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 June 30, 2009




 ̈
            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   ̈





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   ̈    
No   ̈





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   ̈
            
            Accelerated
      filer   ̈Non-accelerated
      filer   ̈
            
            Smaller
      reporting company  x





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





The
number of shares of Registrant’s common stock outstanding as of August 7, 2009
was 12,733,287.





Merriman
Curhan Ford Group, Inc.


Index




Page No.PART
      I FINANCIAL INFORMATIONITEM
      1. Financial Statements (unaudited)Consolidated
      Statements of Operations For the Three Months and Six Months Ended June
      30, 2009 and 2008
                  
                  3Consolidated
      Statements of Financial Condition as of June 30, 2009 and December 31,
      2008
                  
                  4Consolidated
      Statements of Cash Flows For the Six Months Ended June 30, 2009 and
      2008
                  
                  5Notes
      to Consolidated Financial Statements
                  
                  6ITEM
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
                  
                  20ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  
                  32ITEM
      4. Controls and Procedures
                  
                  33PART
      II OTHER INFORMATIONITEM
      1. Legal Proceedings
                  
                  34ITEM
      1A. Risk Factors
                  
                  39ITEM
      6. Exhibits
                  
                  40Signatures
                  
                  41Certifications


2


PART
I.  FINANCIAL INFORMATION





ITEM
1.   Financial Statements (unaudited)





MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited)





Three Months Ended
                                                  
                                                  
                                                  Six Months EndedJune 30,
                                                    2009
                                                  
                                                  
                                                  June 30,
                                                    2008
                                                  
                                                  
                                                  June 30,
                                                    2009
                                                  
                                                  
                                                  June 30,
                                                    2008Revenue:Commissions
                                                  
                                                  $
                                                  9,969,922
                                                  
                                                  
                                                  $
                                                  7,892,372
                                                  
                                                  
                                                  $
                                                  19,087,850
                                                  
                                                  
                                                  $
                                                  16,361,082Principal
      transactions
                                                  
                                                  
                                                  747,039
                                                  
                                                  
                                                  
                                                  1,418,829
                                                  
                                                  
                                                  
                                                  (95,498
                                                  )
                                                  
                                                  
                                                  103,753Investment
      banking
                                                  
                                                  
                                                  1,067,450
                                                  
                                                  
                                                  
                                                  4,446,995
                                                  
                                                  
                                                  
                                                  2,283,867
                                                  
                                                  
                                                  
                                                  7,823,406Advisory
      and other fees
                                                  
                                                  
                                                  647,867
                                                  
                                                  
                                                  
                                                  543,134
                                                  
                                                  
                                                  
                                                  1,206,680
                                                  
                                                  
                                                  
                                                  239,600Total
      revenue
                                                  
                                                  
                                                  12,432,278
                                                  
                                                  
                                                  
                                                  14,301,330
                                                  
                                                  
                                                  
                                                  22,482,899
                                                  
                                                  
                                                  
                                                  24,527,841Operating
      expenses:Compensation
      and benefits
                                                  
                                                  
                                                  10,191,416
                                                  
                                                  
                                                  
                                                  11,101,879
                                                  
                                                  
                                                  
                                                  19,456,583
                                                  
                                                  
                                                  
                                                  23,329,054Brokerage
      and clearing fees
                                                  
                                                  
                                                  270,396
                                                  
                                                  
                                                  
                                                  709,183
                                                  
                                                  
                                                  
                                                  583,356
                                                  
                                                  
                                                  
                                                  1,484,484Professional
      services
                                                  
                                                  
                                                  919,795
                                                  
                                                  
                                                  
                                                  2,552,010
                                                  
                                                  
                                                  
                                                  2,032,544
                                                  
                                                  
                                                  
                                                  3,361,951Occupancy
      and equipment
                                                  
                                                  
                                                  486,491
                                                  
                                                  
                                                  
                                                  607,587
                                                  
                                                  
                                                  
                                                  1,062,881
                                                  
                                                  
                                                  
                                                  1,061,000Communications
      and technology
                                                  
                                                  
                                                  839,835
                                                  
                                                  
                                                  
                                                  983,826
                                                  
                                                  
                                                  
                                                  1,561,100
                                                  
                                                  
                                                  
                                                  1,893,739Depreciation
      and amortization
                                                  
                                                  
                                                  115,749
                                                  
                                                  
                                                  
                                                  133,988
                                                  
                                                  
                                                  
                                                  262,991
                                                  
                                                  
                                                  
                                                  257,905Travel
      and entertainment
                                                  
                                                  
                                                  374,609
                                                  
                                                  
                                                  
                                                  971,393
                                                  
                                                  
                                                  
                                                  609,733
                                                  
                                                  
                                                  
                                                  1,893,394Other
                                                  
                                                  
                                                  568,964
                                                  
                                                  
                                                  
                                                  1,224,706
                                                  
                                                  
                                                  
                                                  1,265,587
                                                  
                                                  
                                                  
                                                  2,001,697Total
      operating expenses
                                                  
                                                  
                                                  13,767,255
                                                  
                                                  
                                                  
                                                  18,284,572
                                                  
                                                  
                                                  
                                                  26,834,775
                                                  
                                                  
                                                  
                                                  35,283,224Operating
      loss
                                                  
                                                  
                                                  (1,334,977
                                                  )
                                                  
                                                  
                                                  (3,983,242
                                                  )
                                                  
                                                  
                                                  (4,351,876
                                                  )
                                                  
                                                  
                                                  (10,755,383
                                                  )Other
      income
                                                  
                                                  
                                                  800,000
                                                  
                                                  
                                                  ─
                                                  
                                                  
                                                  
                                                  2,000,000
                                                  
                                                  
                                                  ─Interest
      income
                                                  
                                                  
                                                  2,679
                                                  
                                                  
                                                  
                                                  34,016
                                                  
                                                  
                                                  
                                                  9,166
                                                  
                                                  
                                                  
                                                  130,420Interest
      expense
                                                  
                                                  
                                                  (28,458
                                                  )
                                                  
                                                  
                                                  (15,615
                                                  )
                                                  
                                                  
                                                  (43,823
                                                  )
                                                  
                                                  
                                                  (33,383
                                                  )Loss
      before provision for income tax
                                                  
                                                  
                                                  (560,756
                                                  )
                                                  
                                                  
                                                  (3,964,841
                                                  )
                                                  
                                                  
                                                  (2,386,533
                                                  )
                                                  
                                                  
                                                  (10,658,346
                                                  )(Provision
      for) benefit from income tax
                                                  
                                                  
                                                  (1,984
                                                  )
                                                  
                                                  
                                                  1,838,744
                                                  
                                                  
                                                  
                                                  (5,200
                                                  )
                                                  
                                                  
                                                  1,838,744Loss
      from continued operations
                                                  
                                                  
                                                  (562,740
                                                  )
                                                  
                                                  
                                                  (2,126,097
                                                  )
                                                  
                                                  
                                                  (2,391,733
                                                  )
                                                  
                                                  
                                                  (8,819,602
                                                  )Loss
      from discontinued operations
                                                  
                                                  ─
                                                  
                                                  
                                                  
                                                  (2,987,748
                                                  )
                                                  
                                                  
                                                  (94,894
                                                  )
                                                  
                                                  
                                                  (3,344,216
                                                  )Net
      loss
                                                  
                                                  $
                                                  (562,740
                                                  )
                                                  
                                                  $
                                                  (5,113,845
                                                  )
                                                  
                                                  $
                                                  (2,486,627
                                                  )
                                                  
                                                  $
                                                  (12,163,818
                                                  )Basic
      and diluted loss per share – continued operations
                                                  
                                                  
                                                  (0.04
                                                  )
                                                  
                                                  
                                                  (0.17
                                                  )
                                                  
                                                  
                                                  (0.19
                                                  )
                                                  
                                                  
                                                  (0.71
                                                  )Basic
      and diluted loss per share – discontinued operations
                                                  
                                                  ─
                                                  
                                                  
                                                  
                                                  (0.24
                                                  )
                                                  
                                                  
                                                  (0.01
                                                  )
                                                  
                                                  
                                                  (0.27
                                                  )Basic
      and diluted net loss per share
                                                  
                                                  $
                                                  (0.04
                                                  )
                                                  
                                                  $
                                                  (0.41
                                                  )
                                                  
                                                  $
                                                  (0.20
                                                  )
                                                  
                                                  $
                                                  (0.98
                                                  )Weighted
      average common shares outstanding:Basic
      and Diluted
                                                  
                                                  
                                                  12,510,805
                                                  
                                                  
                                                  
                                                  12,562,120
                                                  
                                                  
                                                  
                                                  12,549,477
                                                  
                                                  
                                                  
                                                  12,425,851





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


3


MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(unaudited)





June 30,
                                    2009
                                  
                                  
                                  December 31,
                                    2008ASSETSCash
      and cash equivalents
                                  
                                  $
                                  2,866,526
                                  
                                  
                                  $
                                  6,358,128Securities
      owned:Marketable,
      at fair value
                                  
                                  
                                  4,892,217
                                  
                                  
                                  
                                  4,622,577Not
      readily marketable, at estimated fair value
                                  
                                  
                                  274,953
                                  
                                  
                                  
                                  366,061Other
                                  
                                  
                                  146,631
                                  
                                  
                                  
                                  185,065Restricted
      cash
                                  
                                  
                                  1,127,851
                                  
                                  
                                  
                                  1,131,182Due
      from clearing broker
                                  
                                  
                                  2,031,959
                                  
                                  
                                  
                                  1,752,535Accounts
      receivable, net
                                  
                                  
                                  1,092,068
                                  
                                  
                                  
                                  612,234Prepaid
      expenses and other assets
                                  
                                  
                                  452,084
                                  
                                  
                                  
                                  619,759Equipment
      and fixtures, net
                                  
                                  
                                  702,642
                                  
                                  
                                  
                                  1,260,011Assets
      held for sale
                                  
                                  –
                                  
                                  
                                  
                                  1,958,038Total
      assets
                                  
                                  $
                                  13,586,931
                                  
                                  
                                  $
                                  18,865,590LIABILITIES
      AND STOCKHOLDERS' EQUITYAccounts
      payable
                                  
                                  $
                                  49,989
                                  
                                  
                                  $
                                  712,591Commissions
      and bonus payable
                                  
                                  
                                  3,182,874
                                  
                                  
                                  
                                  3,182,941Accrued
      expenses
                                  
                                  
                                  2,823,203
                                  
                                  
                                  
                                  3,637,345Due
      to clearing and other brokers
                                  
                                  
                                  7,890
                                  
                                  
                                  
                                  28,022Securities
      sold, not yet purchased
                                  
                                  
                                  3,829
                                  
                                  
                                  
