compensation
      and benefits
                            
                            
                            11,915,532
                            
                            
                            
                            9,265,167Brokerage
      and clearing fees
                            
                            
                            458,216
                            
                            
                            
                            312,959Professional
      services
                            
                            
                            466,794
                            
                            
                            
                            767,234Occupancy
      and equipment
                            
                            
                            482,781
                            
                            
                            
                            576,390Communications
      and technology
                            
                            
                            694,502
                            
                            
                            
                            721,265Depreciation
      and amortization
                            
                            
                            102,491
                            
                            
                            
                            147,242Travel
      and entertainment
                            
                            
                            525,932
                            
                            
                            
                            235,124Legal
      services and litigation settlement expense
                            
                            
                            390,077
                            
                            
                            
                            345,516Other
                            
                            
                            1,103,969
                            
                            
                            
                            696,623Total
      operating expenses
                            
                            
                            16,140,294
                            
                            
                            
                            13,067,520Operating
      income (loss)
                            
                            
                            367,226
                            
                            
                            
                            (3,016,898
                            )Other
      income
                            
                            
                            -
                            
                            
                            
                            1,200,000Interest
      income
                            
                            
                            3,335
                            
                            
                            
                            6,487Interest
      expense
                            
                            
                            (14,920
                            )
                            
                            
                            (15,365
                            )Income
      (loss) from continuing operations before income taxes
                            
                            
                            355,641
                            
                            
                            
                            (1,825,776
                            )Income
      tax expense
                            
                            
                            (15,294
                            )
                            
                            
                            (3,216
                            )Income
      (loss) from continuing operations
                            
                            
                            340,347
                            
                            
                            
                            (1,828,992
                            )Income
      (loss) from discontinued operations
                            
                            
                            -
                            
                            
                            
                            (94,894
                            )Net
      income (loss)
                            
                            
                            340,347
                            
                            
                            
                            (1,923,886
                            )Preferred
      stock cash dividend
                            
                            $
                            (151,800
                            )
                            
                            $
                            -Net
      income (loss) attributable to common shareholders
                            
                            $
                            188,547
                            
                            
                            $
                            (1,923,886
                            )Basic
      net income (loss) per share:Income
      (loss) from continuing operations
                            
                            $
                            0.03
                            
                            
                            $
                            (0.15
                            )Loss
      from discontinued operations
                            
                            
                            -
                            
                            
                            
                            (0.01
                            )Net
      income (loss)
                            
                            $
                            0.03
                            
                            
                            $
                            (0.15
                            )Net
      income (loss) attributable to common shareholders
                            
                            $
                            0.01
                            
                            
                            $
                            (0.15
                            )Diluted
      net income (loss) per share:Income
      (loss) from continuing operations
                            
                            $
                            0.01
                            
                            
                            $
                            (0.14
                            )Income
      (loss) from discontinued operations
                            
                            
                            -
                            
                            
                            
                            (0.01
                            )Net
      income (loss)
                            
                            $
                            0.01
                            
                            
                            $
                            (0.15
                            )Net
      income (loss) attributable to common shareholders
                            
                            $
                            0.00
                            
                            
                            $
                            (0.15
                            )Weighted
      average number of common shares:Basic
                            
                            
                            12,802,288
                            
                            
                            
                            12,603,744Diluted
                            
                            
                            45,001,720
                            
                            
                            
                            12,603,744





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


3


MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(unaudited)




March
      31,
                                                            
                                                            
                                                            December
      31,2010
                                                            
                                                            
                                                            2009AssetsCash
      and cash equivalents
                                                            
                                                            $
                                                            6,404,282
                                                            
                                                            
                                                            $
                                                            5,656,750Securities
      owned:Marketable,
      at fair value
                                                            
                                                            
                                                            3,661,796
                                                            
                                                            
                                                            
                                                            4,728,940Not
      readily marketable, at estimated fair value
                                                            
                                                            
                                                            892,003
                                                            
                                                            
                                                            
                                                            272,463Other
                                                            
                                                            
                                                            81,876
                                                            
                                                            
                                                            
                                                            67,448Restricted
      cash
                                                            
                                                            
                                                            1,072,086
                                                            
                                                            
                                                            
                                                            1,072,086Due
      from clearing broker
                                                            
                                                            
                                                            2,309,648
                                                            
                                                            
                                                            
                                                            2,546,581Accounts
      receivable, net
                                                            
                                                            
                                                            492,914
                                                            
                                                            
                                                            
                                                            470,992Prepaid
      expenses and other assets
                                                            
                                                            
                                                            1,156,681
                                                            
                                                            
                                                            
                                                            801,946Equipment
      and fixtures, net
                                                            
                                                            
                                                            417,428
                                                            
                                                            
                                                            
                                                            506,535Total
      assets
                                                            
                                                            $
                                                            16,488,714
                                                            
                                                            
                                                            $
                                                            16,123,741Liabilities
      and Stockholders'
      EquityLiabilities:Accounts
      payable
                                                            
                                                            $
                                                            463,758
                                                            
                                                            
                                                            $
                                                            346,220Commissions
      and bonus payable
                                                            
                                                            
                                                            3,896,318
                                                            
                                                            
                                                            
                                                            4,133,924Accrued
      expenses
                                                            
                                                            
                                                            2,544,581
                                                            
                                                            
                                                            
                                                            2,755,831Due
      to clearing and other brokers
                                                            
                                                            
                                                            8,514
                                                            
                                                            
                                                            
                                                            7,185Securities
      sold, not yet purchased
                                                            
                                                            
                                                            453,366
                                                            
                                                            
                                                            
                                                            161,461Deferred
      revenue
                                                            
                                                            
                                                            65,000
                                                            
                                                            
                                                            
                                                            304,334Capital
      lease obligation
                                                            
                                                            
                                                            330,081
                                                            
                                                            
                                                            
                                                            397,958Total
      liabilities
                                                            
                                                            
                                                            7,761,618
                                                            
                                                            
                                                            
                                                            8,106,913Stockholders’
      equity:Convertible
      Preferred stock, Series A–$0.0001 par value; 2,000,000
      sharesauthorized;
      2,000,000 shares issued and 0 shares outstanding as
ofMarch
      31, 2010 and December 31 2009; aggregate liquidationpreference
      of $0
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Convertible
      Preferred stock, Series B–$0.0001 par value; 12,500,000
      sharesauthorized;
      8,750,000 shares issued and 0 shares outstanding as ofMarch
      31, 2010 and December 31, 2009; aggregate liquidationpreference
      of $0
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Convertible
      Preferred stock, Series C–$0.0001 par value; 14,200,000
      sharesauthorized;
      11,800,000 shares issued and 0 shares outstanding as ofMarch
      31, 2010 and December 31, 2009; aggregate liquidationpreference
      of $0
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Convertible
      Preferred stock, Series D–$0.0001 par value; 24,000,000shares
      authorized, 23,720,916 shares issued and 23,162,778 sharesoutstanding
      as of March 31, 2010;  23,720,916 shares issued
    and23,720,916
      sharesand outstanding as of December 31, 2009;aggregate
      liquidation preference of $9,959,995 prior to conversion,and
      pari passu with common stock on conversion
                                                            
                                                            
                                                            2,316
                                                            
                                                            
                                                            
                                                            2,372Common
      stock, $0.0001 par value; 300,000,000 shares authorized;13,762,865
      and 12,988,073 shares issued and 13,561,288 and12,786,496
      shares outstanding as of March 31, 2010 andDecember
      31, 2009, respectively
                                                            
                                                            
                                                            1,376
                                                            
                                                            
                                                            
                                                            1,299Additional
      paid-in capital
                                                            
                                                            
                                                            133,424,093
                                                            
                                                            
                                                            
                                                            133,054,192Treasury
      stock
                                                            
                                                            
                                                            (225,613
                                                            )
                                                            
                                                            
                                                            (225,613
                                                            )Accumulated
      deficit
                                                            
                                                            
                                                            (124,475,076
                                                            )
                                                            
                                                            
                                                            (124,815,422
                                                            )Total
      stockholders’ equity
                                                            
                                                            
                                                            8,727,096
                                                            
                                                            
                                                            
                                                            8,016,828Total
      liabilities and stockholders’ equity
                                                            
                                                            $
                                                            16,488,714
                                                            
                                                            
                                                            $
                                                            16,123,741





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


4


MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited)




March
      31,
                
                
                March
      31,2010
                
                
                2009Cash
      flows from operating activities:Net
      income (loss)
                
                $
                340,347
                
                
                $
                (1,923,886
                )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Gain
      on sale of Institutional Cash Distributors
                
                
                -
                
                
                
                (1,200,000
                )Depreciation
      and amortization
                
                
                102,491
                
                
                
                157,852Stock-based
      compensation
                
                
                227,631
                
                
                
                89,616Loss
      on disposal of equipment and fixtures
                
                
                -
                
                
                
                294,379Provision
      for uncollectible accounts receivable
                
                
                (3,841
                )
                
                
                -Securities
      received for services
                
                
                (727,242
                )
                
                
                (168,913
                )Unrealized
      loss on securities owned
                
                
                447,798
                
                
                
                1,011,777Changes
      in operating assets and liabilities:Securities
      owned and sold, but not purchased
                
                
                1,004,523
                
                
                
                (2,070,773
                )Restricted
      cash
                
                
                -
                
                
                
                1,043Due
      from clearing broker
                
                
                236,934
                
                
                
                (244,809
                )Accounts
      receivable
                
                
                (18,080
                )
                
                
                20,728Prepaid
      expenses and other assets
                
                
                (354,735
                )
                
                
                34,529Accounts
      payable
                
                
                117,537
                
                
                
                (381,632
                )Commissions
      and bonus payable
                
                
                (237,606
                )
                
                
                856,116Accrued
      liabilities
                
                
                (193,214
                )
                
                
                (1,556,178
                )Due
      to clearing and other brokers
                
                
                1,329
                
                
                
                (19,180
                )Net
      cash provided by (used in) operating activities
                
                
                943,872
                
                
                
                (5,099,331
                )Cash
      flows from investing activities:Purchase
      of equipment and fixtures
                
                
                (13,382
                )
                
                
                -Sale
      of Panel Intelligence
                
                
                -
                
                
                
                702,965Sale
      of Institutional Cash Distributors
                
                
                -
                
                
                
                1,200,000Net
      cash (used in) provided by investing activities
                
                
                (13,382
                )
                
                
                1,902,965Cash
      flows from financing activities:Proceeds
      from the exercise of stock options and warrants
                
                
                36,720
                
                
                
                -Preferred
      stock dividend
                
                
                (151,800
                )
                
                
                -Debt
      service principal payments
                
                
                (67,878
                )
                
                
                (245,307
                )Net
      cash used in financing activities
                
                
                (182,958
                )
                
                
                (245,307
                )Increase
      (decrease) in cash and cash equivalents
                
                
                747,532
                
                
                
                (3,441,673
                )Cash
      and cash equivalents at beginning of year
                
                
                5,656,750
                
                
                
                6,358,128Cash
      and cash equivalents, assets held for sale
                
                
                -
                
                
                
                222,892Cash
      and cash equivalents at end of year
                
                $
                6,404,282
                
                
                $
                3,139,347Supplementary
      disclosure of cash flow information:Cash
      paid during the year:Interest
                
                $
                14,921
                
                
                $
                16,067Income
      taxes
                
                $
                -
                
                
                $
                3,216Noncash
      investing and financing activities:Warrant
      issued for legal settlement
                
                $
                257,370
                
                
                $
                -Stock
      received as part of Panel sale
                
                $
                -
                
                
                $
                100,000





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


5


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





1.
Significant Accounting Policies





Basis
of Presentation





The
interim unaudited financial statements included herein for Merriman Curhan Ford
Group, Inc. (formerly MCF Corporation), or the Company, have been prepared
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 2009 audited
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K and on Form 10-K/A for the year ended
December 31, 2009.





Under
Accounting Standards Codification Topic (“ASC”) 855, “Subsequent Events”, the
Company has evaluated all subsequent events through the date these consolidated
financial statements were filed with the SEC.





Securities
Owned





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





Fair
Value of Financial Instruments





Substantially
all of our financial instruments are recorded at fair value or contract amounts
that approximate fair value. Securities owned and securities sold, not yet
purchased, are stated at fair value, with any related changes in unrealized
appreciation or depreciation reflected in Principal Transactions in the
consolidated statements of operations. Financial instruments carried at contract
amounts include cash and cash equivalents and amounts due from and to brokers,
dealers and clearing brokers.





Fair
Value Measurement—Definition and Hierarchy





The
Company follows the provisions of ASC 820, “Fair Value Measurement” and
Disclosures for our financial assets and liabilities. Under ASC 820, fair value
is defined as the price that would be received to sell an asset or paid to
transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement
date.





Where
available, fair value is based on observable market prices or parameters or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by ASC 820 and directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:


6


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





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





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





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





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





For
further information on financial assets and liabilities that are measured at
fair value on a recurring and nonrecurring basis, and a description of valuation
techniques, see Note 5, Fair Value of Assets and Liabilities.