                                  903,217Deferred
      revenue
                                  
                                  
                                  542,968
                                  
                                  
                                  
                                  709,691Notes
      payable – short term
                                  
                                  
                                  300,000
                                  
                                  
                                  ─Capital
      lease obligation
                                  
                                  
                                  653,056
                                  
                                  
                                  
                                  923,683Convertible
      notes payable, net
                                  
                                  
                                  248,490
                                  
                                  
                                  ─Liabilities
      held for sale
                                  
                                  –
                                  
                                  
                                  
                                  1,052,899Total
      liabilities
                                  
                                  
                                  7,812,299
                                  
                                  
                                  
                                  11,150,389Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock, Series A—$0.0001 par value; 2,000,000 shares authorized; 0 shares
      issued and outstanding as of June 30, 2009 and December 31, 2008,
      respectively; aggregate liquidation preference of $0
                                  
                                  ─
                                  
                                  
                                  ─Preferred
      stock, Series B—$0.0001 par value; 12,500,000 shares authorized; 1,250,000
      shares issued and 0 shares outstanding as of June 30, 2009 and December
      31, 2008; aggregate liquidation preference of $0
                                  
                                  ─
                                  
                                  
                                  ─Preferred
      stock, Series C—$0.0001 par value; 14,200,000 shares authorized; 1,685,714
      shares issued and 0 shares outstanding as of June 30, 2009 and December
      31, 2008; aggregate liquidation preference of $0
                                  
                                  ─
                                  
                                  
                                  ─Common
      stock, $0.0001 par value; 300,000,000 shares authorized; 12,756,656 and
      12,756,656 shares issued and 12,554,779 and 12,730,218 shares outstanding
      as of June 30, 2009 and December 31, 2008, respectively
                                  
                                  
                                  1,278
                                  
                                  
                                  
                                  1,278Additional
      paid-in capital
                                  
                                  
                                  127,839,252
                                  
                                  
                                  
                                  127,193,195Treasury
      stock
                                  
                                  
                                  (225,613
                                  )
                                  
                                  
                                  (125,613
                                  )Accumulated
      deficit
                                  
                                  
                                  (121,840,285
                                  )
                                  
                                  
                                  (119,353,659
                                  )Total
      stockholders' equity
                                  
                                  
                                  5,774,632
                                  
                                  
                                  
                                  7,715,201Total
      liabilities and stockholders' equity
                                  
                                  $
                                  13,586,931
                                  
                                  
                                  $
                                  18,865,590





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


4


MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited)




SixMonthsEnded
                        June30,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      loss
                      
                      $
                      (2,486,627
                      )
                      
                      $
                      (12,163,818
                      )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
                      
                      
                      273,601
                      
                      
                      
                      306,171Amortization
      of intangible assets
                      
                      
                      –
                      
                      
                      
                      233,070Gain
      on sale of ICD
                      
                      
                      (2,000,000
                      )
                      
                      
                      –Stock-based
      compensation
                      
                      
                      259,779
                      
                      
                      
                      1,316,606Amortization
      of discounts on convertible notes payable
                      
                      
                      9,768
                      
                      
                      
                      2,584Impairment
      of goodwill
                      
                      
                      –
                      
                      
                      
                      2,208,735Impairment
      of intangible assets
                      
                      
                      –
                      
                      
                      
                      392,781Loss
      on disposal of equipment and fixtures
                      
                      
                      294,379
                      
                      
                      
                      –Provision
      for bad debt
                      
                      
                      155,473
                      
                      
                      
                      280,543Securities
      received for services
                      
                      
                      (168,913
                      )
                      
                      
                      (1,545,788
                      )Unrealized
      loss on securities owned
                      
                      
                      693,648
                      
                      
                      
                      381,431Changes
      in operating assets and liabilities:Securities
      owned
                      
                      
                      (1,564,221
                      )
                      
                      
                      (2,057,190
                      )Restricted
      cash
                      
                      
                      3,331
                      
                      
                      
                      (441,406
                      )Due
      from clearing broker
                      
                      
                      (279,424
                      )
                      
                      
                      17,023Accounts
      receivable
                      
                      
                      (406,191
                      )
                      
                      
                      546,762Prepaid
      expenses and other assets
                      
                      
                      468,929
                      
                      
                      
                      (304,366
                      )Accounts
      payable
                      
                      
                      (804,959
                      )
                      
                      
                      915,272Commissions
      and bonus payable
                      
                      
                      (5,280
                      )
                      
                      
                      (10,870,120
                      )Accrued
      expenses
                      
                      
                      (1,383,720
                      )
                      
                      
                      (721,230
                      )Due
      to clearing and other brokers
                      
                      
                      (20,132
                      )
                      
                      
                      8,866Net
      cash used in operating activities
                      
                      
                      (6,960,559
                      )
                      
                      
                      (21,494,074
                      )Cash
      flows from investing activities:Purchase
      of equipment and fixtures
                      
                      
                      –
                      
                      
                      
                      (192,428
                      )Proceeds
      from sale of Panel
                      
                      
                      702,966
                      
                      
                      
                      –Proceeds
      from sale of ICD
                      
                      
                      2,000,000
                      
                      
                      
                      –Net
      cash provided by (used in) investing activities
                      
                      
                      2,702,966
                      
                      
                      
                      (192,428
                      )Cash
      flows from financing activities:Proceeds
      from the exercise of stock options and warrants
                      
                      
                      –
                      
                      
                      
                      470,304Debt
      service principal payments
                      
                      
                      (381,901
                      )
                      
                      
                      (325,632
                      )Proceeds
      from the issuance of convertible notes payable
                      
                      
                      625,000
                      
                      
                      
                      –Proceeds
      from the issuance of notes payable – short term
                      
                      
                      300,000
                      
                      
                      
                      –Net
      cash provided by financing activities
                      
                      
                      543,099
                      
                      
                      
                      144,672Decrease
      in cash and cash equivalents
                      
                      
                      (3,714,494
                      )
                      
                      
                      (21,541,830
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      6,358,128
                      
                      
                      
                      31,962,201Cash
      and cash equivalents, assets held for sale
                      
                      
                      222,892
                      
                      
                      
                      –Cash
      and cash equivalents at end of period
                      
                      $
                      2,866,526
                      
                      
                      $
                      10,420,371Supplementary
      disclosure of cash flow information:Cash
      paid during the period:Interest
                      
                      $
                      34,055
                      
                      
                      $
                      37,924Income
      taxes
                      
                      $
                      5,200
                      
                      
                      $
                      566,858Supplementary
      non-cash information:Stock
      received as part of sale of Panel
                      
                      
                      100,000
                      
                      
                      
                      –Conversion
      of note payable into common stock
                      
                      $
                      –
                      
                      
                      
                      200,000Property
      acquired through capitalized leases
                      
                      $
                      –
                      
                      
                      
                      805,776





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 financial statements included herein for Merriman Curhan Ford Group,
Inc. (formerly MCF Corporation), or the Company, have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the financial statements included in
this report reflect all normal recurring adjustments that the Company considers
necessary for the fair presentation of the results of operations for the interim
periods covered and the financial position of the Company at the date of the
interim statement of financial condition. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to understand the
information presented. The operating results for interim periods are not
necessarily indicative of the operating results for the entire year. These
financial statements should be read in conjunction with the Company’s 2008
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, 2008.





Under
FASB Statement No. 165, “Subsequent Events”, the Company has evaluated all
subsequent events through August 11, 2009, 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 the Company's financial instruments are recorded at fair value or
contract amounts that approximate fair value. Securities owned and securities
sold, not yet purchased are stated at fair value, with any related changes in
unrealized appreciation or depreciation reflected in Principal Transactions in
the consolidated statements of operations.  The carrying amounts of
the Company’s financial instruments, which include cash and cash equivalents,
restricted cash, securities owned, due from clearing broker, accounts
receivable, assets held for sale, accounts payable, commissions and bonus
payable, accrued expenses, due to clearing and other brokers, liabilities held
for sale and note payable approximate their fair values due to their short term
nature and, where applicable, market interest rates.





The
carrying value of the convertible notes of approximately $248,000 differs from
its fair value of $419,000 due to the $180,000 embedded beneficial conversion
option.  The fair value differs from the face amount of the notes of
$625,000 due to the $206,000 of warrants at fair value issued to the holders of
the Notes.





Fair
Value Measurement—Definition and Hierarchy





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





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


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 4, Fair Value of Assets & 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.





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 NASDAQ-listed and other
securities, and include transactions derived from activities as a market-maker.
Additionally, principal transactions include gains and losses resulting from
market price fluctuations that occur while holding positions in trading security
inventory. Commissions revenue and related clearing expenses are recorded on a
trade-date basis as security transactions occur. Principal transactions in
regular-way trades are recorded on the trade date, as if they had settled.
Profit and loss arising from all securities and commodities transactions entered
into for the account and risk of the Company are recorded on a trade-date
basis.


7


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





1.
Significant Accounting Policies - Continued





Share-Based
Compensation Expense





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





To
calculate option-based compensation, 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 share-based compensation
expense because a valuation allowance was maintained for all net deferred tax
assets.





Income
Taxes





The
Company uses the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
recorded to reduce deferred tax assets to an amount whose realization is more
likely than not. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the consolidated statements of operations in the
period that includes the enactment date.





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 June 30, 2009 and consolidated total revenues
for the three and six month period ended June 30, 2009.  In the fourth
quarter of 2008, Merriman Curhan Ford Group, Inc. decided to begin the process
of liquidating the funds under management by MCF Asset Management, LLC, and is
not considered an operating and reportable segment.   In January
2009, the Company sold its primary research business, Panel Intelligence, LLC.
and has presented its results of operations as discontinued
operations.


8


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





1.
Significant Accounting Policies - Continued





New
Accounting Pronouncements





SFAS
107-1 and APB 28-1. In April 2009, the FASB issued Staff Position SFAS 107-1 and
Accounting Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (SFAS 107-1 and APB 28-1).  This
proposal amends FASB Statement No. 107, “Disclosures about Fair Values of
Financial Instruments,” to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements.  The proposal also amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in all interim financial
statements.  The Company adopted SFAS 107-1 and APB 28-1 and provided
the additional disclosure requirements for second quarter 2009.  The
adoption of this guidance did not have a significant impact on the Company’s
financial position, results of operations, or cash flows.





SFAS
157-e.  In April 2009, the FASB issued Financial Staff Position (FSP)
157-e “Determining Whether a Market Is Not Active and a Transaction Is Not
Distressed” (SFAS 157-e).  This proposal provides additional guidance
in determining whether a market for a financial asset is not active and a
transaction is not distressed for fair value measurement purposes as defined in
SFAS 157, “Fair Value Measurements.”  The Company adopted the
provisions of SFAS 157-e during second quarter 2009.  This guidance
does not have a significant impact on the Company’s financial position, results
of operations, or cash flows.





SFAS 165.   In
May 2009, the FASB issued SFAS 165, “Subsequent Events.” This standard
establishes the accounting and disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be
issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date. The Company adopted the
provisions of SFAS 165 during the second quarter 2009.  This guidance
did not have any impact on the Company’s financial position, results of
operations, or cash flows.





2.
Going Concern





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





During
the six months ended June 30, 2009, the Company incurred a net loss of
$2,487,000 and used $6,961,000 in net cash from operating
activities.  At June 30, 2009, the Company had cash and cash
equivalents of $2,867,000, marketable securities of $4,892,000 and receivables
from clearing broker of $2,032,000.  The Company had liabilities of
$7,812,000. The Company’s ability to generate profits is highly dependent
on stock market trading volumes and the general economic environment. As a
result, the ability of the Company to meet its forward obligations and the
ability to continue as a going concern may be in question.





In 2008,
the Company incurred a net loss of over $30 million and used approximately $25
million in cash.





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





1.
            Continue
      to reduce operating costs





2.
            Shed
      non-essential operations





3.
            Negotiate
      a settlement of pending litigations





4.
            Raise
      additional capital


9


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





2.
Going Concern — continued





During
2008 and early 2009, the Company implemented significant expense control and
cost reduction programs focused on reducing cash losses and increasing
operational flexibility eliminating more than $10 million in annual operating
expenses. The primary contributor to these savings has been the elimination of
more than 50% of the Company’s workforce, as well as salary reductions. The
Board of Directors has voluntarily eliminated its compensation for the
first quarter of 2009.  The Company believes that it has been able to
execute these reductions with limited impact to its ability to generate and
execute new business in the current market environment. With these measures
largely complete, the Company believes that it has increased its ability to meet
its obligations during 2009 and beyond.





As a part
of the four-step plan mentioned above, in January of 2009, the Company shed
non-essential operations or those requiring substantial cash
infusions.  First, the Company sold Panel Intelligence, LLC on January
30, 2009. This subsidiary required a cash injection of $1,131,000 during 2008
and was projected to reach breakeven only in late 2009. Also in January 2009,
the Company sold its operations known as Institutional Cash Distributors to a
group of its employees. While this business was profitable, management
structured a transaction that substantially increases the near-term flow of
capital. The Company expects to finalize the sale of ICD in the third quarter
2009, when the buyers obtain their broker-dealer license although all the sales
proceeds have been received by June 30, 2009.





Finally,
the Company is in the process of shutting down MCF Asset Management, another
subsidiary in which the Company had invested considerable resources during 2008.
The result of these actions has been to reduce operating loses and increase
available cash, which will also strengthen its capital position.





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





The
Company is assessing the interest of both strategic and non-strategic investors
in providing additional capital to the business. There are no assurances that
the Company will be successful in completing its plans outlined above and in
raising sufficient additional capital for its continuing
operations.  In May 2009, the Company raised $625,000 by issuing
Convertible Notes to a group of investors consisting mostly of its employees and
officers.  In June 2009, it raised an additional $300,000 by issuing
promissory notes to three of its employees.





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





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





3.
Issuance of Debt





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 carry an interest rate of 11% per annum,
payable in cash quarterly, and are due upon the earlier of two years from
issuance or a change in control of the Company.  As part of this
transaction, the Company entered into a Security Agreement with the investors in
the Notes by which the Company pledged all assets of the Company as security for
the Notes.  If the Company were to liquidate, the investors in the
Notes would have to be repaid before any other obligations of the Company, which
would reduce the amount of assets available for distribution to the Company’s
Stockholders.


10


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





The Notes are convertible into common
stock of the Company at a price of $0.50 per share and come 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 Notes
are convertible beginning six months after issuance while the Warrants are
exercisable immediately.





Both the
Notes and the Warrants have anti-dilution features so that if the Company pays
dividends, splits (forward or reverse) its common shares, or adjusts its shares
outstanding due to a combination, the conversion and exercises prices,
respectively, would also adjust proportionally.  The Notes have a
two-year maturity and the warrants will expire 10 years from the date of the
transaction.  The Notes may be pre-paid at the discretion of the
Company upon 10 day notice and the holders of the Notes may elect to convert
prior to pre-payment.  If the Company’s common stock’s closing price
exceeds 200% of the exercise price for a consecutive period of twenty trading
days, it may force a conversion.





The total
proceeds of $625,000 raised in the transaction described above is accounted for
under generally accepted accounting principles, primarily APB 14, “Accounting
for Convertible Debt and Debt Issued with Stock Purchase Warrants”, EITF Issue
98-5, “Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios”, and EITF Issue 00-27,
“Application of Issue No. 98-5 to Certain Convertible Instruments”. The Company
has accounted for this transaction as the issuance of convertible debt and a
detachable stock warrant.  The total proceeds of $625,000 have been
allocated to these individual instruments based on their relative fair value as
determined by management.





The
Company estimated the fair value of its convertible debt at the time of
issuance.  As a result, the Notes and the Warrants are carried at fair
values of $419,000 and $206,000, respectively.  The Notes have an embedded
beneficial conversion option and the $419,000 value can be bifurcated into a
host valued at $239,000 and a beneficial conversion option valued at
$180,000.  The value of the Warrant was recorded as an increase to
additional paid-in capital. The total discount on the Notes of $206,000
will be amortized over the term of the Notes.  The amortization during
the quarter was in the amount of $7,000.





On June 30, 2009, the Company issued
$300,000 in unsecured promissory notes to three of its employees at an interest
rate of 3.25%.  The term of the notes is the earlier of October 31,
2009 or a change in control event defined as a debt or financing by the Company
in an amount of $6,000,000 or more.





4.
Fair Value of Assets and Liabilities





Fair
value is defined as the price at which an asset would sell for or an amount paid
to transfer a liability in an orderly transaction between market participants at
the measurement date (the exit price). Where available, fair value is based on
observable market prices or parameters or derived from such prices or
parameters. Where observable prices or 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 market and the instruments’ complexity.
Assets and liabilities recorded at fair value in the consolidated statement of
financial condition are categorized based upon the level of judgment associated
with the inputs used to measure their fair value.  A description of
the valuation techniques applied to the Company’s major categories of assets and
liabilities measured at fair value on a recurring basis follows.





Securities
Owned





Corporate
Equities





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





Stock
Warrants





Stock
warrants provide their holders with the right 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.


11


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





4.
Fair Value of Assets and Liabilities — continued





Underwriters’
Purchase Options





Underwriters’
purchase options represent the right to purchase securities of publicly-traded
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 publicly traded 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 to value the securities. They are classified within Level 1 of the fair
value hierarchy.





Securities
Sold, Not Yet Purchased





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





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





Assets at Fair Value at June 30, 2009Level 1
                  
                  Level 2
                  
                  Level 3
                  
                  TotalAssets:Securities
      owned:Corporate
      equities
                  
                  $
                  3,834,751
                  
                  
                  $
                  —
                  
                  
                  $
                  25,033
                  
                  
                  $
                  3,859,784Stock
      warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,306,930
                  
                  
                  
                  1,306,930Preferred
      stock
                  
                  
                  456
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  456Total
      securities owned
                  
                  $
                  3,835,207
                  
                  
                  $
                  —
                  
                  
                  $
                  1,331,963
                  
                  
                  $
                  5,167,170Liabilities:Securities
      sold, not yet purchased
                  
                  $
                  3,829
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  3,829Total
      fair value liabilities
                  
                  $
                  3,829
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  3,829





Assets at Fair Value at December 31, 2008Level 1
                  
                  Level 2
                  
                  Level 3
                  
                  TotalAssets:Securities
      owned:Corporate
      equities
                  
                  $
                  3,353,784
                  
                  
                  $
                  650
                  
                  
                  $
                  695
                  
                  
                  $
                  3,355,129Stock
      warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,605,451
                  
                  
                  
                  1,605,451Underwriters’
      purchase option
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  27,995
                  
                  
                  
                  27,995Preferred
      stock
                  
                  
                  63
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  63Total
      securities owned
                  
                  $
                  3,353,847
                  
                  
                  $
                  650
                  
                  
                  $
                  1,634,141
                  
                  
                  $
                  4,988,638Liabilities:Securities
      sold, not yet purchased
                  
                  $
                  903,217
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  903,217Total
      fair value liabilities
                  
                  $
                  903,217
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  903,217


12


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





The
following summarizes the change in carrying values associated with Level 3
financial instruments for the six months ended June 30, 2009:





Corporate
                              Equities
                            
                            
                            Stock
                              Warrants
                            
                            
                            Underwriters’
                              Purchase Option
                            
                            
                            TotalAssets:Balance
      at December 31, 2008
                            
                            $
                            695
                            
                            
                            $
                            1,605,451
                            
                            
                            $
                            27,995
                            
                            
                            $
                            1,634,141Purchases,
      issuances and settlements
                            
                            
                            50,998
                            
                            
                            
                            132,879
                            
                            
                            
                            —
                            
                            
                            
                            183,877Net
      transfers in / (out)
                            
                            
                            (13,490
                            )
                            
                            
                            (108,900
                            )
                            
                            
                            —
                            
                            
                            
                            (122,390
                            )Gains
      / (losses)Realized
                            
                            
                            —
                            
                            
                            
                            (79,093
                            
                            
                            
                            (91,058
                            )
                            
                            
                            (170,151
                            )Unrealized
                            
                            
                            (13,170
                            )
                            
                            
                            (243,407
                            )
                            
                            
                            63,063
                            
                            
                            
                            (193,514
                            )Balance
      at June 30, 2009
                            
                            $
                            25,033
                            
                            
                            $
                            1,306,930
                            
                            
                            $
                            —
                            
                            
                            $
                            1,331,963





The
amounts of unrealized losses for the three months ended June 30, 2009 included
in the table above are all attributable to those assets still held as of June
30, 2009. Net losses (both realized and unrealized) for Level 3 financial
instruments are a component of Principal transactions in the consolidated
statements of operations.





5.
Share-Based Compensation Expense





Stock
Options





As
of June 30, 2009, there were 7,091,430 shares authorized for issuance under the
Option Plans, and 612,858 shares authorized for issuance outside of the Option
Plans. As of June 30, 2009, 488,318 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 and six months ended June 30, 2009 was $146,000 and
$210,000, respectively. Compensation expense for stock options during the three
months and six months ended June 30, 2008 was $402,000 and $784,000,
respectively.