Investment
Banking Revenue





Investment
banking revenue includes underwriting and private placement agency fees earned
through the Company’s participation in public offerings and private placements
of equity and convertible debt securities and fees earned as financial advisor
in mergers and acquisitions and similar transactions. Underwriting revenue is
earned in securities offerings in which the Company acts as an underwriter and
includes management fees, selling concessions and underwriting fees. Fee revenue
relating to underwriting commitments is recorded when all significant items
relating to the underwriting cycle have been completed and the amount of the
underwriting revenue has been determined. This generally is the point at which
all of the following have occurred: (i) the issuer’s registration statement
has become effective with the SEC, or other offering documents are finalized,
(ii) the Company has made a firm commitment for the purchase of the shares
or debt from the issuer, and (iii) the Company has been informed of the
exact number of shares or the principal amount of debt that it has been
allotted.





Syndicate
expenses related to securities offerings in which the Company acts as
underwriter or agent are deferred until the related revenue is recognized or we
determine that it is more likely than not that the securities offerings will not
ultimately be completed. Underwriting revenue is presented net of related
expenses. As co-manager for registered equity underwriting transactions,
management must estimate the Company’s share of transaction related expenses
incurred by the lead manager in order to recognize revenue. Transaction related
expenses are deducted from the underwriting fee and therefore reduces the
revenue that is recognized as co-manager. Such amounts are adjusted to reflect
actual expenses in the period in which the Company receives the final
settlement, typically 90 days following the closing of the
transaction.





Merger
and acquisition fees and other advisory service revenue are generally earned and
recognized only upon successful completion of the engagement. Unreimbursed
expenses associated with private placement and advisory transactions are
recorded as expenses as incurred.


7


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





1.
Significant Accounting Policies — continued





Commissions
and Principal Transactions Revenue





Commissions
revenue includes revenue resulting from executing trades in 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 exchange-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.





Stock-based
Compensation Expense





The
Company measures and recognizes compensation expense based on estimated fair
values for all stock-based awards made to employees and directors, including
stock options, and restricted stock. The Company estimates fair value of
stock-based awards on the date of grant using the Black-Scholes 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. Stock-based compensation expense recognized
in the Company’s consolidated statement of operations includes compensation
expense for stock-based awards granted (i) prior to, but not yet vested as
of December 31, 2005, based on the grant date fair value, and
(ii) subsequent to December 31, 2005. Compensation expense for all
stock-based awards subsequent to December 31, 2005 is recognized using the
straight-line single-option method. Because stock-based compensation expense is
based on awards that are ultimately expected to vest, stock-based compensation
expense has been reduced to account for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.





To
calculate stock-based compensation resulting from the issuance of options,
restricted common stock, and warrants, the Company uses the Black-Scholes option
pricing model, which 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 stock-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 determined based on temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which temporary differences are expected to reverse. 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.


8


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





1.
Significant Accounting Policies — continued





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.





Segment
Reporting





The
Company has determined that it has only one operating and reportable segment,
Merriman Curhan Ford & Co., for the purpose of making operating decisions
and assessing performance, which comprised more than 90% of the Company’s
consolidated total assets as of March 31, 2010 and December 31, 2009, and
consolidated total revenues for the three-month period ended March 31, 2010 and
2009.





New
Accounting Pronouncements




In
February 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update No. 2010-09, "Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements," which
amends certain provisions of the current guidance, including the elimination of
the requirement for disclosure of the date through which an evaluation of
subsequent events was performed in issued and revised financial statements. This
guidance was effective for the first interim and annual reporting periods
beginning after issuance (March 31, 2010 for our company). The adoption of this
new guidance did not have a material impact on our consolidated financial
statements.




In
January 2010, the FASB issued Update No. 2010-06, "Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements," which amends the disclosure requirements related to
recurring and nonrecurring fair value measurements. The guidance requires new
disclosures on the transfers of assets and liabilities between Level 1 (quoted
prices in active market for identical assets or liabilities) and Level 2
(significant other observable inputs) of the fair value measurement hierarchy,
including the reasons and the timing of the transfers. Additionally, the
guidance requires a roll forward of activities on purchases, sales, issuance,
and settlements of the assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance also
clarifies the existing disclosure requirements in ASC 820-10 regarding: i) the
level of disaggregation of fair value measurements; and ii) the disclosures
regarding inputs and valuation techniques. The guidance became effective for the
Company with the reporting period beginning January 1, 2010, except for the
disclosure on the roll forward activities for Level 3 fair value measurements,
which will become effective for the Company with the reporting period beginning
January 1, 2011. Other than requiring additional disclosures, the adoption of
this new guidance did not have a material impact on our consolidated financial
statements. (See Note 5 - Fair Value of Financial Instruments.)


9


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





2.
Liquidity





We
incurred substantial losses and negative cash flows from operations in 2009 and
2008. We had net losses of $5,462,000 and $30,274,000 in 2009 and 2008,
respectively, and negative operating cash flows of $12,648,000 and $24,945,000
for the same respective years. As of March 31, 2010, we had retained deficit of
$124,475,000. While we believe our current funds will be sufficient to enable us
to meet our planned expenditures through at least April 1, 2011, if anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures if not to raise additional
capital. Failure to generate sufficient cash flows from operations, raise
additional capital or reduce certain discretionary spending could have a
material adverse effect on our ability to achieve our intended business
objectives.





3.
Issuance of Warrants





Convertible
Notes





On May
29, 2009, the Company sold and issued $525,000 in principal amount of Secured
Convertible Promissory Notes (each a “Note,” and collectively, the
“Notes”).  On June 1, 2009, the Company issued an additional $100,000 of
Notes. The investor group included eight individuals, comprised of certain
officers and employees of the Company as well as an outside investor.  The
Notes were issued in a private placement exempt from registration
requirements.  There were no underwriters, underwriting discounts or
commissions involved in the transactions.  The Notes were converted into
Series D Convertible Preferred Stock (see Note 4).  No Notes remain
outstanding.





The Notes
were issued with warrants (the “Warrants”) to purchase additional shares of
common stock of the Company at $0.50 per share for a number of shares of common
stock equal to 75% of the principal amount of the Notes purchased, divided by
$0.50.  The Warrants remain outstanding and are exercisable at any
time.





Bridge
Note





Ronald L.
Chez is a member of the Company’s Board of Directors.  Prior to Mr. Chez
joining the Board, he received a secured promissory note (the “Chez Note”) in
the principal amount of $500,000 from the Company in July 2009.  The Chez
Note was issued in a private placement to Mr. Chez as an accredited investor
exempt from registration requirements.  The Chez Note carried an interest
rate of 9% per annum, payable on maturity.  The principal and interest
accrued under the Chez Note was converted into investment in the Company’s
Series D Convertible Preferred Stock strategic transaction of September
2009.  The Chez Note was issued with ten-year warrants to purchase
1,162,791 shares of the Company’s common stock at $0.65 per share, which remain
outstanding.  The Chez Note was personally guaranteed by Messrs. Merriman
and Coleman.





D.
Jonathan Merriman is the Company’s Chief Executive Officer and Peter V. Coleman,
the Chief Financial Officer.  Messrs. Merriman and Coleman each originally
received ten-year warrants to purchase 581,395 shares of the Company’s common
stock at $0.65 per share as compensation for their personal guarantees. 
Subsequent to issuance, Messrs. Merriman and Coleman each transferred ownership
of 228,327 warrants to Mr. Chez and retained ownership of 290,698 warrants
each.  The balance of 62,370 warrants was transferred by each of Messrs.
Merriman and Coleman to third parties in connection with investments in the
Company’s Series D Preferred Convertible Stock strategic transaction of
September 2009.





The Chez
Note was converted into Series D Convertible Preferred Stock on September 8,
2009.  As of March 31, 2010, no portion of the Chez Notes remain
outstanding.  The warrants remain outstanding and may be exercised at the
discretion of the holders.


10


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





3.
Issuance of Warrants — continued





XL
Settlement Warrants





On
February 12, 2010, the Company settled its lawsuit with XL Specialty Insurance
Company.  As part of its settlement agreement dated September 8, 2009 with
DGB Investment, Inc., Craig Leipold, Heritage Bank of Commerce, Modern Bank,
Valley Community Bank, AEG Facilities and the Federal Deposit Insurance Company
(“FDIC”) as receiver for Security Pacific Bank (the “Litigants”), the Company
assigned certain rights of recovery to the Litigants.  The settlement was
for $5,750,000, of which the Company’ portion, pursuant to the settlement
agreement, was $325,000 less expenses.  As a result of the receipt of these
proceeds, the Company was obligated to issue 373,563 warrants to purchase shares
of the Company’s common stock at a price per share of $0.87.  As of
December 31, 2009, the Company had accrued for the $325,000 liability that was
paid out as warrants during the first quarter of 2010.





As of
March 31, 2010 and December 31, 2009 the Company had 29,472,212 and 29,023,649
of total warrants outstanding, respectively.





4. 
Series D Convertible Preferred Stock





On
September 8, 2009, the Company issued 23,720,916 shares of Series D Convertible
Preferred Stock along with 5-year warrants to purchase 23,720,916 shares of the
Company’s common stock with an exercise price of $0.65 per share.  The
investor group consisted of 56 individuals and entities, including certain
officers, directors and employees of the Company, as well as outside
investors.





The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933.  Each share of Series D Convertible Preferred Stock is convertible
into one share of Common Stock of the Company.  The Series D Convertible
Preferred Stock carries a dividend rate of 6% per annum, payable in cash
monthly.  As of March 31, 2010, the Company recorded a cash dividends
payable of $50,000 which was included in accounts payable.





The
warrants will expire five years from the date of the transaction.  Holders
of the Series D Convertible Preferred Stock may convert them into shares of the
Company’s common stock at any time in amounts no less than $100,000 unless all
of the shares held by the holder are for a lesser amount.  The Series D
Convertible Preferred Stock will automatically convert at the discretion of the
Company upon 10-day notice given when the average closing price of the Company’s
common stock over a 30-day period is at or above $3.00 per share and when the
average trading volume for the immediately prior four-week period is 30,000
shares or more, provided that the shares have been effectively registered with
the Securities and Exchange Commission or all of the Series D Convertible
Preferred Stock may be sold under Rule 144 of the 1933 Exchange
Act.





The
Company has accounted for this transaction as the issuance of convertible
preferred stock and a detachable stock warrant.  The total value of the
Series D Preferred Stock strategic transaction was $10,200,000, which
consists of $8,808,000 of cash proceeds and $1,392,000 of noncash proceeds from
conversions of prior notes and legal services.


11


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities





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





Corporate
Equities





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





Stock
Warrants





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





Underwriters’
Purchase Options





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





Preferred
Stock





Preferred
stock represents preferred equity in companies.  The preferred stock owned
by the Company is convertible at the Company’s discretion. For these securities,
the Company uses the exchange-quoted price of the common stock equivalents to
value the securities. They are classified within Level 1 or Level 3 of the fair
value hierarchy depending on the availability of an observable stock price on
actively traded markets.





Securities
Sold, Not Yet Purchased





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


12


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued





Summary





Assets
      at Fair Value at March 31, 2010Level
      1
                      
                      
                      Level
      2
                      
                      
                      Level
      3
                      
                      
                      TotalAssets:Corporate
      equities
                      
                      $
                      2,835,003
                      
                      
                      $
                      -
                      
                      
                      $
                      227,003
                      
                      
                      $
                      3,062,006Stock
      warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,186,716
                      
                      
                      
                      1,186,716Underwriters'
      purchase option
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      304,607
                      
                      
                      
                      304,607Preferred
      stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      470
                      
                      
                      
                      470Total
      securities owned
                      
                      $
                      2,835,003
                      
                      
                      $
                      -
                      
                      
                      $
                      1,718,796
                      
                      
                      $
                      4,553,799Liabilities:Securities
      sold, not yet purchased
                      
                      
                      453,366
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      453,366Total
      fair value liabilities
                      
                      $
                      453,366
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      453,366





Assets
      at Fair Value at December 31, 2009Level
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    TotalAssets:Corporate
      equities
                    
                    $
                    3,403,757
                    
                    
                    
                    -
                    
                    
                    $
                    21,731
                    
                    
                    $
                    3,425,488Stock
      warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,575,481
                    
                    
                    
                    1,575,481Underwriters'
      purchase option
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Preferred
      stock
                    
                    
                    434
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    434Total
      securities owned
                    
                    $
                    3,404,191
                    
                    
                    $
                    -
                    
                    
                    $
                    1,597,212
                    
                    
                    $
                    5,001,403Liabilities:Securities
      sold, not yet purchased
                    
                    
                    161,461
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    161,461Total
      fair value liabilities
                    
                    $
                    161,461
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    161,461


13


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued





The
following summarizes the change in carrying values associated with Level 3
financial instruments for the three months ended March 31, 2010 and
2009:





Underwriters'Corporate
                          
                          
                          Stock
                          
                          
                          Purchase
                          
                          
                          PreferredEquities
                          
                          
                          Warrants
                          
                          
                          Option
                          
                          
                          Stock
                          
                          
                          TotalBalance
      at December 31, 2009
                          
                          $
                          21,731
                          
                          
                          $
                          1,575,481
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,597,212Purchases,
      issuances, settlementsand
      sales
                          