The
following table is a summary of the Company’s stock option activity for the six
months ended June 30, 2009:




Options
                            Outstanding
                          
                          
                          Weighted
                            Average
                            Exercise PriceBalance
      as of December 31, 2008
                          
                          
                          1,167,117
                          
                          
                          $
                          5.85Granted
                          
                          
                          4,075,359
                          
                          
                          
                          0.42Exercised
                          
                          
                          -
                          
                          
                          
                          -Canceled
                          
                          
                          (264,119
                          )
                          
                          
                          (2.46
                          )Balance
      as of June 30, 2009
                          
                          
                          4,978,357
                          
                          
                          $
                          1.58Exercisable
      as of June 30, 2009
                          
                          
                          778,204
                          
                          
                          $
                          6.43





13


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5. Share Based Compensation Expense
(continued)





The
following table summarizes information with respect to stock options outstanding
at June 30, 2009:




OptionsOutstanding
                                            
                                            
                                            VestedOptionsRangeofExercisePrice
                                            
                                            Number
                                            
                                            
                                            Weighted
                                              Average
                                              Remaining
                                              Contractual
                                              Life(Years)
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price
                                            
                                            
                                            Aggregate
                                              Intrinsic
                                              Value
                                            
                                            
                                            Number
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price
                                            
                                            
                                            Aggregate
                                              Intrinsic
                                              Value$
      0.00 - $ 1.00
                                            
                                            
                                            3,962,929
                                            
                                            
                                            
                                            9.83
                                            
                                            
                                            $
                                            0.42
                                            
                                            
                                            $
                                            123,247
                                            
                                            
                                            
                                            98,838
                                            
                                            
                                            $
                                            0.43
                                            
                                            
                                            $
                                            1,977$
      1.01 - $ 3.50
                                            
                                            
                                            297,527
                                            
                                            
                                            
                                            4.11
                                            
                                            
                                            $
                                            2.49
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            231,847
                                            
                                            
                                            
                                            2.69
                                            
                                            
                                            
                                            –$
      3.51 - $ 7.00
                                            
                                            
                                            437,670
                                            
                                            
                                            
                                            6.75
                                            
                                            
                                            $
                                            4.40
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            175,655
                                            
                                            
                                            
                                            4.86
                                            
                                            
                                            
                                            –$
      7.01 - $14.00
                                            
                                            
                                            254,083
                                            
                                            
                                            
                                            2.10
                                            
                                            
                                            $
                                            9.08
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            245,716
                                            
                                            
                                            
                                            9.13
                                            
                                            
                                            
                                            –$14.01
      - $28.00
                                            
                                            
                                            1,147
                                            
                                            
                                            
                                            1.50
                                            
                                            
                                            $
                                            15.34
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            1,147
                                            
                                            
                                            
                                            15.34
                                            
                                            
                                            
                                            –$28.01
      - $49.00
                                            
                                            
                                            25,001
                                            
                                            
                                            
                                            0.66
                                            
                                            
                                            $
                                            49.00
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            25,001
                                            
                                            
                                            
                                            49.00
                                            
                                            
                                            
                                            –4,978,357
                                            
                                            
                                            
                                            8.78
                                            
                                            
                                            $
                                            1.58
                                            
                                            
                                            $
                                            123,247
                                            
                                            
                                            
                                            778,204
                                            
                                            
                                            $
                                            6.43
                                            
                                            
                                            $
                                            1,977





As of
June 30, 2009, total unrecognized compensation expense related to unvested stock
options was $1,294,000. This amount is expected to be recognized as expense over
a weighted-average period of 3.11 years.





Non-Vested
Stock





At the
date of grant, the recipients of non-vested stock have most of the rights of a
stockholder other than voting rights, subject to certain restrictions on
transferability and a risk of forfeiture. Non-vested shares typically vest over
a two to four year period beginning on the date of grant. The fair value of
non-vested stock is equal to the market value of the shares on the date of
grant. The Company recognizes the compensation expense for non-vested stock on a
straight-line basis over the requisite service period. Compensation expense for
non-vested stock during the three months and six months ended June 30, 2009 was
$24,000 and $49,000, respectively. Compensation expense for non-vested stock
during the same periods in 2008 was $251,000 and $533,000,
respectively.





The
following table is a summary of the Company's non-vested stock activity for the
six months ended June 30, 2009:





Non-Vested
                                          Stock
                                          Outstanding
                                        
                                        
                                        Weighted
                                          Average
                                          Grant Date
                                          Fair Value
                                        
                                        
                                        Intrinsic
                                          Value at
                                          June 30, 2009Balance
      as of December 31, 2008
                                        
                                        
                                        48,779
                                        
                                        
                                        $
                                        9.84Granted
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –Vested
                                        
                                        
                                        (5,546
                                        )
                                        
                                        
                                        (7.42
                                        )Canceled
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –Balance
      as of June 30, 2009
                                        
                                        
                                        43,233
                                        
                                        
                                        $
                                        10.15
                                        
                                        
                                        $
                                        438,713





As of
June 30, 2009, total unrecognized compensation expense related to non-vested
stock was $139,000. This expense is expected to be recognized over a
weighted-average period of 0.54 year.


14


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Share-Based Compensation Expense (continued)





Fair
Value and Assumptions Used to Calculate Fair Value





The
weighted average fair value of each stock option granted for the three months
and six months ended June 30, 2009 was $0.28 and $0.27, respectively. The
weighted average fair value of each stock option granted for the three months
and six months ended June 30, 2008 was $2.31 and $2.49, respectively. 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
six months ended June 30, 2009 and 2008:




SixmonthsEnded
                            June30,2009
                          
                          
                          2008Expected
      volatility
                          
                          
                          110.65
                          %
                          
                          
                          70.42
                          %Expected
      life (years)
                          
                          
                          2.95
                          
                          
                          
                          6.43Risk-free
      interest rate
                          
                          
                          1.35
                          %
                          
                          
                          3.11
                          %Expected
      dividend yield
                          
                          
                          0
                          %
                          
                          
                          0
                          %





The
weighted average fair value of the non-vested stock granted under the Company's
stock option plans for the three months and six months ended June 30, 2009 was
$0 and $0 per share, respectively. The weighted average fair value of the
non-vested stock granted under the Company's stock option plans for the same
periods in 2008 was $3.84 and $4.50 per share, respectively. The fair value of
the non-vested stock award is estimated on the date of grant using the intrinsic
value method.





6.
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 and six months
ended June 30, 2009, the Company recorded immaterial income tax expense. For the
same periods in 2008, the Company recorded a benefit of
$1,398,000.  The effective tax rate for the three and six months ended
June 30, 2009 is zero because the Company is operating at a loss.





Historically
and currently, the Company has recorded a valuation allowance for 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.





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


15


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





7.
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 FASB Statement No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” 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, we sold Panel to Panel Intelligence, LLC
(Newco) for $1,000,000 and shares of our common stock in the amount of
$100,000.





The
following revenue and expenses have been reclassified as discontinued operations
for the six months ended June 30, 2009 and 2008:





Three Months Ended
                    
                    
                    Six Months EndedJune 30,
                      2009
                    
                    
                    June 30,
                      2008
                    
                    
                    June 30,
                      2009
                    
                    
                    June 30,
                      2008Revenue
                    
                    $
                    –
                    
                    
                    $
                    1,498,144
                    
                    
                    $
                    217,141
                    
                    
                    $
                    3,039,938Operating
      expenses:Compensation
      and benefits
                    
                    
                    –
                    
                    
                    
                    896,402
                    
                    
                    
                    193,723
                    
                    
                    
                    1,824,813Cost
      of primary research services
                    
                    
                    –
                    
                    
                    
                    609,129
                    
                    
                    
                    64,179
                    
                    
                    
                    1,194,293Professional
      services
                    
                    
                    –
                    
                    
                    
                    27,293
                    
                    
                    
                    42,180
                    
                    
                    
                    59,894Occupancy
      and equipment
                    
                    
                    –
                    
                    
                    
                    81,841
                    
                    
                    
                    27,775
                    
                    
                    
                    165,610Communications
      and technology
                    
                    
                    –
                    
                    
                    
                    27,043
                    
                    
                    
                    1,179
                    
                    
                    
                    57,107Depreciation
      and amortization
                    
                    
                    –
                    
                    
                    
                    145,495
                    
                    
                    
                    10,610
                    
                    
                    
                    281,336Travel
      and entertainment
                    
                    
                    –
                    
                    
                    
                    40,817
                    
                    
                    
                    8,123
                    
                    
                    
                    78,409Other
      expenses
                    
                    
                    –
                    
                    
                    
                    2,655,186
                    
                    
                    
                    (36,436
                    )
                    
                    
                    2,717,067Total
      operating expenses
                    
                    
                    –
                    
                    
                    
                    4,483,206
                    
                    
                    
                    311,333
                    
                    
                    
                    6,378,529Operating
      loss
                    
                    
                    –
                    
                    
                    
                    (2,985,062
                    )
                    
                    
                    (94,192
                    )
                    
                    
                    (3,338,591
                    )Interest
      expense, net
                    
                    
                    –
                    
                    
                    
                    (2,686
                    )
                    
                    
                    (702
                    )
                    
                    
                    (5,625
                    )Net
      loss
                    
                    $
                    –
                    
                    
                    $
                    (2,987,748
                    )
                    
                    $
                    (94,894
                    )
                    
                    $
                    (3,344,216
                    )





Other
expenses for the three and six months ended June 30, 2008 included an impairment
to goodwill and intangible assets of $2,602,000.


16


8.  Sale
of a Component of an Entity





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.  The Company determined that the discontinued operations
criteria in FASB Statement No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” have not been met, as such the revenues and expenses of
ICD are still presented as part of continuing operations.  In
accordance with SAB 104,
Revenue Recognition , the Company recognized $1.2 million in the first
quarter 2009 and $800,000 in the second quarter 2009 as Other
Income.  As of June 30, 2009, all sales proceeds have been
received.