                          
                          80,618
                          
                          
                          
                          208,624
                          
                          
                          
                          403,012
                          
                          
                          
                          -
                          
                          
                          
                          692,254Net
      transfers in (out)
                          
                          
                          209,153
                          
                          
                          
                          (409,528
                          )
                          
                          
                          -
                          
                          
                          
                          434
                          
                          
                          
                          (199,941
                          )Gains
      (losses):Realized
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Unrealized
                          
                          
                          (84,499
                          )
                          
                          
                          (187,861
                          )
                          
                          
                          (98,405
                          )
                          
                          
                          36
                          
                          
                          
                          (370,729
                          )Balance
      at March 31, 2010
                          
                          $
                          227,003
                          
                          
                          $
                          1,186,716
                          
                          
                          $
                          304,607
                          
                          
                          $
                          470
                          
                          
                          $
                          1,718,796Change
      in unrealized gains(losses)
      relating toinstruments
      still heldat
      March 31, 2010
                          
                          $
                          (84,500
                          )
                          
                          $
                          (185,528
                          )
                          
                          $
                          (98,405
                          )
                          
                          $
                          36
                          
                          
                          $
                          (368,396
                          )





Underwriters'Corporate
                          
                          
                          Stock
                          
                          
                          Purchase
                          
                          
                          PreferredEquities
                          
                          
                          Warrants
                          
                          
                          Option
                          
                          
                          Stock
                          
                          
                          TotalBalance
      at December 31, 2008
                          
                          $
                          695
                          
                          
                          $
                          1,605,451
                          
                          
                          $
                          27,995
                          
                          
                          $
                          -
                          
                          
                          $
                          1,634,141Purchases,
      issuances, settlementsand
      sales
                          
                          
                          50,998
                          
                          
                          
                          132,879
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          183,877Net
      transfers in (out)
                          
                          
                          (695
                          )
                          
                          
                          (10,315
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (11,010
                          )Gains
      (losses):Realized
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (91,058
                          )
                          
                          
                          -
                          
                          
                          
                          (91,058
                          )Unrealized
                          
                          
                          (23,032
                          )
                          
                          
                          (250,246
                          )
                          
                          
                          63,063
                          
                          
                          
                          -
                          
                          
                          
                          (210,215
                          )Balance
      at March 31, 2009
                          
                          $
                          27,966
                          
                          
                          $
                          1,477,769
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,505,735Change
      in unrealized gains(losses)
      relating toinstruments
      still heldat
      March 31, 2009
                          
                          $
                          (23,032
                          )
                          
                          $
                          (250,144
                          )
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (273,176
                          )


14




MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued





The
amounts of unrealized losses for the three months ended March 31, 2010 included
in the table above are all attributable to those assets held as of March 31,
2010. Net gains and losses (both realized and unrealized) for Level 3
financial assets (securities owned by the Company) are a component of “Principal
transactions” in the Consolidated Statements of Operations.




Transfers
within the Fair Value Hierarchy




We assess
our financial instruments on a quarterly basis to determine the appropriate
classification within the fair value hierarchy, as defined by ASC Topic 810.
Transfers between fair value classifications occur when there are changes in
pricing observability levels. Transfers of financial instruments among the
levels occur at the end of the reporting period. There were no significant
transfers between our Level 1 and Level 2 classified instruments during the
three months ended March 31, 2010.




The
following describes the valuation techniques used in estimating the fair value
of those financial instruments as of March 31, 2010 and December 31,
2009.




Corporate
Equities




As
compensation for investment banking services, the Company frequently receives
common stock of the client as partial compensation, in addition to cash
fees.  The common stock is typically issued prior to a registration
statement is effective.  The Company classifies these securities as
“not-readily marketable securities” as they are restricted stock and may be
freely traded only upon the effectiveness of a registration statement covering
them or upon the satisfaction of the requirements to qualify under the exemption
to the Federal Securities Act of 1933 provided by SEC Rule 144, including the
requisite holding period.  Once a registration statement covering the
securities is declared effective by the SEC or the securities have satisfied the
Rule 144 requirements, the Company classifies them as “marketable
securities.”




Typically,
the common stock is traded on stock exchanges and most are classified as Level 1
securities.  The fair value is based on observed closing stock price at the
measurement date.  Many securities are traded infrequently and therefore do
not have observable prices based on actively traded markets.  These
securities are classified as Level 3 securities. The corporate equities that are
classified as level 3 securities in the above table are valued based the market
value of the securities and other inputs derived from and corroborated with
observable market data. When observable, the prices of the infrequent trades are
adjusted based on management judgment.




Stock
Warrants




Also as
partial compensation for investment banking services, the Company may receive
stock warrants issued by the client.  The fair value of the stock warrants
is determined using the Black-Scholes model or similar valuation techniques.
Valuation inputs used in the Black-Scholes model include interest rate, stock
volatility, expected term and market price of the underlying stock. As these
require significant management assumptions, they are classified as Level 3
securities.




If the
underlying stock of the warrants is freely tradable, the warrants are considered
to be marketable.  If the underlying stock is restricted, subject to a
registration statement or to satisfying the requirements for a Rule 144
exemption, the warrants are considered to be non-marketable.


15


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued




Underwriters’
Purchase Options




The
Company may receive partial compensation for its investment banking services
also in the form underwriters’ purchase options (“UPOs”).  UPOs are
identical to warrants except, instead of a share of common stock, the UPO grants
the holder the right to purchase a “bundle” of securities, including common
stock and warrants to purchase common stock.




The fair
value of the UPO is determined using the Black-Scholes model or similar
technique, applied in two stages.  The first stage is to determine the
value of the warrants contained within the “bundle” and added to the fair value
of the stock within the bundle.  Once the fair value of the underlying
“bundle” is established, the Black-Scholes model is used again.  The fair
value of the “bundle” is used instead of the price of the underlying stock as
one of the inputs in the second stage of the Black-Scholes.




The use
of the valuation techniques requires significant management assumptions and
therefore UPOs are classified as Level 3 securities.




Securities
Sold, Not Yet Purchased




The
Company sells securities prior to purchasing them (short sales of stock). 
As these stocks are typically listed on an exchange and actively traded, the
Company uses the value at which the security was sold as the fair value and
classifies it as a Level 1 liability.





6.
Stock-Based Compensation Expense





Stock
Options





As
of March 31, 2010, there were 15,091,430 shares authorized for issuance under
the Option Plans, and 612,858 shares authorized for issuance outside of the
Option Plans. As of March 31, 2010, 3,547,503 shares were available for future
option grants under the Option Plans. There were no shares available for future
option grants outside of the Option Plans. Compensation expense for stock
options during the three months ended March 31, 2010 and 2009 was $453,000 and
$65,000, respectively..





The
following table is a summary of the Company’s stock option activity for the
three months ended March 31, 2010:





Weighted-AverageExerciseShares
                      
                      
                      PriceOutstanding
      at December 31, 2009
                      
                      
                      9,550,117
                      
                      
                      $
                      1.25Granted
                      
                      
                      486,000
                      
                      
                      
                      0.89Exercised
                      
                      
                      (108,000
                      )
                      
                      
                      (0.34
                      )Canceled
                      
                      
                      (340,675
                      )
                      
                      
                      (4.84
                      )Outstanding
      at March 31, 2010
                      
                      
                      9,587,442
                      
                      
                      
                      1.11Exercisable
      at March 31, 2010
                      
                      
                      1,089,840
                      
                      
                      $
                      2.07


16


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





6. Stock-based Compensation Expense —
continued





The
following table summarizes information with respect to stock options vested and
outstanding at March 31, 2010:





Options
      Outstanding at March 31, 2010
                          
                          
                          Vested
      Options at March 31, 2010Weighted-Average
                          
                          
                          Weighted-
                          
                          
                          
                          
                          
                          
                          
                          
                          Weighted-Remaining
                          
                          
                          Average
                          
                          
                          Aggregate
                          
                          
                          
                          
                          
                          Average
                          
                          
                          AggregateRange
      of
                          
                          
                          
                          
                          Contractual
                          
                          
                          Exercise
                          
                          
                          Intrinsic
                          
                          
                          
                          
                          
                          Exercise
                          
                          
                          IntrinsicExercise
      Price
                          
                          Number
                          
                          
                          Life
      (Years)
                          
                          
                          Price
                          
                          
                          Value
                          
                          
                          Number
                          
                          
                          Price
                          
                          
                          Value$0.0000
      - $0.4999
                          
                          
                          3,482,023
                          
                          
                          
                          9.10
                          
                          
                          $
                          0.43
                          
                          
                          $
                          1,058,187
                          
                          
                          
                          679,923
                          
                          
                          $
                          0.41
                          
                          
                          $
                          219,887$0.5000
      - $0.9999
                          
                          
                          1,176,420
                          
                          
                          
                          9.80
                          
                          
                          
                          0.86
                          
                          
                          
                          -
                          
                          
                          
                          3,273
                          
                          
                          
                          0.65
                          
                          
                          
                          256$1.0000
      - $1.4999
                          
                          
                          4,170,340
                          
                          
                          
                          9.61
                          
                          
                          
                          1.20
                          
                          
                          
                          -
                          
                          
                          
                          4,522
                          
                          
                          
                          1.41
                          
                          
                          
                          -$1.5000
      - $1.9999
                          
                          
                          172,788
                          
                          
                          
                          7.73
                          
                          
                          
                          1.63
                          
                          
                          
                          -
                          
                          
                          
                          42,788
                          
                          
                          
                          1.82
                          
                          
                          
                          -$2.0000
      - $4.9999
                          
                          
                          440,557
                          
                          
                          
                          5.72
                          
                          
                          
                          3.60
                          
                          
                          
                          -
                          
                          
                          
                          226,495
                          
                          
                          
                          3.30
                          
                          
                          
                          -$5.0000
      - $9.9999
                          
                          
                          88,808
                          
                          
                          
                          6.30
                          
                          
                          
                          6.62
                          
                          
                          
                          -
                          
                          
                          
                          76,333
                          
                          
                          
                          6.77
                          
                          
                          
                          -$10.0000
      - $19.9999
                          
                          
                          56,506
                          
                          
                          
                          3.52
                          
                          
                          
                          11.17
                          
                          
                          
                          -
                          
                          
                          
                          56,506
                          
                          
                          
                          11.17
                          
                          
                          
                          -9,587,442
                          
                          
                          
                          9.17
                          
                          
                          $
                          1.11
                          
                          
                          $
                          1,058,187
                          
                          
                          
                          1,089,840
                          
                          
                          $
                          2.07
                          
                          
                          $
                          220,143





As of
March 31, 2010, total unrecognized compensation expense related to unvested
stock options was $4,554,000. This amount is expected to be recognized as
expense over a weighted-average period of 3.43 years.





The
weighted average fair value of each stock option granted for the three months
ended March 31, 2010 was $0.65. The weighted average fair value of each
stock option granted for the three months ended March 31, 2009 was
$0.24. The fair value of each option award is estimated on the date of
grant using the Black-Scholes stock option pricing model, with the following
assumptions for the three months ended March 31, 2010 and 2009:





Three
      Months Ended March 31,2010
                  
                  
                  2009Expected
      Volatility
                  
                  
                  142
                  %
                  
                  
                  92
                  %Average
      expected term (years)
                  
                  
                  2.37
                  
                  
                  
                  4.54Risk-free
      interest rate
                  
                  
                  1.15
                  %
                  
                  
                  1.74
                  %Dividend
      yield
                  
                  
                  -
                  
                  
                  
                  -


17


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





6.
Stock-based Compensation Expense — continued





Restricted
Stock





At the
date of grant, the recipients of restricted stock have most of the rights of a
stockholder other than voting rights, subject to certain restrictions on
transferability and a risk of forfeiture. Restricted shares typically vest over
a two to four year period beginning on the date of grant. The fair value of
restricted stock is equal to the market value of the shares on the date of
grant. The Company recognizes the compensation expense for restricted stock on a
straight-line basis over the requisite service period. Compensation expense for
restricted stock during the three months ended March 31, 2010 was ($271,000). We
had a negative expense due to cancellation of restricted stock that had been
granted to an employee who terminated during the three months ended March 31,
2010.  Compensation expense for restricted stock during the same period in
2009 was $25,000.





The
following table is a summary of the Company's restricted stock activity for the
three months ended March 31, 2010:





Weighted-Restricted
                  
                  
                  Average
                  
                  
                  AggregateStock
                  
                  
                  Grant
      Date
                  
                  
                  IntrinsicOutstanding
                  
                  
                  Fair
      Value
                  
                  
                  ValueBalance
      as of December 31, 2009
                  
                  
                  38,366
                  
                  
                  $
                  9.84Granted
                  
                  
                  140,797
                  
                  
                  
                  0.83Vested
                  
                  
                  (67,338
                  )
                  
                  
                  (0.89
                  )Canceled
                  
                  
                  (32,143
                  )
                  
                  
                  (11.55
                  )Balance
      as of March 31, 2010
                  
                  
                  79,682
                  
                  
                  $
                  1.15
                  
                  
                  $
                  58,168





The
weighted average fair value of the restricted stock granted under the Company's
stock option plans for the three months ended March 31, 2010 and 2009 was
$0.83 and $0 per share, respectively. The fair value of the restricted
stock award is estimated on the date of grant using the intrinsic value
method.





As of
March 31, 2010, total unrecognized compensation expense related to restricted
stock was $82,000. This expense is expected to be recognized over a
weighted-average period of 3.27 year.





Warrants
Issued as Compensation





The
Company issued five-year warrants to purchase shares of the Company’s common
stock at $0.65 to the Chairman of the Strategic Advisory Committee, a committee
of the Board of Directors, as compensation for serving in that capacity. 
For the three months ended March 31, 2010, the Company issued 75,000
warrants.  The Company calculated the fair value of the warrants to be
$45,000 using the Black-Scholes option valuation model.  The balance
outstanding at March 31, 2010 was 168,333 warrants.


18


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





7.
Income Taxes




At the
end of each interim reporting period, the Company calculates an effective tax
rate based on the Company’s estimate of the tax provision (benefit) that will be
provided for the full year, stated as a percentage of estimated annual pre-tax
income (loss). The tax provision (benefit) for the interim period is determined
using this estimated annual effective tax rate. For the three months ended March
31, 2010, the Company recorded a $15,000 income tax expense. This relates
primarily to federal and state income tax recorded during the quarter as a
result of projected pre-tax profit after utilization of federal and state NOL
carryforward.  For the three months ended March 31, 2009, the Company
recorded an income tax expense of $3,000.  The minimal tax provision for
the three months ended March 31, 2009 is the result of the pre-tax loss of the
period.




Historically
and currently, the Company has recorded a valuation allowance on the deferred
tax assets, the significant component of which relates to net operating loss tax
carryforwards. Management continually evaluates the realizability of its
deferred tax assets based upon negative and positive evidence available. Based
on the evidence available at this time, the Company continues to conclude that
it is not “more likely than not” that it will be able to realize the benefit of
its deferred tax assets in the future.





The
Company does not have any material accrued interest or penalties associated with
any unrecognized tax benefits. The Company’s policy is to account for interest,
if any, as interest expense and penalties as income tax expense.





8.
Compliance with Listing Requirements





On March
4, 2010, the Company received notice from the NASDAQ Stock Market that the
Company is not currently in compliance with the requirements of NASDAQ Listing
Rule 5550(a)(2), which requires listed securities to maintain a minimum bid
price of $1.00 per share.  The Company has 180 days from the date of
notification to regain compliance.  The Company may be eligible at the end
of that period for an additional 180 days to regain compliance.





9.
Discontinued Operations





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





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





In
December 2008, management determined that the sale of Panel would reduce
investments required to develop Panel’s business and generate capital necessary
for the Company’s core business.   The sale of Panel was completed in
January 2009.  Management determined that the plan of sale criteria in ASC
360, “Property, Plant and Equipment”, had been met. As a result, the revenue and
expenses of Panel have been reclassified and included in discontinued operations
in the Consolidated Statements of Operations. Accordingly, the carrying
value of the Panel assets was adjusted to their fair value less costs to
sell.  As a result, an impairment loss in the amount of $1,937,000 was
recorded and is included in “Other expenses” for the year ended December 31,
2008.  In January 2009, the Company sold Panel to Panel Intelligence, LLC
(Newco) for $1,000,000 and shares of its common stock in the amount of
$100,000.


19


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





10. 
Sale of a Component of an Entity





On
January 16, 2009, the Company entered into an agreement to sell the assets of
ICD, a division of MCF, to a group of investors who are also its employees in
order to raise capital. The assets being sold include MCF’s rights in trademark,
copyright, and other intellectual property used in the business, customer lists,
marketing materials, and books and records. As of December 31, 2009, the Company
determined that the discontinued operations criteria in ASC Topic 205,
“Discontinued Operations,” had not been met, as such, the revenues and expenses
of ICD are still presented as part of continuing operations.  In accordance
with Securities and Exchange Commission (SEC) Staff Accounting Bulletin
(SAB) 104, “Revenue Recognition,” the Company recognized $2,000,000 as
Other Income for the year ended December 31, 2009.





To assist
in the transition of operations to the new owners, the Company is providing
substantial services to ICD, including collecting its revenues. Under guidance
provided in ASC Subtopic 605-45, “Principal Agent Considerations,” the Company
records ICD’s revenues and expenses at gross levels. In 2010, the Company
expects to no longer provide such services and will no longer record ICD
revenues.





For the
three months ended March 31, 2010, $7,122,000 of the Company’s commissions
revenue of $10,428,000  can be attributed to ICD compared to $6,074,000 of
$9,118,000 in the same period 2009.  For the three months ended March 31,
2010,  $7,087,000 of the Company’s operating expenses of $16,140,000 can be
attributed to ICD compared to $5,926,000 of $13,068,000 in the same period
2009.  These amounts would not have been recorded as the Company’s revenue
and expenses had the sale of ICD met the discontinued operations criteria. ICD
represented 43% of the Company’s total revenue and 44% of its total expense for
the three months ended March 31, 2010, respectively, and 60% and 45% of the
Company total revenues and expenses for same the period in 2009, respectively.
As of March 31, 2010, $2,035,000 of Due from Clearing Broker and $1,818,000 of
Commissions and Bonus Payable balances were attributed to ICD, and, as of
December 31, 2009, $2,492,000 of Due from Clearing Broker and $2,268,000 of
Commissions and Bonus Payable balances were attributed to ICD.


20


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





11.
Earnings/(Loss) per Share





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





Three
      Months Ended March 31,2010
                                
                                
                                2009Net
      income (loss) attributable to common shareholders - basic
                                
                                $
                                188,547
                                
                                
                                $
                                (1,923,886
                                )Convertible
      Preferred stock, series D dividends
                                
                                
                                151,800
                                
                                
                                
                                -Net
      income (loss) attributable to common shareholders -
diluted
                                
                                
                                340,347
                                
                                
                                
                                (1,923,886
                                )Weighted-average
      number of common shares -basic
                                
                                
                                12,802,288
                                
                                
                                
                                12,603,744Assumed
      exercise or conversion of all potentially dilutivecommon
      shares outstanding
                                
                                
                                32,199,432
                                
                                
                                
                                -Weighted-average
      number of common shares -diluted
                                
                                
                                45,001,720
                                
                                
                                
                                12,603,744Basic
      net income (loss) per share:Income
      (loss) from continuing operations
                                
                                $
                                0.03
                                
                                
                                $
                                (0.14
                                )Loss
      from discontinued operations
                                
                                
                                -
                                
                                
                                
                                (0.01
                                )Net
      income (loss) per share
                                
                                $
                                0.03
                                
                                
                                $
                                (0.15
                                )Net
      income (loss) attributable to common shareholders
                                
                                $
                                0.01
                                
                                
                                $
                                (0.15
                                )Diluted
      net income (loss) per share:Income
      (loss) from continuing operations
                                
                                $
                                0.01
                                
                                
                                $
                                (0.14
                                )Income
      (loss) from discontinued operations
                                
                                
                                -
                                
                                
                                
                                (0.01
                                )Net
      income (loss) per share
                                
                                $
                                0.01
                                
                                
                                $
                                (0.15
                                )Net
      income (loss) attributable to common shareholders
                                
                                $
                                0.01
                                
                                
                                $
                                (0.15
                                )


21


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





11.
Earnings/(Loss) per Share — continued





Basic
earnings per share is computed by dividing net loss by the weighted average
number of common shares outstanding, excluding shares of non-vested stock.
Diluted earnings per share is calculated by dividing net earnings 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, 2009 because the addition of
common shares that would be issued assuming exercise or conversion would be
anti-dilutive.  Interest and dividends are also not considered since
including them in the calculation of diluted earnings per share would be
anti-dilutive.





Shares
used in the diluted net loss per share computation 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 loss 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. Because the Company reported a
net loss during the three months ended March 31, 2009, the Company excluded the
impact of all stock options and warrants in the computation of diluted loss per
share, as their effect would be anti-dilutive.





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


22


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





11.
Earnings (Loss) per Share — continued




Three
      Months Ended March 31,2010
                                      
                                      
                                      2009Stock
      options and warrants excluded due to theexercise
      price exceeding the average fair valueof
      the Company's common stock during the period
                                      
                                      
                                      6,066,097
                                      
                                      
                                      
                                      1,454,058Weighted-average
      restricted stock, stock options andstock
      warrants, calculated using the treasurystock
      method, that were excluded due to theCompany
      reporting a net loss during the period
                                      
                                      
                                      -
                                      
                                      
                                      
                                      126,474Weighted-average
      shares issuable upon conversionof
      the Convertible Preferred stock, Series D
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Total
      common stock equivalents excluded fromdiluted
      net income (loss) per share
                                      
                                      
                                      6,066,097
                                      
                                      
                                      
                                      1,580,532





12.
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, 2010, Merriman
Curhan Ford & Co. had regulatory net capital, as defined, of $4,419,000,
which exceeded the amount required by $4,075,000. 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.





13.
Contingencies





A number
of lawsuits were filed against the Company’s wholly owned subsidiary, Merriman
Curhan Ford & Co. (“MCF”), including at least one which also names the
parent company as the defendant, in connection with the actions of William Del
Biaggio III (“Del Biaggio”), a former customer of MCF and David Scott Cacchione
(“Cacchione”), a former retail broker of MCF. The Company selected the claims it
judged to be the most threatening and settled all of them simultaneously with
its strategic transaction of $10.2 million closed on September 8, 2009. 
There are claims remaining in lawsuits and arbitrations filed against MCF
disclosed previously.


23


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





13.
Contingencies — continued





United
American Bank v. Merriman Curhan Ford & Co.





In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by United American Bank, which loaned money to Del Biaggio, alleging that
MCF entered into an account control agreement for an account that Del Biaggio
had previously pledged to another lender. The account pledged was in the name of
Del Biaggio. Plaintiff brought claims for, among other things, fraud arising out
of the failure to disclose the alleged previous pledge. Plaintiff alleges
damages in the amount of $1.75 million. After ensuring that the proper clearance
had been obtained from the court in Del Biaggio's bankruptcy case, MCF turned
over the pledged collateral to Plaintiff United American Bank, performing its
obligation under the account control agreement. MCF then demanded that it be
dismissed from the action.  On May 7, 2010, MCF was dismissed from this
action with prejudice.





Henry
Khachaturian v. Merriman Curhan Ford & Co.





In
January 2010, the Company was served with a complaint filed in the San Francisco
County Superior Court by Henry Khachaturian. The complaint also names as
defendants officers and former officers D. Jonathan Merriman, Gregory
Curhan, and Robert Ford. The statement of claim alleges that Mr. Khachaturian
was convinced by the Company to purchase shares of a small, risky stock in which
the Company held a position. It further alleges that the Company did not permit
Mr. Khachaturian to sell the shares when the stock’s price fell. The complaint
seeks unspecified compensatory and punitive damages.





Chuck
Peterson v. Merriman Curhan Ford & Co.





On
February 23, 2010, Chuck Peterson filed a complaint with the San Francisco
Superior Court, California, for fraud, breach of fiduciary duty, and
misrepresentation. The complaint was served on MCF on March 5,
2010.





The
Company believes it has meritorious defenses and intends to contest these claims
vigorously.





Merriman
Curhan Ford & Co. & Merriman Curhan Ford Group, Inc v. XL Specialty
Insurance Co.





On
February 12, 2010, the Company settled its lawsuit with XL Specialty Insurance
Company.  As part of its settlement agreement dated September 8, 2009 with
DGB Investment, Inc., Craig Leipold, Heritage Bank of Commerce, Modern Bank,
Valley Community Bank, AEG Facilities and the Federal Deposit Insurance Company
(“FDIC”) as receiver for Security Pacific Bank (the “Litigants”), the Company
assigned certain rights of recovery to the Litigants.  The settlement was
for $5,750,000, of which the Company’ portion, pursuant to the settlement
agreement, was $325,000 less expenses.  As a result of the receipt of these
proceeds, the Company was obligated to issue 373,563 warrants to purchase shares
of the Company’s common stock at a price per share of $0.87.  As of
December 31, 2009, the Company had accrued for the $325,000 liability that was
paid out as warrants during the first quarter of 2010.


24


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





13.
Contingencies — continued





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





On March
1, 2010, Irving Bronstein, other plaintiffs and MCF settled all legal
claims.  The Company has reserved appropriately, as of March 31, 2010, for
this matter.





The
Company and MCF deny any liability and are vigorously contesting the remaining
lawsuits and arbitrations. At this point, the Company cannot estimate the amount
of damages if they are resolved unfavorably and accordingly, management has not
provided an accrual for adverse judgments in these lawsuits and
arbitrations.  However, the Company is expecting to settle one or more
cases and has reserved appropriately as the amount of the settlement becomes
estimable.  (See Note 15, Subsequent Events, below.)