9.
Loss per Share





The
following is a reconciliation of the basic and diluted net 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 June 30,
                        
                        
                        Six Months Ended June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Net
      loss available to stockholders – basic and diluted
                        
                        $
                        (562,740
                        )
                        
                        $
                        (5,113,845
                        )
                        
                        $
                        (2,486,627
                        )
                        
                        $
                        (12,163,818
                        )Weighted-average
      number of common shares – basic and diluted
                        
                        
                        12,510,805
                        
                        
                        
                        12,562,120
                        
                        
                        
                        12,549,477
                        
                        
                        
                        12,425,851Basic
      and diluted loss per common share:Loss
      from continuing operations
                        
                        $
                        (0.04
                        )
                        
                        $
                        (0.17
                        )
                        
                        $
                        (0.19
                        )
                        
                        $
                        (0.71
                        )Loss
      from discontinued operations
                        
                        $
                        –
                        
                        
                        $
                        (0.24
                        )
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.27
                        )Net
      loss
                        
                        $
                        (0.04
                        )
                        
                        
                        (0.41
                        )
                        
                        $
                        (0.20
                        )
                        
                        
                        (0.98
                        )





Basic
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding, excluding shares of non-vested stock. Diluted loss
per share is calculated by dividing net loss 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 and
six months ended June 30, 2009 and 2008 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 and six months ended June 30, 2009 and 2008, the
Company excluded the impact of all stock options and warrants in the computation
of diluted earnings 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 following
common stock equivalents were excluded from the diluted net loss per share
computation, as their inclusion would have been anti-dilutive:


17


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





9.
Loss per Share (continued)




ThreeMonthsEndedJune30,
                      
                      
                      SixMonthsEndedJune30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Stock
      options and warrants excluded due to the exercise price exceeding the
      average fair value of the Company's common stock during the
      period
                      
                      
                      4,177,082
                      
                      
                      
                      4,198,770
                      
                      
                      
                      2,803,375
                      
                      
                      
                      2,226,464Weighted
      average non-vested stock, stock options and stock warrants, calculated
      using the treasury stock method, that were excluded due to the Company
      reporting a net loss during the period
                      
                      
                      43,974
                      
                      
                      
                      348,754
                      
                      
                      
                      45,263
                      
                      
                      
                      740,477Weighted
      average shares issuable for the period prior to the conversion of the
      convertible notes payable
                      
                      
                      0
                      
                      
                      
                      45,526
                      
                      
                      
                      0
                      
                      
                      
                      94,192Total
      common stock equivalents excluded from diluted net (loss) income per
      share
                      
                      
                      4,221,056
                      
                      
                      
                      4,593,050
                      
                      
                      
                      2,848,638
                      
                      
                      
                      3,061,133




10.
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 June 30, 2009, Merriman
Curhan Ford & Co. had regulatory net capital, as defined, of $1,620,000,
which exceeded the amount required by $1,364,000. Merriman Curhan Ford & Co.
is exempt from Rules 15c3-3 and 17a-13 under the Securities Exchange Act of 1934
because it does not carry customer accounts, nor does it hold customer
securities or cash.


18


MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





11.
Contingencies





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 total amount
of damages sought under such lawsuits is approximately $47.5 million. In
addition, there is at least one additional threatened claim against MCF relating
to the actions of Del Biaggio and Cacchione, in the approximate amount of $10
million.





Unrelated
to the actions of the former client, the Company is in arbitration with regards
to an action brought by a former at-will employee of the Company who worked in
the investment banking department. No decision has yet been rendered. The former
employee resigned from Merriman Curhan Ford & Co. in March 2007. The former
employee alleges breach of an implied employment contract, wrongful termination,
and intentional infliction of emotional distress.





The
Company and MCF deny any liability and are vigorously contesting these lawsuits
and the arbitration. At this point, the Company cannot estimate the amount of
damages if they are resolved unfavorably and accordingly, we have not provided
an accrual for these lawsuits and arbitration. If the Company or MCF were to be
found liable in these lawsuits and the arbitration 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 in the routine conduct of its
business.





12.
Subsequent events





On July
31, 2009, the Company issued and sold Secured Promissory Note (“Secured Note”)
to an investor in the amount of $500,000.  The Secured Note matures at
the earlier of three years or a change in control event and carries a nominal
interest rate of 9% per annum, payable quarterly.  Along with the
Secured Note, the Company issued 10-year warrants to purchase approximately
2,326,000 shares of its common stock at $0.65 per share.


19


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





This
Quarterly Report on Form 10-Q, including this Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements regarding future events and our future results that
are based on current expectations, estimates, forecasts, and projections about
the industries in which we operate and the beliefs and assumptions of our
management. Words such as “may,” “will,” “should,” “expects,” “anticipates,”
“targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “predicts,” “potential” or “continue,” variations of such words,
and similar expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to projections of our future
financial performance, our anticipated growth and trends in our businesses, and
other characterizations of future events or circumstances, are forward-looking
statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties, and assumptions that are
difficult to predict. Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements. Readers are
referred to risks and uncertainties identified under“Risk Factors” beginning on
Page 38 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 investment research, capital
markets services, corporate and venture services, and investment banking through
our operating subsidiary, Merriman Curhan Ford & Co.





Merriman
Curhan Ford & Co. is an investment bank and securities broker-dealer
focused on fast growing companies and institutional investors. Our mission is to
become a leader in the researching, advising, financing and trading in fast
growing companies under $2 billion in market capitalization. We provide equity
research, brokerage and trading services primarily to institutions, as well as
investment banking and advisory services to corporate clients. We originate
differentiated research for our institutional investor clients and provide
specialized and integrated financing and advisory services for our corporate
clients.





In
January 2009, we 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.  We expect the sale to be completed in the
third quarter 2009 when we will no longer include the results of its operations
and its financial condition in our financial statements.





Also in
January 2009, we sold the assets of our subsidiary Panel Intelligence, LLC
(Panel) which provides custom and published primary research to industry clients
and investment professionals through online panel discussions, quantitative
surveys and an extensive research library.  We decided to sell Panel
to reduce our costs and to refocus on our core investment banking and
broker-dealer services.





MCF Asset
Management, LLC, another subsidiary, manages absolute return investment products
for institutional and high-net worth clients. We are in the process of
liquidating these investment products and returning investments to the
investors.  As of June 30, 2009, we liquidated all of our funds except
one.  All the liquid assets in the one remaining fund have been
liquidated.  There are illiquid assets, such as restricted stock and
warrants, which have not yet been liquidated.  We expect to complete
the liquidation in 2009.





Going
Concern





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





During
the six months ended June 30, 2009, the Company incurred a net loss of
$2,487,000 and used $6,961,000 in net cash from operating
activities.  At June 30, 2009, the Company had cash and cash
equivalents of $2,867,000, marketable securities of $4,892,000 and receivables
from clearing broker of $2,032,000.  The Company had liabilities of
$7,812,000. The Company’s ability to generate profits is highly dependent
on stock market trading volumes and the general economic environment. As a
result, the ability of the Company to meet its forward obligations and the
ability to continue as a going concern may be in question.





In 2008,
the Company incurred a net loss of over $30 million and used approximately $25
million in cash.





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


20





1.
            Continue
      to reduce operating costs





2.
            Shed
      non-essential operations





3.
            Negotiate
      a settlement of pending litigations





4.
            Raise
      additional capital





During
2008 and early 2009, the Company implemented significant expense control and
cost reduction programs focused on reducing cash losses and increasing
operational flexibility eliminating more than $10 million in annual operating
expenses. The primary contributor to these savings has been the elimination of
more than 50% of the Company’s workforce, as well as salary reductions. The
Board of Directors has voluntarily eliminated its compensation for the
first quarter of 2009.  The Company believes that it has been able to
execute these reductions with limited impact to its ability to generate and
execute new business in the current market environment. With these measures
largely complete, the Company believes that it has increased its ability to meet
its obligations during 2009 and beyond.





As a part
of the four-step plan mentioned above, in January of 2009, the Company shed
non-essential operations or those requiring substantial cash
infusions.  First, the Company sold Panel Intelligence, LLC on January
30, 2009. This subsidiary required a cash injection of $1,131,000 during 2008
and was projected to reach breakeven only in late 2009. Also in January 2009,
the Company sold its operations known as Institutional Cash Distributors to a
group of its employees. While this business was profitable, management
structured a transaction that substantially increases the near-term flow of
capital. The Company expects to finalize the sale of ICD in the third quarter
2009, when the buyers obtain their broker-dealer license although all the sales
proceeds have been received as of June 30, 2009.





Finally,
the Company is in the process of shutting down MCF Asset Management, another
subsidiary in which the Company had invested considerable resources during 2008.
The result of these actions has been to reduce operating loses and increase
available cash, which will also strengthen its capital position.





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





The
Company is assessing the interest of both strategic and non-strategic investors
in providing additional capital to the business. There are no assurances that
the Company will be successful in completing its plans outlined above and in
raising sufficient additional capital for its continuing
operations.  In May 2009, the Company raised $625,000 by issuing
Convertible Notes to a group of investors consisting mostly of its employees and
officers.  In June 2009, it raised an additional $300,000 by issuing
promissory notes to three of its employees.





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





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


21


Executive
Summary





Revenue
from continuing operations declined by 13% in the second quarter 2009 relative
to the second quarter 2008 during one of the most tumultuous capital market
environments in a generation. Our commissions revenue for the same period grew
by 26% year-over-year, due primarily to continued growth of our Institutional
Cash Distributors money fund business which is being sold in 2009. Investment
banking revenue declined by 76%, as very few companies came to market during the
first half of 2009. Revenues from principal transactions declined 47% for the
three months ended June 30, 2009 compared to the same period 2008 mainly due to
the managed reduction of our portfolio through the sales of both stock and
warrant securities. We incurred a net loss of $563,000, or $0.04 per
share.





Business
Environment





After
posting the third-worst year in more than a century, the equity markets
continued to be volatile to the downside in the first quarter
2009.  In the second quarter 2009, the markets recovered to levels of
year-end 2008.  There is some evidence that the larger financial
institutions have begun to recover.  Recoveries are typically uneven
in timing, beginning in certain segments of particular industries before having
broad impact.





Hedge
funds, some of which went out of business in 2008, in general have not
recovered, continuing to depress the demand for our services.  The
hedge fund community is an important component of our business, as they are one
of the most active purchasers of our investment banking and research
products.  Our securities broker-dealer and investment banking
activities are linked to the capital markets. We operate in a highly competitive
market 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 which
include the CleanTech, Consumer/Internet/Media, Health Care, Resources and
Technology sectors.





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.





Our
securities broker-dealer and investment banking activities are linked to the
capital markets. In addition, 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.





Issuance
of Debt





On May,
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 the 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
carry an interest rate of 11% per annum, payable in cash quarterly, and are due
upon the earlier of two years from issuance or a change in control of the
Company.  The Notes are convertible into common stock of the Company
at a price of $0.50 per share and come 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 Notes are convertible
beginning six months after issuance and the Warrants are exercisable
immediately.





Both the Notes and the Warrants have
anti-dilution features so that if the Company pays dividends, splits (forward or
reverse) its common shares, or adjusts its shares outstanding due to a
combination, the conversion and exercises prices, respectively, would also
adjust proportionally.  The Notes have a two-year maturity and the
warrants will expire 10 years from the date of the transaction.  The
Notes may be pre-paid at the discretion of the Company upon 10 day notice and
the holders of the Notes may elect to convert prior to
pre-payment.  If the Company’s common stock’s closing price exceeds
200% of the exercise price for a consecutive period of twenty trading days, it
may force a conversion.





On June
30, 2009, the Company issued $300,000 in unsecured promissory notes to three of
its employees at an interest rate of 3.25%.  The term of the notes is
the earlier of October 31, 2009 or a change in control event defined as a debt
or financing by the Company in an amount of $6,000,000 or more


22


Results
of Operations





The
following table sets forth the results of operations for the three months and
six months ended June 30, 2009 and 2008:




Three Months Ended
                                  
                                  
                                  Six Months EndedJune 30,
                                    2009
                                  
                                  
                                  June 30,
                                    2008
                                  
                                  
                                  June 30,
                                    2009
                                  
                                  
                                  June 30,
                                    2008Revenue:Commissions
                                  
                                  $
                                  9,969,922
                                  
                                  
                                  $
                                  7,892,372
                                  
                                  
                                  $
                                  19,087,850
                                  
                                  
                                  $
                                  16,361,082Principal
      transactions
                                  
                                  
                                  747,039
                                  
                                  
                                  
                                  1,418,829
                                  
                                  
                                  
                                  (95,498
                                  )
                                  
                                  
                                  103,753Investment
      banking
                                  
                                  
                                  1,067,450
                                  
                                  
                                  
                                  4,446,995
                                  
                                  
                                  
                                  2,283,867
                                  
                                  
                                  
                                  7,823,406Advisory
      and other
                                  
                                  
                                  647,867
                                  
                                  
                                  
                                  543,134
                                  
                                  
                                  
                                  1,206,680
                                  
                                  
                                  
                                  120,256Total
      revenue
                                  
                                  
                                  12,432,278
                                  
                                  
                                  
                                  14,301,330
                                  
                                  
                                  
                                  22,482,899
                                  
                                  
                                  
                                  24,408,497Operating
      expenses:Compensation
      and benefits
                                  
                                  
                                  10,191,416
                                  
                                  
                                  
                                  11,101,879
                                  
                                  
                                  
                                  19,456,583
                                  
                                  
                                  
                                  23,329,054Brokerage
      and clearing fees
                                  
                                  
                                  270,396
                                  
                                  
                                  
                                  709,183
                                  
                                  
                                  
                                  583,356
                                  
                                  
                                  
                                  1,484,484Professional
      services
                                  
                                  
                                  919,795
                                  
                                  
                                  
                                  2,552,010
                                  
                                  
                                  
                                  2,032,544
                                  
                                  
                                  
                                  3,242,607Occupancy
      and equipment
                                  
                                  
                                  486,491
                                  
                                  
                                  
                                  607,587
                                  
                                  
                                  
                                  1,062,881
                                  
                                  
                                  
                                  1,061,000Communications
      and technology
                                  
                                  
                                  839,835
                                  
                                  
                                  
                                  983,826
                                  
                                  
                                  
                                  1,561,100
                                  
                                  
                                  
                                  1,893,739Depreciation
      and amortization
                                  
                                  
                                  115,749
                                  
                                  
                                  
                                  133,988
                                  
                                  
                                  
                                  262,991
                                  
                                  
                                  
                                  257,905Travel
      and entertainment
                                  
                                  
                                  374,609
                                  
                                  
                                  
                                  971,393
                                  
                                  
                                  
                                  609,733
                                  
                                  
                                  
                                  1,893,394Other
                                  
                                  
                                  568,964
                                  
                                  
                                  
                                  1,224,706
                                  
                                  
                                  
                                  1,265,587
                                  
                                  
                                  
                                  2,001,697Total
      operating expenses
                                  
                                  
                                  13,767,255
                                  
                                  
                                  
                                  18,284,572
                                  
                                  
                                  
                                  26,834,775
                                  
                                  
                                  
                                  35,163,880Operating
      loss
                                  
                                  
                                  (1,334,977
                                  )
                                  
                                  
                                  (3,983,242
                                  )
                                  
                                  
                                  (4,351,876
                                  )
                                  
                                  
                                  (10,755,383
                                  )Other
      income
                                  
                                  
                                  800,000
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2,000,000
                                  
                                  
                                  
                                  —Interest
      income
                                  
                                  
                                  2,679
                                  
                                  
                                  
                                  34,016
                                  
                                  
                                  
                                  9,166
                                  
                                  
                                  
                                  130,420Interest
      expense
                                  
                                  
                                  (28,458
                                  )
                                  
                                  
                                  (15,615
                                  )
                                  
                                  
                                  (43,823
                                  )
                                  
                                  
                                  (33,383
                                  )Loss
      before provision for income tax
                                  
                                  
                                  (560,756
                                  )
                                  
                                  
                                  (3,964,841
                                  )
                                  
                                  
                                  (2,386,533
                                  )
                                  
                                  
                                  (10,658,346
                                  )(Provision
      for) benefit from income tax
                                  
                                  
                                  (1,984
                                  )
                                  
                                  
                                  1,838,744
                                  
                                  
                                  
                                  (5,200
                                  )
                                  
                                  
                                  1,838,744Loss
      from continued operations
                                  
                                  
                                  (562,740
                                  )
                                  
                                  
                                  (2,126,097
                                  )
                                  
                                  
                                  (2,391,733
                                  )
                                  
                                  
                                  (8,819,602
                                  )Loss
      from discontinued operations
                                  
                                  ─
                                  
                                  
                                  
                                  (2,987,748
                                  )
                                  
                                  
                                  (94,894
                                  )
                                  
                                  
                                  (3,344,216
                                  )Net
      loss
                                  
                                  $
                                  (562,740
                                  )
                                  
                                  $
                                  (5,113,845
                                  )
                                  
                                  $
                                  (2,486,627
                                  )
                                  
                                  $
                                  (12,163,818
                                  )





Our net
(loss) income for the three months and six months ended June 30, 2009 and 2008
included the following non-cash expenses:





ThreeMonthsEnded
                        
                        
                        SixMonthsEndedJune30,
                          2009
                        
                        
                        June30,
                          2008
                        
                        
                        June30,
                          2009
                        
                        
                        June30,
                          2008Depreciation
      and amortization
                        
                        $
                        115,749
                        
                        
                        
                        162,946
                        
                        
                        $
                        273,601
                        
                        
                        $
                        306,171Amortization
      of intangible assets
                        
                        
                        —
                        
                        
                        
                        116,535
                        
                        
                        
                        —
                        
                        
                        
                        233,070Stock-based
      compensation
                        
                        
                        170,163
                        
                        
                        
                        653,281
                        
                        
                        
                        259,779
                        
                        
                        
                        1,316,606Amortization
      of discounts on debt
                        
                        
                        9,768
                        
                        
                        
                        —
                        
                        
                        
                        9,768
                        
                        
                        
                        2,584Impairment
      of goodwill
                        
                        
                        —
                        
                        
                        
                        2,601,516
                        
                        
                        
                        —
                        
                        
                        
                        2,208,735Impairment
      of intangible assets
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        392,781Loss
      on disposal of equipment and fixtures
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        294,379
                        
                        
                        
                        —Provision
      for uncollectible accounts receivable
                        
                        
                        155,473
                        
                        
                        
                        113,758
                        
                        
                        
                        155,473
                        
                        
                        
                        280,543Securities
      received for services
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (168,913
                        )
                        
                        
                        (1,545,788
                        )Unrealized
      (gain) loss on securities owned
                        
                        
                        (318,129
                        )
                        
                        
                        —
                        
                        
                        
                        693,648
                        
                        
                        
                        381,431Total
                        
                        $
                        133,024
                        
                        
                        
                        3,648,036
                        
                        
                        $
                        1,517,735
                        
                        
                        $
                        3,576,133


23


Investment
Banking Revenue




Our
investment banking activity includes the following:




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





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




The
following table sets forth our revenue and transaction volumes from our
investment banking activities for the three months and six months ended June 30,
2009 and 2008:




Three Months Ended
                              
                              
                              Six Months EndedJune 30,
                                2009
                              
                              
                              June 30,
                                2008
                              
                              
                              June 30,
                                2009
                              
                              
                              June 30,
                                2008Revenue:Capital
      raising
                              
                              $
                              571,250
                              
                              
                              $
                              4,252,495
                              
                              
                              $
                              924,133
                              
                              
                              $
                              7,482,685Financial
      advisory and other
                              
                              
                              496,200
                              
                              
                              
                              194,500
                              
                              
                              
                              1,359,734
                              
                              
                              
                              340,721Total
      investment banking revenue
                              
                              $
                              1,067,450
                              
                              
                              $
                              4,446,995
                              
                              
                              $
                              2,283,867
                              
                              
                              $
                              7,823,406Transaction
      Volumes:Public
      offerings:Capital
      underwritten participations
                              
                              $
                              34,375,000
                              
                              
                              $
                              182,780,000
                              
                              
                              $
                              34,375,000
                              
                              
                              $
                              182,780,000Number
      of transactions
                              
                              
                              1
                              
                              
                              
                              3
                              
                              
                              
                              1
                              
                              
                              
                              3Private
      placements:Capital
      raised
                              
                              $
                              6,000,000
                              
                              
                              $
                              74,700,000
                              
                              
                              $
                              7,753,000
                              
                              
                              $
                              238,900,000Number
      of transactions
                              
                              
                              1
                              
                              
                              
                              4
                              
                              
                              
                              2
                              
                              
                              
                              9Financial
      advisory:Transaction
      amounts
                              
                              $
                              23,300,000
                              
                              
                              $
                              45,000,000
                              
                              
                              $
                              52,900,000
                              
                              
                              $
                              87,300,000Number
      of transactions
                              
                              
                              2
                              
                              
                              
                              1
                              
                              
                              
                              5
                              
                              
                              
                              3




Our
investment banking revenue was $1,067,000 or 9% of our revenue during second
quarter 2009, representing a 76% decrease from the similar quarter in 2008.
Second quarter of 2009 represented a different operating environment where the
ability to execute larger transactions was more difficult than what we have
experienced in the same period in 2008, despite what may be the beginnings of a
recovery observed towards the end of June, 2009. Banking revenue for the three
months ended June 30, 2009 has declined slightly by 12% from the first quarter
2009.  In the second quarter 2009, the number of transactions we
participated in was the same as in the first quarter 2009 but our average fees
were slightly lower. We participated in one secondary public offering, acted as
placement agent for one private placement, and participated in two financial
advisory assignments during the latest quarter.




During
the three months ended June 30, 2009 and 2008, we had no investment banking
clients that accounted for more than 10% of our revenue.