If the
Company or MCF were to be found liable in these lawsuits and arbitrations and
the plaintiffs were to be awarded the damages they seek, it would have a severe
impact on the Company's financial condition and the Company would likely not be
able to continue in business. Even if the Company and MCF ultimately prevail in
all of these lawsuits, they will almost certainly incur significant legal fees
which could also have a severe impact on the Company’s financial
condition.





From time
to time, the Company is also named as a defendant and acts as a plaintiff in the
routine conduct of its business.





14.
Related Party Transactions





Series
D Convertible Preferred Stock





On
September 8, 2009, the Company issued 23,720,916 shares of Series D Convertible
Preferred Stock along with 5-year warrants to purchase 23,720,916 shares of the
Company’s common stock at $0.65 each share.  The investor group constituted
of 56 individuals and entities including certain officers, directors and
employees of the Company, as well as outside investors.





The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933, as amended.  Cash consideration was deposited into escrow on or
around August 27, 2009.  Each share of Series D Convertible Preferred Stock
is convertible into one share of Common Stock of the Company.  The Series D
Convertible Preferred Stock carries a dividend rate of 6% per annum, payable in
cash monthly.





Three
of the investors in the Series D Convertible Preferred Stock transaction,
Messrs. Andrew Arno, Douglas Bergeron, and Ronald Chez, have since joined the
Company’s Board of Directors.  In addition, the Company’s CEO and CFO who
are also officers of Merriman Curhan Ford & Co. (“MCF&Co.”), the
Company’s primary operating subsidiary, along with 11 other executives and
senior managers of MCF&Co. were also investors in the Series D Convertible
Preferred Stock transaction.  Finally, all 5 members of the Company’s Board
of Directors prior to the transaction were investors in the Series D Convertible
Preferred Stock transaction.


25


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





14.
Related Party Transactions — continued





Temporary
Subordinated Loan





On January 20, 2010, the Company
borrowed $11,000,000 from DGB Investment, Inc. and the Bergeron Family Trust,
both controlled by Douglas G. Bergeron, a member of the Company’s Board of
Directors. The loan was in the form of a temporary subordinated loan to
supplement the Company’s net capital and enabled it to underwrite an initial
public offering, in accordance with Rule 15c3-1 of the Securities Exchange Act
of 1934.  The Company compensated Mr. Bergeron $731,000 in fees for the
loan.  As of March 31, 2010, the loan and interest have been paid in full
and no balance remains outstanding.





Strategic
Advisory Committee





The
Company formed a Strategic Advisory Committee of the Board of Directors chaired
by Mr. Ronald Chez, the lead investor in the Series D Convertible Preferred
Stock strategic transaction.  During the first year, the Chair of the
Committee will be compensated with warrants to purchase 300,000 shares the
Company’s common stock at $0.65, to be issued pro-rata on a monthly basis. 
To date, Mr. Chez is the sole member of the Committee.  No other
compensation arrangement for service on the Committee has been
made.





15.
Subsequent Events





Temporary
Subordinated Loan





On April 23, 2010, the Company borrowed
$1,000,000 from DGB Investment, Inc. (“DGB”) and $6,000,000 from Ronald L. Chez
IRA.  DGB is controlled by Douglas G. Bergeron.  Both Mr. Bergeron and
Mr. Chez are members of the Company’s Board of Directors. The loan was in the
form of a temporary subordinated loan to supplement the Company’s net capital
and enabled it to underwrite an initial public offering, in accordance with Rule
15c3-1 of the Securities Exchange Act of 1934.  On May 7, 2010, The Company
repaid the loan from DGB and paid $30,000 in fees for the loan.  The
Company will compensate Mr. Chez at least $180,000 in fees for the loan,
depending on the duration of the loan.





Peter
Marcil v. Merriman Curhan Ford & Co.





In
January 2009, MCF was served with a claim in FINRA Arbitration by Peter Marcil.
Mr. Marcil is a former at-will employee of MCF and worked in the investment
banking department. Mr. Marcil resigned from MCF in March of 2007.
Mr. Marcil alleged breach of an implied employment contract, wrongful
termination, and intentional infliction of emotional distress. On May 14, 2010,
MCF settled all claims with Mr. Marcil.  The Company accrued appropriate
settlement expenses for the three months ended March 31,
2010.


26


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,” “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 46 and elsewhere herein. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason. Numbers expressed herein
may be rounded to thousands of dollars.





Overview





We are a
financial services holding company that provides equity research, capital
markets services, corporate and venture services, and investment banking through
our primary operating subsidiary, Merriman Curhan Ford & Co.
(“MCF”). In 2009, we sold the operating assets of Panel Intelligence, LLC,
which had been our subsidiary dedicated to primary research, and discontinued
operations of MCF Asset Management, our subsidiary which managed investment
products.





MCF is an
investment bank and securities broker-dealer focused on fast-growing companies
and institutional investors. Our mission is to become a leader in the
researching, advising, financing, trading and investing in fast-growing
companies under $1 billion in market capitalization. We provide equity research,
brokerage and trading services primarily to institutions, as well as investment
banking and advisory services to corporate clients. We are attempting to gain
market share by originating differentiated research for our institutional
investor clients and providing specialized and integrated services for our
fast-growing corporate clients.





Institutional
Cash Distributors (“ICD”) is a division of MCF which brokers money market funds
serving the short-term investing needs of corporate finance departments at
companies throughout the United States and Europe. In January 2009, we sold
the primary assets related to the ICD operations to a group of investors which
included some of our employees. To assist in the transition of operations
to the new owners, we are providing substantial services to ICD, including
collecting its revenues. When ICD receives its broker-dealer license, we
will no longer provide such services and record ICD revenues.





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





MCF Asset
Management, LLC managed absolute return investment products for institutional
and high-net worth clients. We were the sub-advisor for the MCF Focus fund. In
an effort to refocus the holding company back to its core investment banking/
broker-dealers services, management liquidated the funds under management and
returned investments to the investors in the fourth quarter of 2008. We no
longer have, for all practical purposes, a subsidiary dedicated to asset
management. At December 31, 2009, we held an immaterial amount of illiquid
assets and were in the process of distributing these to investors.





We are
headquartered in San Francisco, with additional offices in New York, NY. As of
March 31, 2010 and December 31, 2009, we had 96 and 94 employees respectively,
including employees of our Institutional Cash Distributor division (ICD), whose
assets we sold in January 2009. Merriman Curhan Ford & Co. is registered
with the Securities and Exchange Commission (“SEC”) as a broker-dealer and is a
member of Financial Industry Regulatory Authority (“FINRA”) and the Securities
Investors Protection Corporation (“SIPC”).





27




Executive Summary





Revenue from continuing operations grew
by 64% in the first quarter 2010 relative to
the first quarter 2009. Our commissions revenue for the same period grew by 14%
year-over-year, due primarily to continued growth of our Institutional Cash
Distributors money fund business which is being sold.  (Please see
“Results of Operations” below for a more detailed view of the impact of selling
ICD assets.) Investment banking revenue continues to recover from the near
paralysis of late 2008 and early 2009 financial markets and grew by
397% year over year. Losses from principal
transactions improved 75% for the three months ended March 31,
2010 compared to the same period 2009 mainly due to the recovery of the broad
financial markets. We generated a net income of$340,000, or $0.03per share for the quarter of which
$0.01 is attributable to common shareholders.  Operationally, our core
business generated a profit of$960,000on a non-GAAP pro-forma
basisfor the three months
ended March 31, 2010 (please see SECRegulation G
Reconciliation of Non-GAAP Financial Measures, under Results of Operations,
below).





About $180,000 in legal andlitigation settlement
expensescan be
directly attributed to the settlement of the legal cases or to defending
ourselves in the remaining cases arising out of the Del Biaggio/Cacchione
matters.  We do not consider these expenses to be part of our on-going
core business.





Although the ICD business has
contributed to our revenue by a substantial amount ($7,122,000 in the quarter), it has notmateriallyadded to our net
results.  Since January 2009, upon agreement to sell the ICD assets
for $2,000,000, wepay
materiallyall amounts
received as revenue either as expenses related to ICD operations or as
commissions to the buyers of the ICD assets.





In the analysis and review of our core
business, we have also excluded the effect of the unrealized gains and losses
resulting from owning securities.  For the quarter endedMarch 31, 2010, we had and excluded an unrealizedloss of $448,000 from our
analysis.  In the third quarter 2009, when we began presenting our
reconciliation of U.S. GAAP to pro-forma results, we excluded again of $213,000 from our
analysis.





Business
Environment


For the
third quarter in a row, the U.S. economy has expanded. During the first three
months of 2010, the economy grew at a seasonally adjusted annual rate of 3.2%.
That's down from the 5.6% performance in the fourth quarter of last
year.  Personal consumption helped drive output forward, rising at the
fastest pace since the beginning of 2007. Consumption of durable goods, in
particular, boosted growth. The picture is somewhat less bright when investment
is considered. Slower growth in the first quarter relative to the fourth quarter
of last year is largely attributable to a reduced contribution from growth in
business inventories. In the fourth quarter, inventory adjustments accounted for
3.8 percentage points of the 5.6% growth performance. That fell to 1.6
percentage points in the first quarter. Setting aside inventory changes, the
underlying economy remains fairly weak, much as it was late last
year.


While the
economy continues to show signs of growth from the unprecedented levels reached
during 2009, there is still a level of uncertainty and volatility in the capital
markets. The growth and improvement in the capital markets that began during the
second half of 2009 carried over into the first quarter of 2010. While
encouraged by the signs of improvement, we operate in a challenging environment
that is still recovering from a recession. There has been an increase in
industry-wide equity and equity-related offerings compared to the difficult
conditions that existed during the first half of 2009.





Performance
in the financial services industry in which we operate is highly correlated to
the overall strength of economic conditions and financial market activity.
Overall market conditions are a product of many factors which may affect the
financial decisions made by investors, including their level of participation in
the financial markets. In turn, these decisions may affect our business results.
With respect to financial market activity, our profitability is sensitive to a
variety of factors, including the demand for investment banking services as
reflected by the number and size of equity financings and merger and acquisition
transactions, the volatility of the equity markets, and the volume and value of
trading in securities.


28




Our
business activities are focused in the CleanTech, Consumer/Internet/Media,
Health Care, Resources 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.





Series D Convertible Preferred
Stock





On September 8, 2009, we issued
23,720,916 shares of Series D Convertible Preferred Stock along with 5-year
warrants to purchase 23,720,916 shares of our common stock with an exercise
price of $0.65 per share.  The investor group of 56 constituted of
individuals and entities including certain of our officers, directors and
employees, as well as outside investors.  All or portions of the
principal and accrued interest of debt issued previously in 2009 were converted
into the Series D Convertible Preferred Stock shares.  None of these
debt instruments remain outstanding after September 8, 2009.  The
warrants issued in conjunction with the May 29 Convertible Notes and with the
July 31 Bridge Note remain outstanding.





The Series D Convertible Preferred Stock
was issued in a private placement exempt from registration requirements pursuant
to Regulation D of the Securities Act of 1933, as amended, which closed on
September 8, 2009.  Each share of Series D Convertible Preferred Stock
is convertible into one share of our Common Stock.  The Series D
Convertible Preferred Stock carries a dividend rate of 6% per annum, payable in
cash monthly.





The Series D Convertible Preferred Stock
has anti-dilution features including a full ratchet provision so that if we were
to pay dividends, split (forward or reverse) our common shares, or adjust our
shares outstanding due to a combination, the conversion and exercises prices,
respectively, would also adjust proportionally.  The warrants issued
in conjunction with the Series D Convertible Preferred Stock were amended and
the full ratchet provision originally included was removed as of December 28,
2009.





The warrants will expire 5 years from
the date of the transaction.  Holders of the Series D Convertible
Preferred Stock may convert their Series D Convertible Preferred Stock into
shares of our common stock at any time in amounts of no less that $100,000
unless it is for all of the shares held by the holder.  The Series D
Convertible Preferred Stock will automatically convert at our discretion upon
10-day notice given when the average closing price of our common stock over a
30-day period is at or above $3.00 per share and when the average trading volume
for the most recent four-week period is 30,000 shares or more, provided that the
shares have been effectively registered with the Securities and Exchange
Commission or all of the Series D Convertible Preferred Stock may be sold under
Rule 144 of the 1933 Exchange Act.





The total proceeds of $10,200,000 raised
in the transaction described above are accounted for under generally accepted
accounting principles, primarily ASC 470, “Debt”. We have accounted for this
transaction as the issuance of convertible preferred stock and a detachable
stock warrant.The $10,200,000 consisted of $8,808,000
of cash proceeds and $1,392,000 of noncash proceeds from conversions of prior
notes and legal services.


29


The Series D Convertible Preferred Stock
we issued pays dividends to the holders at an annual rate of 6%, payable monthly
in arrears.  As of March 31, 2010, we recorded a dividendspayable of $50,000 which
was includedin accrued
liabilities.





Liquidity and Capital
Resources





As of March 31, 2010, liquid assets
consisted primarily of cash and cash equivalents of$6,404,000and marketable securities of$3,662,000,for a total of$10,066,000, which is$320,000lower than$10,386,000in liquid assets as of December 31,
2009.