24




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 Ended
                    
                    
                    Six Months EndedJune 30,
                      2009
                    
                    
                    June 30,
                      2008
                    
                    
                    June 30,
                      2009
                    
                    
                    June 30,
                      2008Revenue:Commissions
                    
                    $
                    9,969,922
                    
                    
                    $
                    7,892,372
                    
                    
                    $
                    19,087,850
                    
                    
                    $
                    16,361,082Principal
      transactions:Customer
      principal transactions, proprietary trading and market
    making
                    
                    $
                    700,618
                    
                    
                    $
                    112,637
                    
                    
                    $
                    327,822
                    
                    
                    $
                    (3,672,105
                    )Investment
      portfolio
                    
                    
                    46,421
                    
                    
                    
                    1,306,192
                    
                    
                    
                    (423,320
                    )
                    
                    
                    3,775,858Total
      principal transactions revenue
                    
                    $
                    747,039
                    
                    
                    $
                    1,418,829
                    
                    
                    $
                    (95,498
                    )
                    
                    $
                    103,753Transaction
      Volumes:Number
      of shares traded
                    
                    
                    186,961,322
                    
                    
                    
                    329,419,357
                    
                    
                    
                    476,548,239
                    
                    
                    
                    561,535,539Number
      of active clients
                    
                    
                    186
                    
                    
                    
                    343
                    
                    
                    
                    239
                    
                    
                    
                    444





Commissions
amounted to $9,970,000, or 80%, of our revenue during the second quarter 2009,
representing a 26% increase from the similar period in 2008. Lower brokerage
commissions were offset by higher revenue for brokering institutional money
funds by our Institutional Cash Distributors division, which the Company is
selling.




Principal
transactions declined by 47% during the second quarter 2009 versus our
substantial gains experienced in the second quarter 2008 but improved from a
loss of $843,000 in the first quarter 2009. The improvement included increased
profitability in our market making activities, as well as realized and
unrealized gains in our investment portfolio. As of June 30, 2009, we made
markets in 151 stocks, compared to 1,361 stocks as of June 30, 2008. 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 second quarter of 2009 proprietary trading contributed $423,000 in realized
and unrealized trading gains versus a loss of $436,000 in the same period in
2008.





During
the second quarter 2009 and 2008, no single brokerage customer accounted for
more than 10% of our revenue from continuing operations.


25





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. Salaries, payroll taxes and employee benefits vary based on
overall headcount.





The
following table sets forth the major components of our compensation and benefits
for the three months ended June 30, 2009 and 2008:





Three
      Months Ended
                            
                            
                            Six
      Months EndedJune
      30,
                              2009
                            
                            
                            June
      30,
                              2008
                            
                            
                            June
      30,
                              2009
                            
                            
                            June
      30,
                              2008Incentive
      compensation and discretionary bonuses
                            
                            $
                            7,627,554
                            
                            
                            $
                            5,986,840
                            
                            
                            $
                            14,090,881
                            
                            
                            $
                            12,084,929Salaries
      and wages
                            
                            
                            1,844,366
                            
                            
                            
                            3,526,750
                            
                            
                            
                            3,857,018
                            
                            
                            
                            7,140,723Stock-based
      compensation
                            
                            
                            170,163
                            
                            
                            
                            653,821
                            
                            
                            
                            259,779
                            
                            
                            
                            1,316,606Payroll
      taxes, benefits and other
                            
                            
                            549,333
                            
                            
                            
                            934,468
                            
                            
                            
                            1,248,905
                            
                            
                            
                            2,786,796Total
      compensation and benefits
                            
                            $
                            10,191,416
                            
                            
                            $
                            11,101,879
                            
                            
                            $
                            19,456,583
                            
                            
                            $
                            23,329,054Total
      compensation and benefits as a percentage of revenue
                            
                            
                            82
                            %
                            
                            
                            78
                            %
                            
                            
                            87
                            %
                            
                            
                            96
                            %Cash
      compensation and benefits as a percentage of revenue
                            
                            
                            81
                            %
                            
                            
                            74
                            %
                            
                            
                            85
                            %
                            
                            
                            90
                            %





The
decrease in compensation and benefits expense of $910,000 or 8%, from the second
quarter 2008 to the second quarter 2009 was due to (i) lower headcount and
reduced salaries, (ii) lower investment banking revenue and corresponding
bonuses, and (iii) reduced brokerage revenue and corresponding reduced
commissions payable, mostly offset by increased ICD revenues and corresponding
commissions.





Cash
compensation is equal to total compensation and benefits expense excluding
stock-based compensation. Cash compensation and benefits expense as a percentage
of revenue increased to 81% of revenues during the second quarter 2009 as
compared to 74% in 2008. This increase was primarily the result of lower
revenues.





Stock-based
compensation expense decreased by 74% in the second quarter 2009 as compared to
the same period 2008. The decline in stock-based compensation expense can be
attributed to fewer stock options outstanding as a result of the Company’s Stock
Options Give-Back Program in October 2008.  This program resulted in
about 3 million shares of stock options given back.  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 June 30, 2009 and 2008.




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 decreased by $439,000, or 62%, during the second quarter of 2009
as compared to the second quarter of 2008. This decrease reflected reduced
volume of trades partially offset by higher costs associated with execution of
foreign securities for our clients during second quarter 2009 as compared to
second quarter 2008. Execution fees for foreign securities are higher than they
are for domestic securities.





Professional
services expense includes legal, audit, and consulting fees, as well as expenses
related to investment banking transactions. The decrease of $1,632,000 or 64%,
in the second quarter of 2009 from the second quarter of 2008 was primarily
attributed to lower legal fees associated with the Company’s legal matters,
attributable to a partial stabilization of the litigation and investigations
related to Del Biaggio and Cacchione (see Legal Proceedings in Item 1 of Part
II).


26





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 $121,000, or 20%, in the second
quarter of 2009 from the same quarter of 2008 was due to the closing of the
Company’s Newport Beach and Portland offices.





Communications
and technology expense includes market data and quote services, voice, data and
Internet service fees, and data processing costs. Historically, these costs have
increased as we hired additional employees. The decrease of $144,000, or 15%, in
the second quarter of 2009 from the second quarter of 2008 was primarily due
reduced work force and the cancellation of subscription services.





Depreciation
and amortization expense primarily relate to the depreciation of our computer
equipment and leasehold improvements. The decrease of $18,000, or 14%, in the
second quarter of 2009 from the second quarter of 2008 was due to the disposal
of some of the Company’s equipment and office space.





Travel
and entertainment expense results from business development activities across
our various businesses. The decrease of $597,000, or 61%, in the second quarter
of 2009 from the second quarter of 2008 was due mostly to reduced costs
associated with lower volume of business and reduced expenses associated with
selective business development.





Other
operating expense includes company events, recruiting fees, professional
liability and property insurance, marketing, business licenses and taxes, office
supplies and other miscellaneous office expenses. The decrease of approximately
$656,000, or 54%, in the second quarter of 2009 from the second quarter of 2008
was due to the Company’s active efforts to curb expenses, partially offset by
higher insurance costs.




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 and six months
ended June 30, 2009, we recorded immaterial tax expense. The effective tax rate
for the three and six months ended June 30, 2009 is zero because we are
operating at a loss.




Historically
and currently, the Company has recorded a valuation allowance for 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 we will be able to realize the benefit of
our deferred tax assets in the future.





We do not
have any material accrued interest or penalties associated with any unrecognized
tax benefits. We are subject to taxation in the US and various state and foreign
jurisdictions. The tax years 2001-2008 remain open to examination by the federal
and most state tax authorities.  The Company’s tax years 2000-2008
will remain open for all tax years with loss carryforwards for examination by
state tax authorities from the date the state corporation tax returns were
filed.  Net operating losses deducted are subject to review and
adjustment for three to four years after the net operating losses are deducted
on the U.S. and state returns filed.





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.





Off-Balance
Sheet Arrangements





We were
not a party to any off-balance sheet arrangements during the six months ended
June 30, 2009 and 2008. In particular, we do not have any interest in so-called
limited purpose entities, which include special purpose entities and structured
finance entities.


27





Commitments





The
following table summarizes our significant commitments as of June 30, 2009,
consisting of debt payments related to convertible notes payable,
non-convertible notes payable, capital leases and future minimum lease payments
under all non-cancelable operating leases with initial or remaining terms in
excess of one year.




Operating
                      Leases
                    
                    
                    Capital
                      Leases
                    
                    
                    Debt2009
                    
                    $
                    854,752
                    
                    
                    $
                    271,117
                    
                    
                    $
                    300,0002010
                    
                    
                    1,680,534
                    
                    
                    
                    268,853
                    
                    
                    
                    —2011
                    
                    
                    1,648,743
                    
                    
                    
                    146,647
                    
                    
                    
                    625,0002012
                    
                    
                    1,095,440
                    
                    
                    
                    —
                    
                    
                    
                    —2013
                    
                    
                    616,000
                    
                    
                    
                    —
                    
                    
                    
                    —Thereafter
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Total
      commitments
                    
                    
                    5,895,469
                    
                    
                    
                    686,617
                    
                    
                    
                    925,000Interest
                    
                    
                    
                    
                    
                    
                    (33,561
                    )
                    
                    
                    376,510Commitments,
      net of interest
                    
                    $
                    5,895,469
                    
                    
                    $
                    653,056
                    
                    
                    
                    1,301,510




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 FASB Statement No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” 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, we sold Panel to Panel Intelligence, LLC
(Newco) for $1,000,000 and shares of our common stock in the amount of
$100,000.





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 FASB Statement No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” have not been met, as such the
revenues and expenses of ICD are still presented as part of continuing
operations.  In accordance with SAB 104, Revenue Recognition , the
Company recognized $1.2 million in the first quarter 2009 and $800,000 in the
second quarter 2009 as Other Income.  As of June 30, 2009, all
sales proceeds have been received.


28





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.




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 the
Company owns (long positions) are marked to bid prices, and instruments that the
Company has 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 the Company's financial instruments are recorded at fair value or
contract amounts that approximate fair value. Securities owned and securities
sold, not yet purchased, are stated at fair value, with any related changes in
unrealized appreciation or depreciation reflected in Principal Transactions in
the consolidated statements of operations. Financial instruments carried at
contract amounts include cash and cash equivalents and amounts due from and to
brokers, dealers and clearing brokers.





Fair
Value Measurement—Definition and Hierarchy





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





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


29





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





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





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





Assets
measured at fair value on a recurring basis are categorized into a Level based
upon the lowest level of significant input to the valuations.





Revenue
Recognition




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




Investment
banking revenue includes underwriting and private placement agency fees earned
through our participation in public offerings and private placements of equity
and convertible debt securities and fees earned as financial advisor in mergers
and acquisitions and similar transactions. Underwriting revenue is earned in
securities offerings in which we act as an underwriter and includes management
fees, selling concessions and underwriting fees. Management fees are recorded on
the offering date, selling concessions on settlement date, and underwriting fees
at the time the underwriting is completed and the related income is reasonably
determinable. Syndicate expenses related to securities offerings in which 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. Merger and acquisition fees and other advisory
services revenue are generally earned and recognized only upon successful
completion of the engagement. Underwriting revenue is presented net of related
expenses. Unreimbursed expenses associated with private placement and advisory
transactions are recorded as expenses as incurred.