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, 2010, Merriman Curhan Ford & Co. had
regulatorynet capitalof $4,419,000which exceeded the required amount by$4,075,000.





Results of
Operations





Regulation G Reconciliation of Non-GAAP
Financial Measures





In evaluating our financial performance,
management reviews results from operations excluding non-operating revenues and
expenses.  Such pro-forma results are non-GAAP (Generally Accepted
Accounting Principles) performance measures but we believe it is useful to
assist investors in gaining an understanding of the trends and results of our
core business.  Pro-forma results should be viewed in addition to, and
not instead of, our reported results under U.S. GAAP.





The following is a reconciliation of
U.S. GAAP results to pro-forma results for the period
presented.


30





Three Months Ended March 31,2010
                                                                
                                                                
                                                                2009As Reported
                                                                
                                                                
                                                                Less ICD
                                                                
                                                                
                                                                Less Other (1)
                                                                
                                                                
                                                                Pro-Forma
                                                                
                                                                
                                                                As Reported
                                                                
                                                                
                                                                Less ICD
                                                                
                                                                
                                                                Less Other (1)
                                                                
                                                                
                                                                Pro-FormaRevenue:Commissions
                                                                
                                                                $
                                                                10,428,255
                                                                
                                                                
                                                                $
                                                                7,121,602
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                3,306,653
                                                                
                                                                
                                                                $
                                                                9,117,928
                                                                
                                                                
                                                                $
                                                                6,073,877
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                3,044,051Principal
      transactions
                                                                
                                                                
                                                                (206,781
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (447,798
                                                                )
                                                                
                                                                
                                                                241,017
                                                                
                                                                
                                                                
                                                                (842,536
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (1,011,777
                                                                )
                                                                
                                                                
                                                                169,241Investment
      banking
                                                                
                                                                
                                                                6,046,673
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                6,046,673
                                                                
                                                                
                                                                
                                                                1,216,417
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                1,216,417Advisory
      and other fees
                                                                
                                                                
                                                                239,373
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                239,373
                                                                
                                                                
                                                                
                                                                558,813
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                558,813Total
      revenue
                                                                
                                                                
                                                                16,507,520
                                                                
                                                                
                                                                
                                                                7,121,602
                                                                
                                                                
                                                                
                                                                (447,798
                                                                )
                                                                
                                                                
                                                                9,833,716
                                                                
                                                                
                                                                
                                                                10,050,622
                                                                
                                                                
                                                                
                                                                6,073,877
                                                                
                                                                
                                                                
                                                                (1,011,777
                                                                )
                                                                
                                                                
                                                                4,988,522Operating
      expenses:Compensation
      andbenefits
                                                                
                                                                
                                                                11,915,532
                                                                
                                                                
                                                                
                                                                6,359,281
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                5,556,251
                                                                
                                                                
                                                                
                                                                9,265,167
                                                                
                                                                
                                                                
                                                                5,615,703
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                3,649,464Brokerage
      andclearing
      fees
                                                                
                                                                
                                                                458,216
                                                                
                                                                
                                                                
                                                                21,126
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                437,090
                                                                
                                                                
                                                                
                                                                312,959
                                                                
                                                                
                                                                
                                                                14,930
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                298,029Professional
      services
                                                                
                                                                
                                                                466,794
                                                                
                                                                
                                                                
                                                                204,246
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                262,548
                                                                
                                                                
                                                                
                                                                767,234
                                                                
                                                                
                                                                
                                                                2,050
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                765,184Occupancy
      andequipment
                                                                
                                                                
                                                                482,781
                                                                
                                                                
                                                                
                                                                8,177
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                474,604
                                                                
                                                                
                                                                
                                                                576,390
                                                                
                                                                
                                                                
                                                                17,509
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                558,881Communicationsand
      technology
                                                                
                                                                
                                                                694,502
                                                                
                                                                
                                                                
                                                                152,429
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                542,073
                                                                
                                                                
                                                                
                                                                721,265
                                                                
                                                                
                                                                
                                                                43,507
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                677,758Depreciation
      andamortization
                                                                
                                                                
                                                                102,491
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                102,491
                                                                
                                                                
                                                                
                                                                147,242
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                147,242Travel
      andentertainment
                                                                
                                                                
                                                                525,932
                                                                
                                                                
                                                                
                                                                227,423
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                298,509
                                                                
                                                                
                                                                
                                                                235,124
                                                                
                                                                
                                                                
                                                                155,994
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                79,130Legal
      and litigationsettlement
      expense
                                                                
                                                                
                                                                390,077
                                                                
                                                                
                                                                
                                                                68,966
                                                                
                                                                
                                                                
                                                                179,544
                                                                
                                                                
                                                                
                                                                141,567
                                                                
                                                                
                                                                
                                                                345,516
                                                                
                                                                
                                                                
                                                                16,544
                                                                
                                                                
                                                                
                                                                776,385
                                                                
                                                                
                                                                
                                                                (447,413
                                                                )Other
      expenses
                                                                
                                                                
                                                                1,103,969
                                                                
                                                                
                                                                
                                                                45,467
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                1,058,502
                                                                
                                                                
                                                                
                                                                696,623
                                                                
                                                                
                                                                
                                                                60,126
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                636,497Total
      operatingexpenses
                                                                
                                                                
                                                                16,140,294
                                                                
                                                                
                                                                
                                                                7,087,115
                                                                
                                                                
                                                                
                                                                179,544
                                                                
                                                                
                                                                
                                                                8,873,635
                                                                
                                                                
                                                                
                                                                13,067,520
                                                                
                                                                
                                                                
                                                                5,926,363
                                                                
                                                                
                                                                
                                                                776,385
                                                                
                                                                
                                                                
                                                                6,364,772Operating
      income/(loss)
                                                                
                                                                $
                                                                367,226
                                                                
                                                                
                                                                $
                                                                34,487
                                                                
                                                                
                                                                $
                                                                (627,342
                                                                )
                                                                
                                                                $
                                                                960,081
                                                                
                                                                
                                                                $
                                                                (3,016,898
                                                                )
                                                                
                                                                $
                                                                147,514
                                                                
                                                                
                                                                $
                                                                (1,788,162
                                                                )
                                                                
                                                                $
                                                                (1,376,250
                                                                )





Note 1 – The column headed “Less Other”
includes unrealized gains/losses in “Principal transactions” revenues,
approximate “Legal and settlement expense” paid as related to the Del
Biaggio/Cacchione matters.


31


The following table sets forth the
results of operations for the three months ended March 31, 2010 and
2009:





Three Months EndedMarch 31,
                                          
                                          
                                          March 31,2010
                                          
                                          
                                          2009Revenue:Commissions
                                          
                                          $
                                          10,428,255
                                          
                                          
                                          $
                                          9,117,928Principal
      transactions
                                          
                                          
                                          (206,781
                                          )
                                          
                                          
                                          (842,536
                                          )Investment
      banking
                                          
                                          
                                          6,046,673
                                          
                                          
                                          
                                          1,216,417Advisory and other
      fees
                                          
                                          
                                          239,373
                                          
                                          
                                          
                                          558,813Total
    revenue
                                          
                                          
                                          16,507,520
                                          
                                          
                                          
                                          10,050,622Operating
      expenses:Compensation and
      benefits
                                          
                                          
                                          11,915,532
                                          
                                          
                                          
                                          9,265,167Brokerage and clearing
      fees
                                          
                                          
                                          458,216
                                          
                                          
                                          
                                          312,959Professional
      services
                                          
                                          
                                          466,794
                                          
                                          
                                          
                                          767,234Occupancy and
      equipment
                                          
                                          
                                          482,781
                                          
                                          
                                          
                                          576,390Communications and
      technology
                                          
                                          
                                          694,502
                                          
                                          
                                          
                                          721,265Depreciation and
      amortization
                                          
                                          
                                          102,491
                                          
                                          
                                          
                                          147,242Travel and business
      development
                                          
                                          
                                          525,932
                                          
                                          
                                          
                                          235,124Legal services and litigation
      settlement expense
                                          
                                          
                                          390,077
                                          
                                          
                                          
                                          345,516Other
                                          
                                          
                                          1,103,969
                                          
                                          
                                          
                                          696,623Total operating
      expenses
                                          
                                          
                                          16,140,294
                                          
                                          
                                          
                                          13,067,520Operating
      income/(loss)
                                          
                                          
                                          367,226
                                          
                                          
                                          
                                          (3,016,898
                                          )Other
income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,200,000Interest
    income
                                          
                                          
                                          3,335
                                          
                                          
                                          
                                          6,487Interest
      expense
                                          
                                          
                                          (14,920
                                          )
                                          
                                          
                                          (15,365
                                          )Income/(loss) from continuing
      operations beforeincome
taxes
                                          
                                          
                                          355,641
                                          
                                          
                                          
                                          (1,825,776
                                          )Income tax
      benefit
                                          
                                          
                                          (15,294
                                          )
                                          
                                          
                                          (3,216
                                          )Income/(loss) from continuing
      operations
                                          
                                          
                                          340,347
                                          
                                          
                                          
                                          (1,828,992
                                          )Income/(loss) on discontinued
      operations
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (94,894
                                          )Net
      income/(loss)
                                          
                                          $
                                          340,347
                                          
                                          
                                          $
                                          (1,923,886
                                          )Net income/(loss) attributable to
      common shareholders
                                          
                                          $
                                          188,547
                                          
                                          
                                          $
                                          (1,923,886
                                          )


32




Our net
income (loss) for the three months ended March 31, 2010 and 2009 included the
following non-cash and settlement related expenses:





Three Months Ended March 31,2010
                  
                  
                  2009Non-cash
      legal settlement expense
                  
                  $
                  257,370
                  
                  
                  $
                  -Stock-based
      compensation
                  
                  
                  227,631
                  
                  
                  
                  89,616Depreciation
      and amortization
                  
                  
                  102,491
                  
                  
                  
                  157,852Provision
      for uncollectible accounts receivable
                  
                  
                  (3,841
                  )
                  
                  
                  -Total
                  
                  $
                  583,651
                  
                  
                  $
                  247,468





The
following table sets forth our revenue and transaction volumes from our
investment banking activities for the three months ended March 31, 2010 and
2009:





Three Months Ended March 31,2010
                    
                    
                    2009Revenue:Capital
      raising
                    
                    $
                    5,938,339
                    
                    
                    $
                    322,883Financial
      advisory
                    
                    
                    108,334
                    
                    
                    
                    893,534Total
      investment banking revenue
                    
                    $
                    6,046,673
                    
                    
                    $
                    1,216,417Transaction
      Volumes:Public
      offerings:Capital
      underwritten participations
                    
                    $
                    183,500,000
                    
                    
                    $
                    -Number
      of transactions
                    
                    
                    3
                    
                    
                    
                    -Private
      placements:Capital
      raised
                    
                    $
                    83,869,150
                    
                    
                    $
                    1,753,000Number
      of transactions
                    
                    
                    6
                    
                    
                    
                    1Financial
      advisory:Transaction
      amounts
                    
                    $
                    28,028,500
                    
                    
                    $
                    27,600,000Number
      of transactions
                    
                    
                    3
                    
                    
                    
                    3





Our
investment banking revenue was $6,047,000 or 37% of our revenue during first
quarter 2010, representing a 397% increase from the similar quarter in 2009.
During the first quarter 2010, the financial markets were in the process of
recovering, unlike the same period in 2009 when the funding markets were
deadlocked. In the first quarter 2010, we participated in three times as many
transactions as in the first quarter 2009. We participated in three public
offerings, which includes two initial public offerings, acted as placement agent
for six private placements, and participated in three financial advisory
assignments.




During
the three months ended March 31, 2010 and March 31, 2009 we had one and no
investment banking clients that accounted for more than 10% of our revenue,
respectively.


33


Commissions
and Principal Transactions Revenue




Our
broker-dealer activity includes the following:




·
            Commissions -
      Commissions include revenue resulting from executing stock trades in
      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 EndedMarch 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Revenue:Commissions:Institutional
      equities
                    
                    $
                    3,306,653
                    
                    
                    $
                    3,044,051Institutional
      Cash Distributors
                    
                    
                    7,121,602
                    
                    
                    
                    6,073,877Total
      commissions revenue
                    
                    $
                    10,428,255
                    
                    
                    $
                    9,117,928Principal
      transactions:Customer
      principal transactions, proprietarytrading
      and market making
                    
                    $
                    393,452
                    
                    
                    $
                    (372,795
                    )Investment
      portfolio
                    
                    
                    (600,233
                    )
                    
                    
                    (469,741
                    )Total
      principal transactions revenue
                    
                    $
                    (206,781
                    )
                    
                    $
                    (842,536
                    )Equity
      research:Publishing
      analysts
                    
                    
                    6
                    
                    
                    
                    8Companies
      covered
                    
                    
                    99
                    
                    
                    
                    97Transaction
      Volumes:Number
      of shares traded
                    
                    
                    181,578,454
                    
                    
                    
                    289,586,917Number
      of active clients
                    
                    
                    217
                    
                    
                    
                    182





Commissions
amounted to $10,428,000, or 64%, of our revenue during the first quarter 2010,
representing a 14% increase from the similar period in 2009. The increase was
mostly attributable to ICD, which we are selling.  Excluding ICD,
commissions improved by 9% year over year.


34





Principal
transactions loss improved by 76% during the first quarter 2010 versus first
quarter 2009. The year-over-year improvement was primarily a result of realized
and unrealized gains from proprietary trading as well as the managed reduction
in the number of stocks for which we make a market. As of March 31, 2010, we
made markets in 162 stocks, compared to 171stocks as of March 31, 2009.
Principal transactions revenue consists of four different activities - customer
principal trades, market making, trading for our proprietary account, and
realized and unrealized gains and losses in our investment portfolio. As a
broker-dealer, we account for all of our marketable security positions on a
trading basis and as a result, all security positions are marked to fair market
value each day. Returns from market making and proprietary trading activities
tend to be more volatile than acting as agent or principal for
customers.





During
the first quarter of 2010, we lost $207,000 in principal transactions
trading losses versus a loss of $843,000 in the same period in
2009.  For the first quarter of 2010, we had an unrealized loss of
$448,000 and a realized gain of $241,000.





During
the first quarter 2010 and 2009, no single brokerage customer accounted for more
than 10% of our revenue.





Compensation
and Benefits Expenses




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





The
following table sets forth the major components of our compensation and benefits
for the three months ended March 31, 2010 and 2009:





Three Months Ended March
31,2010
                            
                            
                            2009Incentive
      compensation and discretionary bonuses
                            
                            $
                            8,870,902
                            
                            
                            $
                            6,463,327Salaries
      and wages
                            
                            
                            1,940,782
                            
                            
                            
                            2,012,652Stock-based
      compensation
                            
                            
                            227,631
                            
                            
                            
                            89,616Payroll
      taxes, benefits and other
                            
                            
                            876,217
                            
                            
                            
                            699,572Total
      compensation and benefits
                            
                            $
                            11,915,532
                            
                            
                            $
                            9,265,167Total
      compensation and benefits as apercentage
      of revenue
                            
                            
                            72
                            %
                            
                            
                            92
                            %Cash
      compensation and benefits as apercentage
      of revenue
                            
                            
                            71
                            %
                            
                            
                            91
                            %





The
increase in compensation and benefits expense of $2,650,000 or 29%, from the
first quarter 2009 to the first quarter 2010 was due mostly to increased
ICD revenues and corresponding commissions.  We sold the ICD assets
and will exclude the effects of ICD on our financial statements when we cease to
provide services to it, including collecting its revenues.  Excluding
ICD, compensation and benefit expenses increased year-over-year by
$1,907,000.  Our higher brokerage and investment banking revenue and
corresponding bonuses added somewhat to the compensation and benefit
expenses.  In March 2009, we had completed three reductions in force
and have re-built our staffing since then.


35


Cash
compensation is equal to total compensation and benefits expense excluding
stock-based compensation. Cash compensation and benefits expense as a percentage
of revenue decreased to 71% of revenues during the first quarter 2010 as
compared to 91% in the same period 2009. This decrease was primarily the result
of higher revenues.





Stock-based
compensation expense increased by 154% in the first quarter 2010 as compared to
the same period 2009. The increase in stock-based compensation expense can be
attributed to additional equity grants as compensation subsequent to the
Company’s Stock Options Give-Back Program in October 2008.  This
program resulted in about 3 million shares of stock options given back and an
atypically low expense for the three months ended March 31, 2009.  The
program was open to all employees.  Executive management gave back the
large majority of all stock options.





No single
sales professional accounted for more than 10% of our revenue during the three
months ended March 31, 2010 and 2009.




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. These expenses are almost entirely variable with
commission revenue and the volume of brokerage transactions. Our brokerage and
clearing fees increased by $145,000, or 46%, during the first quarter of 2010
over the first quarter of 2009. This increase reflected higher volume of trades
and higher costs associated with execution of foreign securities for our clients
during first quarter 2010 as compared to first quarter 2009. Execution fees we
pay for foreign securities are higher than they are for domestic
securities.





Professional
services expense includes audit and consulting fees, as well as expenses related
to investment banking transactions. The decrease of $300,000 or 39%, in the
first quarter of 2010 from the first quarter of 2009 was primarily attributed to
reduced use of 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 decrease of $94,000, or 16%, in the first
quarter of 2010 from the same quarter of 2009 was due primarily to reduced
rents.  In the first quarter 2009, we had begun to close down offices
and reduce rent expenses.





Communications
and technology expense includes market data and quote services, voice, data and
Internet service fees, and data processing costs. The decrease of $27,000, or
4%, in the first quarter of 2010 from the first quarter of 2009 was primarily
due to our continued cost reduction program.


36


Depreciation
and amortization expense primarily relate to the depreciation of our computer
equipment and leasehold improvements. The decrease of $45,000, or 30%, in the
first quarter of 2010 from the first quarter of 2009 was due to the complete
depreciation of some of the Company’s equipment, partially offset by the
selective acquisition of equipment.





Travel
and entertainment expense results from business development activities across
our various businesses. The increase of $291,000, or 124%, in the first quarter
of 2010 from the first quarter of 2009 was due mostly to increased business
development at ICD.





Legal
services and litigation settlement fees were lower in the first quarter 2010
compared to the first quarter 2009 due to stabilization of the litigation and
investigations related to Del Biaggio and Cacchione (see Legal Proceedings in
Item 1 of Part II).  For the first quarter 2009, the majority of the
fees were related to settlement.





Other
operating expense includes company events, recruiting fees, professional
liability and property insurance, marketing, business licenses and taxes, office
supplies and other miscellaneous expenses. The increase of approximately
$407,000, or 58%, in the first quarter of 2010 over the first quarter of 2009
was due to the cost of borrowing net capital (see Related Party Transactions,
below) during the three months ended March 31, 2010, partially offset by a loss
on disposal of fixed assets when we shut down offices and reduced our rental
expenses in the three months ended March 31, 2009.




Income
Tax Expense




At the
end of each interim reporting period, the Company calculates an effective tax
rate based on the Company’s estimate of the tax provision (benefit) that will be
provided for the full year, stated as a percentage of estimated annual pre-tax
income (loss). The tax provision (benefit) for the interim period is determined
using this estimated annual effective tax rate. For the three months ended March
31, 2010, the Company recorded a $15,000 income tax expense. This relates
primarily to federal and state income tax recorded during the quarter as a
result of projected pre-tax profit after utilization of federal and state NOL
carryforward.  For the three months ended March 31, 2009, the Company
recorded an income tax expense of $3,000.  The minimal tax provision
for the three months ended March 31, 2009 was the result of the pre-tax loss of
the period.





Historically
and currently, we have recorded a valuation allowance on the deferred tax
assets, the significant component of which relates to net operating loss tax
carryforwards. Management continually evaluates the realizability of its
deferred tax assets based upon negative and positive evidence available. Based
on the evidence available at this time, we continue to conclude that it is not
“more likely than not” that it will be able to realize the benefit of its
deferred tax assets in the future.


We do not
have any material accrued interest or penalties associated with any unrecognized
tax benefits. Our policy is to account for interest, if any, as interest expense
and penalties as income tax expense.





Other
Income





Other
income, shown in our Consolidated Statements of Operations, consists of
$1,200,000 recognized as revenue in the first quarter and $800,000 in the second
quarter 2009 related to the sale of our ICD assets.  All proceeds from
the sales have been received.


37


Off-Balance
Sheet Arrangements





We were
not a party to any off-balance sheet arrangements during the three months ended
March 31, 2010 and 2009. In particular, we do not have any interest in so-called
limited purpose entities, which include special purpose entities and structured
finance entities.





Commitments





The
following table summarizes our significant commitments as of March 31, 2010,
consisting of capital leases and future minimum lease payments under all
non-cancelable operating leases and other non-cancelable commitments with
initial or remaining terms in excess of one year.




Operating
                    
                    
                    Operating
                    
                    
                    CapitalCommitments
                    
                    
                    Leases
                    
                    
                    Leases2010
                    
                    $
                    630,651
                    
                    
                    $
                    1,271,580
                    
                    
                    $
                    195,5292011
                    
                    
                    149,096
                    
                    
                    
                    1,640,665
                    
                    
                    
                    146,6472012
                    
                    
                    55,030
                    
                    
                    
                    1,129,040
                    
                    
                    
                    -2013
                    
                    
                    -
                    
                    
                    
                    630,000
                    
                    
                    
                    -2014
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Thereafter
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      commitments
                    
                    
                    834,777
                    
                    
                    
                    4,671,285
                    
                    
                    
                    342,176Interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (12,095
                    )Net
      commitments
                    
                    $
                    834,777
                    
                    
                    $
                    4,671,285
                    
                    
                    $
                    330,081




Loss
from Discontinued Operations





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





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





In
December 2008, we determined that the sale of Panel would reduce investments
required to develop Panel’s business.  Its sale would also generate
capital necessary for our core business.   The sale of Panel was
completed in January 2009.  We determined that the plan of sale
criteria in ASC 360, “Property, Plant and Equipment”, had been met. As a result,
the revenue and expenses of Panel have been reclassified and included in
discontinued operations in the consolidated statements of operations as of
December 31, 2008. Accordingly, the carrying value of the Panel assets was
adjusted to their fair value less costs to sell.  As a result, an
impairment loss in the amount of $1,937,000 was recorded and is included in
“Other expenses” for the year ended December 31, 2008.  In January
2009, we sold Panel to Panel Intelligence, LLC (Newco) for $1,000,000 and shares
of our common stock in the amount of $100,000.


38





Sale
of ICD





On
January 16, 2009, the Company entered into an agreement to sell the assets of
Institutional Cash Distributors (ICD), a division of Merriman Curhan Ford &
Co., to a group of investors who are also its employees in order to raise
capital.  ICD is a broker of money market funds serving the short-term
investing needs of corporate finance departments at companies throughout the
United States and Europe.  The assets being sold include the Company’s
rights in trademark, copyright and other intellectual property used in the
business, customer lists, marketing materials, and books and
records.  As of March 31, 2009, the Company determined that the
discontinued operations criteria in ASC 360, “Property, Plant and Equipment”,
have not been met, as such the revenues and expenses of ICD are still presented
as part of continuing operations.  In accordance with ASC 605,
“Revenue Recognition”, the Company recognized $1.2 million in the first quarter
2009 and $800,000 in the second quarter 2009 as Other
Income.  All sales proceeds have been received.





The
Company continues to provide services to ICD, including collecting its
revenues.  The Company is in the process of transitioning the
collections process to ICD after which it will no longer include any of ICD’s
results in its financial statements.





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.




Securities
Owned





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





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





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





Valuation
of Securities Owned





“Securities
owned” and “Securities sold, but not yet purchased” are reflected in the
consolidated statements of financial condition on a trade-date basis. Related
unrealized gains or losses are generally recognized in “Principal transactions
revenue” in the Consolidated Statements of Operations. The use of fair value to
measure financial instruments is fundamental to our financial statements and is
one of our most critical accounting policies.


39





The fair
value of a financial instrument is the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (the exit price). Instruments that we own
(long positions) are marked to bid prices, and instruments that we have sold,
but not yet purchased (short positions), are marked to offer prices. Fair value
measurements are not adjusted for transaction costs. 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.




Substantially
all of our financial instruments are recorded at fair value or contract amounts
that approximate fair value. Securities owned and securities sold, not yet
purchased, are stated at fair value, with any related changes in unrealized
appreciation or depreciation reflected in Principal Transactions in the
consolidated statements of operations. Financial instruments carried at contract
amounts include cash and cash equivalents and amounts due from and to brokers,
dealers and clearing brokers.





Fair
Value Measurement—Definition and Hierarchy





The
Company adopted the provisions of ASC 820, “Fair Value Measurements and
Disclosures”. Under this standard, fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in
an orderly transaction between market participants at the measurement
date.





Where
available, fair value is based on observable market prices or parameters or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined in ASC 820 and directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:





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





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





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





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





For
further information on financial assets and liabilities that are measured at
fair value on a recurring and nonrecurring basis, and a description of valuation
techniques, see Note 5, Fair Value of Assets and Liabilities.


40


Revenue
Recognition




Investment
banking revenue includes underwriting and private placement agency fees earned
through our participation in public offerings and private placements of equity
and convertible debt securities and fees earned as financial advisor in mergers
and acquisitions and similar transactions. Underwriting revenue is earned in
securities offerings in which we act as an underwriter and includes management
fees, selling concessions and underwriting fees. Fee revenue relating to
underwriting commitments is recorded when all significant items relating to the
underwriting cycle have been completed and the amount of the underwriting
revenue has been determined. This generally is the point at which all of the
following have occurred: (i) the issuer’s registration statement has become
effective with the SEC, or other offering documents are finalized, (ii) we have
made a firm commitment for the purchase of the shares or debt from the issuer,
and (iii) we have been informed of the exact number of shares or the principal
amount of debt that it has been allotted.





Syndicate
expenses related to securities offerings in which we act as underwriter or agent
are deferred until the related revenue is recognized or we determine that it is
more likely than not that the securities offerings will not ultimately be
completed. Underwriting revenue is presented net of related expenses. As
co-manager for registered equity underwriting transactions, management must
estimate our share of transaction-related expenses incurred by the lead manager
in order to recognize revenue. Transaction-related expenses are deducted from
the underwriting fee and therefore reduce the revenue that is recognized as
co-manager. Such amounts are adjusted to reflect actual expenses in the period
in which we receive the final settlement, typically 90 days following the
closing of the transaction.





Merger
and acquisition fees, and other advisory service revenue are generally earned
and recognized only upon successful completion of the engagement. Unreimbursed
expenses associated with private placement and advisory transactions are
recorded as expenses as incurred.





Commissions
revenue and related clearing expenses are recorded on a trade-date basis as
security transactions occur. Principal transactions in regular-way trades are
recorded on the trade date, as if they had settled. Profit and loss arising from
all securities and commodities transactions entered into for the account and
risk of our company are recorded on a trade-date basis.





Primary
research revenue is recognized on a proportional performance basis as services
are provided. It is reported in our financial statements under captions labeled
“Discontinued Operations.”




OTCQX
revenue is recognized in two parts – Due Diligence and Listing Fees. Due
Diligence Fees are recognized at its completion. The Listing Fees are pro-rated
monthly from the time the end of the Due Diligence period until the end of the
engagement term.





Stock-Based
Compensation




On
January 1, 2006, we adopted guidelines incorporated in ASC 718, “Stock
Compensation”, which requires the measurement and recognition of compensation
expense, based on estimated fair values, for all stock-based awards, made to
employees and directors, including stock options, and restricted stock.
Stock-based compensation expense recognized in our consolidated statement of
operations includes compensation expense for stock-based awards granted
(i) prior to, but not yet vested as of December 31, 2005, based on the
grant date fair value, and (ii) subsequent to December 31, 2005.
Compensation expense for all stock-based awards subsequent to December 31,
2005 is recognized using the straight-line single-option method. Because
stock-based compensation expense is based on awards that are ultimately expected
to vest, stock-based compensation expense has been reduced to account for
estimated forfeitures. Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.


41


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
stock-based compensation expense is based on awards that are ultimately expected
to vest, it has been reduced to account for estimated forfeitures. ASC 718
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Changes in these inputs and assumptions can materially affect the
measure of estimated fair value of our stock-based compensation.





Deferred
Tax Valuation Allowance





We
account for income taxes in accordance with the provision of ASC 740, “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 not more likely than not that our deferred tax assets as of March 31, 2010
and 2009 will 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.





Related
Party Transactions





Series
D Convertible Preferred Stock





On
September 8, 2009, we issued 23,720,916 shares of Series D Convertible Preferred
Stock along with 5-year warrants to purchase 23,720,916 shares of our common
stock at $0.65 each share.  The investor group of 56 constituted of
individuals and entities including certain of our officers, directors and
employees, as well as outside investors.





The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933, as amended.  Cash consideration was deposited into escrow on or
around August 27, 2009.  Each share of Series D Convertible Preferred
Stock is convertible into one share of our Common Stock.  The Series D
Convertible Preferred Stock carries a dividend rate of 6% per annum, payable in
cash monthly.





Three of
the investors in the Series D Convertible Preferred Stock transaction, Messrs.
Andrew Arno, Douglas Bergeron, and Ronald Chez, have since joined our Board of
Directors.  In addition, our CEO and CFO who are also officers of
Merriman Curhan Ford & Co. (“MCF&Co.”), our primary operating
subsidiary, along with 11 other executives and senior managers of MCF&Co.
were also investors in the Series D Convertible Preferred Stock
transaction.  Finally, all 5 of the members of our Board of Directors
prior to the transaction were investors in the Series D Convertible Preferred
Stock transaction.





Temporary
Subordinated Loan





On
January 20, 2010, the Company borrowed $11,000,000 from DGB Investment, Inc. and
the Bergeron Family Trust, both controlled by Douglas G. Bergeron, a member of
the Company’s Board of Directors. The loan was in the form of a temporary
subordinated loan to supplement the Company’s net capital and enabled it to
underwrite an initial public offering, in accordance with Rule 15c3-1 of the
Securities Exchange Act of 1934.  The Company compensated Mr. Bergeron
$731,000 in fees for the loan. As of March 31, 2010, the loan and interest
have been paid in full and no balance remains outstanding.


42


Strategic
Advisory Committee





We formed
a Strategic Advisory Committee of the Board of Directors chaired by Mr. Ronald
Chez, the lead investor in the Series D Convertible Preferred Stock strategic
transaction.  During the first year, the Chair of the Committee will
be compensated with warrants to purchase 300,000 shares our common stock at
$0.65, to be issued pro-rata on a monthly basis.  To date, Mr. Chez is
the sole member of the Committee.  No other compensation arrangement
for service on the Committee has been made.





Subsequent
Events





Temporary
Subordinated Loan





On April 23, 2010, the Company borrowed
$1,000,000 from DGB Investment, Inc. (“DGB”) and $6,000,000 from Ronald L. Chez
IRA.  DGB is controlled by Douglas G. Bergeron.  Both Mr.
Bergeron and Mr. Chez are members of the Company’s Board of Directors. The loan
was in the form of a temporary subordinated loan to supplement the Company’s net
capital and enabled it to underwrite an initial public offering, in accordance
with Rule 15c3-1 of the Securities Exchange Act of 1934.  On May 7,
2010, The Company repaid the loan from DGB and paid $30,000 in fees for the
loan.  The Company will compensate Mr. Chez at least $180,000 in fees
for the loan, depending on the duration of the loan.





Peter
Marcil v. Merriman Curhan Ford & Co.





In
January 2009, MCF was served with a claim in FINRA Arbitration by Peter Marcil.
Mr. Marcil is a former at-will employee of MCF and worked in the investment
banking department. Mr. Marcil resigned from MCF in March of 2007.
Mr. Marcil alleged breach of an implied employment contract, wrongful
termination, and intentional infliction of emotional distress. On May 14, 2010,
MCF settled all claims with Mr. Marcil.  The Company accrued
appropriate settlement expenses for the three months ended March 31,
2010.


43





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. These trading positions in individual equities and equity indices
may be either long or short at any given time. Equity price risks result from
exposures to changes in prices and volatilities of individual equities and
equity indices. We seek to manage this risk exposure through diversification and
limiting the size of individual positions within the portfolio. The effect on
earnings and cash flows of an immediate 10% increase or decrease in equity
prices generally is not ascertainable and could be positive or negative,
depending on the positions we hold at the time. We do not establish hedges in
related securities or derivatives. From time to time, we also hold equity
securities received as compensation for our services in investment banking
transactions. These equity positions are always long; however, as the prices of
individual equity securities do not necessarily move in tandem with the
direction of the general equity market, the effect on earnings and cash flows of
an increase or decrease in equity prices generally is not
quantifiable.





Interest
Rate Risk





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




Foreign
Currency Risk




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


44





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, 2010.





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, 2010, that materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial
reporting.


45


PART
II.   OTHER INFORMATION




ITEM 1.         Legal
Proceedings





A number
of lawsuits have been filed against the Company’s wholly owned subsidiary,
Merriman Curhan Ford & Co. (“MCF”), including at least one which also names
the parent company as the defendant, in connection with the actions of William
Del Biaggio III (“Del Biaggio”), a former customer of MCF and David Scott
Cacchione (“Cacchione”), a former retail broker of MCF. The Company selected the
claims it judged to be the most threatening and settled all of them
simultaneously with its strategic transaction of $10.2 million closed on
September 8, 2009.  There are claims remaining in lawsuits and
arbitrations filed against MCF disclosed previously.





United
American Bank v. Merriman Curhan Ford & Co.





In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by United American Bank, which loaned money to Del Biaggio, alleging that
MCF entered into an account control agreement for an account that Del Biaggio
had previously pledged to another lender. The account pledged was in the name of
Del Biaggio. Plaintiff brought claims for, among other things, fraud arising out
of the failure to disclose the alleged previous pledge. Plaintiff alleges
damages in the amount of $1.75 million. After ensuring that the proper clearance
had been obtained from the court in Del Biaggio's bankruptcy case, MCF turned
over the pledged collateral to Plaintiff United American Bank, performing its
obligation under the account control agreement. MCF then demanded that it be
dismissed from the action.  On May 7, 2010, MCF was dismissed from
this action with prejudice.





Henry
Khachaturian v. Merriman Curhan Ford & Co.





In
January 2010, the Company was served with a complaint filed in the San Francisco
County Superior Court by Henry Khachaturian. The complaint also names as
defendants officers and former officers D. Jonathan Merriman, Gregory
Curhan, and Robert Ford. The statement of claim alleges that Mr. Khachaturian
was convinced by the Company to purchase shares of a small, risky stock in which
the Company held a position. It further alleges that the Company did not permit
Mr. Khachaturian to sell the shares when the stock’s price fell. The complaint
seeks unspecified compensatory and punitive damages.





Chuck
Peterson v. Merriman Curhan Ford & Co.





On
February 23, 2010, Chuck Peterson filed a complaint with the San Francisco
Superior Court, California, for fraud, breach of fiduciary duty, and
misrepresentation. The complaint was served on MCF on March 5,
2010.





The
Company believes it has meritorious defenses and intends to contest these claims
vigorously.





Merriman
Curhan Ford & Co. & Merriman Curhan Ford Group, Inc v. XL Specialty
Insurance Co.





On
February 12, 2010, the Company settled its lawsuit with XL Specialty Insurance
Company.  As part of its settlement agreement dated September 8, 2009
with DGB Investment, Inc., Craig Leipold, Heritage Bank of Commerce, Modern
Bank, Valley Community Bank, AEG Facilities and the Federal Deposit Insurance
Company (“FDIC”) as receiver for Security Pacific Bank (the “Litigants”), the
Company assigned certain rights of recovery to the Litigants.  The
settlement was for $5,750,000, of which the Company’ portion, pursuant to the
settlement agreement, was $325,000 less expenses.  As of March 31,
2010, the Company received a cash payment of $310,000.  As a result of
the receipt of these proceeds, the Company was obligated to issue 373,563
warrants to purchase shares of the Company’s common stock at a price per share
of $0.87.  As of December 31, 2009, the Company had accrued for the
$325,000 liability that was paid out as warrants during the first quarter of
2010.


46


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





On March
1, 2010, Irving Bronstein, other plaintiffs and MCF settled all legal
claims.  The Company has reserved appropriately, as of March 31, 2010,
for this matter.





The
Company and MCF deny any liability and are vigorously contesting the remaining
lawsuits and arbitrations. At this point, the Company cannot estimate the amount
of damages if they are resolved unfavorably and accordingly, management has not
provided an accrual for adverse judgments in these lawsuits and
arbitrations.  However, the Company is expecting to settle one or more
cases and has reserved appropriately as the amount of the settlement becomes
estimable.





If the
Company or MCF were to be found liable in these lawsuits and arbitrations and
the plaintiffs were to be awarded the damages they seek, it would have a severe
impact on the Company's financial condition and the Company would likely not be
able to continue in business. Even if the Company and MCF ultimately prevail in
all of these lawsuits, they will almost certainly incur significant legal fees
which could also have a severe impact on the Company’s financial
condition.





From time
to time, the Company is also named as a defendant and acts as a plaintiff in the
routine conduct of its business.


47


ITEM 1A. Risk
Factors





In
addition to the other information set forth in this report, including reports we
incorporate by reference, you should carefully consider the risk factors
previously disclosed in response to Item 1A to Part 1 of our Annual Report on
Form 10-K for the year ended December 31, 2009, filed on March 18,
2010, as amended by our Form 10-K/A filed on April 30, 2010.


48





ITEM
6. Exhibits





4.3
                  
                  Subscription
      Agreement by and among the Company and the subscribers dated May 29, 2009
      providing for the sale and issuance of Secured Convertible Promissory
      Notes. (Incorporated by reference to Current Report on Form 8-K filed on
      June 3, 2009)4.4
                  
                  Form
      of Secured Convertible Promissory Notes dated May 29, 2009 and June 1,
      2009. (Incorporated by reference to Current Report on Form 8-K filed on
      June 3, 2009)4.5
                  
                  Form
      of Security Agreement dated May 29, 2009 by and among the Company and the
      investors in the Secured Convertible Promissory Notes. (Incorporated by
      reference to Current Report on Form 8-K filed on June 3,
    2009)4.6
                  
                  Form
      of Warrants dated May 29, 2009 and June 1, 2009 by and among the Company
      and the investors in the Secured Convertible Promissory Notes.
      (Incorporated by reference to Current Report on Form 8-K filed on June 3,
      2009)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.


49


SIGNATURES




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




MERRIMAN
      CURHAN FORD GROUP, INC.May
      17, 2010
                                By:
                                /s/ D. JONATHAN
    MERRIMAND.
      Jonathan Merriman,Chief
      Executive Officer(Principal
      Executive Officer)May
      17, 2010
                                By:
                                /s/ PETER V. COLEMANPeter
      V. ColemanChief
      Financial Officer(Principal
      Financial Officer)





50