As
co-manager for registered equity underwriting transactions, management must
estimate our share of transaction related expenses incurred by the lead manager
in order to recognize revenue. Transaction related expenses are deducted from
the underwriting fee and therefore reduces the revenue that is recognized as
co-manager. Such amounts are adjusted to reflect actual expenses in the period
in which we receive the final settlement, typically 90 days following the
closing of the transaction.





OTCQX
revenue is recognized in two parts – Due Diligence and Listing
Fees.  Due Diligence Fees are recognized at the completion of the Due
Diligence process.  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 SFAS 123(R), “Share-Based Payment,” which
requires the measurement and recognition of compensation expense, based on
estimated fair values, for all share-based awards, made to employees and
directors, including stock options, non-vested stock, and participation in our
employee stock purchase plan. Share-based compensation expense recognized in our
consolidated statement of operations includes compensation expense for
share-based awards granted (i) prior to, but not yet vested as of
December 31, 2005, based on the grant date fair value, and
(ii) subsequent to December 31, 2005. Compensation expense for all
share-based awards subsequent to December 31, 2005 is recognized using the
straight-line single-option method. Because share-based compensation expense is
based on awards that are ultimately expected to vest, share-based compensation
expense has been reduced to account for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.




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.


30





Because
share-based compensation expense is based on awards that are ultimately expected
to vest, it has been reduced to account for estimated forfeitures. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Changes in these inputs and assumptions can materially affect the
measure of estimated fair value of our share-based compensation.




Deferred
Tax Valuation Allowance




We
account for income taxes in accordance with the provision of SFAS
No. 109,Accounting for
Income Taxes, which requires the recognition of deferred tax assets and
liabilities at tax rates expected to be in effect when these balances reverse.
Future tax benefits attributable to temporary differences are recognized to the
extent that the realization of such benefits is more likely than not. We have
concluded that it is not more likely than not that our deferred tax assets as of
June 30, 2009 and 2008 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.





Liquidity
and Capital Resources





As of
June 30, 2009, liquid assets consisted primarily of cash and cash equivalents of
$2,867,000 and marketable securities of $4,892,000, for a total of
$7,759,000, which is $3,222,000 lower than $10,981,000 in liquid assets as
of December 31, 2008.





As of May
29, 2009, we issued and sold Convertible Preferred Promissory Notes in the
amount of $525,000 to a group of investors consisting primarily of our employees
and executives. On June 1, 2009, we issued and sold an additional $100,000 of
the same Convertible Preferred Notes to the group of investors.  (See
Issuance of Convertible Notes, above.)  The proceeds will be used for
operations.





On June
30, 2009, the Company issued $300,000 in unsecured promissory notes to three of
its employees at an interest rate of 3.25%.  The term of the notes is
the earlier of October 31, 2009 or a change in control event defined as a debt
or financing by the Company in an amount of $6,000,000 or more.





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 June 30, 2009, Merriman
Curhan Ford & Co. had regulatory net capital of $1,620,000 which
exceeded the required amount by $1,364,000.





Please
see also disclosure under caption “Going Concern” in this Management’s
Discussion and Analysis of Financial Condition and Results of Operations section
beginning on page 19.


31




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 and
market making 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, on a net basis. As
we mark our securities to market, a decrease in equity prices generally could be
expected to have a negative effect on earnings.





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.


32





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 June 30, 2009.





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 June 30, 2009, that
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.


33




PART
II.   OTHER INFORMATION




ITEM 1.         Legal
Proceedings





The
Company is the subject of a formal investigation commenced by the Securities and
Exchange Commission (“SEC”).  The SEC investigation is focused in large
part on the activities of a former retail broker of the Company’s subsidiary,
Merriman Curhan Ford & Co. (“MCF”), David Scott Cacchione (“Cacchione”), and
one of his customers, William Del Biaggio III (“Del Biaggio”). The activities
relate primarily to the misuse of various client accounts as collateral for
loans to Del Biaggio from third party lenders.  Cacchione signed “account
control agreements” in which he purported to act on behalf of the Company to
authorize the use of various client accounts as security for loans to Del
Biaggio from various third-party lenders.  Cacchione did not have the
authority to do so.





Cacchione
also improperly provided client account statements to third-party lenders or to
Del Biaggio for the purpose of representing to the lenders that the accounts
belonged to Del Biaggio.  The retail client account statements were altered
so that the accounts appeared to belong to Del Biaggio when in fact some of the
accounts belonged to other MCF retail clients.  Del Biaggio is no longer a
customer of MCF, and Cacchione’s employment was terminated in June
2008.





The
Company’s internal investigation found no evidence that any of Cacchione’s
supervisors or any member of the Company or MCF management was aware of the
actions of Del Biaggio and Cacchione as described above until shortly before
Cacchione’s employment was terminated.  MCF has been phasing out its
retail business and will concentrate on strengthening its core investment
banking and institutional brokerage businesses.  Both Cacchione and Del
Biaggio have recently pleaded guilty to securities fraud in the United States
District Court, Northern District of California and have been named as
defendants in separate SEC enforcement actions.





The SEC
staff has indicated that it intends to recommend to the Commission an
enforcement action arising out of Cacchione’s actions and the failure to
adequately supervise him.  The Company is cooperating fully with the SEC in
its investigation and is presently engaged in settlement efforts with the
SEC.





As noted
above, a number of lawsuits and other claims have been filed (or asserted)
against MCF and in at least one instance, the Company, in connection with the
alleged actions of Del Biaggio and Cacchione.  The total amount of damages
sought under such lawsuits and other claims is approximately $57.5 million. The
Company and MCF deny any wrongdoing and will defend themselves and attempt to
obtain the most favorable possible outcome of these lawsuits for themselves and
the Company’s shareholders.





In
December 2008, the Company and MCF entered into settlement discussions with most
of the plaintiffs in the account control agreement cases representing a
substantial portion of the $57.5 million in civil claims arising out of the
actions of Cacchione and Del Biaggio.  Through the settlement
discussions, the Company and MCF seek to resolve potential liability in these
legal proceedings and eliminate the continuing cost of defending these
proceedings.   In addition, the Company seeks to free up valuable
management resources needed to face challenging market and economic
conditions.   While we have made progress in negotiating a settlement,
whether one can be reached that will serve the Company’s aims is not yet
estimable.  Should the Company’s settlement efforts ultimately prove
unsuccessful, the Company believes it has meritorious defenses and intends to
contest these claims vigorously.





The
lawsuits against the Company and MCF that result from Cacchione’s activities are
as follows:





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





In May
2008, Merriman Curhan Ford & Co. (“MCF”) was served with a complaint filed
in the Santa Clara County, California Superior Court by DGB Investments, Inc.
which loaned money to William Del Biaggio III, the former customer of
MCF.  The complaint names as defendants Del Biaggio, David Scott
Cacchione, a former retail broker of MCF, and MCF. Plaintiff alleges that Del
Biaggio defaulted on a multi-million dollar loan obtained from Plaintiff. 
Effective June 4, 2008, MCF terminated Cacchione’s employment.   The
complaint further alleges that Cacchione, while still employed with MCF, signed
an account control agreement purporting to pledge a retail client stock account
as collateral for the Del Biaggio loan. On the basis of these allegations,
Plaintiff asserts various claims against MCF and others.  Plaintiff seeks
$3 million in damages.  On July 15, 2009, an amended complaint was filed
naming as additional defendants, D. Jonathan Merriman, the Company’s CEO and
former CEO of MCF, and Robert E. Ford, an officer of MCF.  We believe
that MCF has meritorious defenses and it intends to contest this claim
vigorously.  MCF successfully opposed Plaintiff's petition for
pre-judgment writ of attachment.


34





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





In May
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by Heritage Bank of Commerce, which loaned money to Del Biaggio, naming as
defendants Del Biaggio and MCF.  Plaintiff alleges that Del Biaggio
defaulted on a multi-million dollar loan obtained from Plaintiff.  The
complaint further alleges that Cacchione, while still employed with MCF, signed
an account control agreement purporting to pledge various retail client stock
accounts as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against MCF and others. 
Plaintiff seeks $ 4 million in damages.  On Plaintiff’s motion, a retired
judge was subsequently appointed judicial referee for all
purposes.  On July 24, 2009, an amended complaint was filed naming as
additional defendants, D. Jonathan Merriman, the Company’s CEO and former CEO of
MCF, and Robert E. Ford, an officer of MCF.  We believe that MCF has
meritorious defenses and it intends to contest this claim
vigorously.  MCF successfully opposed Plaintiff's petition for
pre-judgment writ of attachment.





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





In June
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by Modern Bank, N.A., which loaned money to Del Biaggio, naming as
defendants Del Biaggio, MCF, and Cacchione.  Plaintiff alleges that Del
Biaggio defaulted on a multi-million dollar loan obtained from Plaintiff. 
The complaint further alleges that Cacchione, while still employed with MCF,
signed an account control agreement purporting to pledge a retail client stock
account as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against MCF and others. 
Plaintiff seeks $10 million in damages.  On July 24, 2009, an amended
complaint was filed naming as additional defendants, D. Jonathan Merriman, the
Company’s CEO and former CEO of MCF, and Robert E. Ford, an officer of MCF. We
believe that MCF has meritorious defenses and it intends to contest this claim
vigorously.  MCF successfully opposed Plaintiff's petition for
pre-judgment writ of attachment.





Security
Pacific Bank v. Merriman Curhan Ford & Co.





In June
2008, MCF was served with a complaint filed in the Los Angeles County,
California Superior Court by Security Pacific Bank, which loaned money to Del
Biaggio, naming as defendants Del Biaggio, MCF, and Cacchione.  Plaintiff
alleges that Del Biaggio defaulted on a multi-million dollar loan obtained from
Plaintiff.  The complaint further alleges that Cacchione, while still
employed with MCF, signed an account control agreement purporting to pledge
retail client stock accounts as collateral for the Del Biaggio loan. On the
basis of these allegations, Plaintiff asserts various claims against MCF and
others.  Plaintiff seeks $5 million in damages.  We believe that MCF
has meritorious defenses and it intends to contest this claim
vigorously.  MCF successfully opposed Plaintiff's petition for
pre-judgment writ of attachment.





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





In June
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by AEG Facilities, Inc. which loaned money to Del Biaggio, naming as
defendants Del Biaggio, MCF, and Cacchione.  Plaintiff alleges that Del
Biaggio defaulted on a multi-million dollar loan obtained from Plaintiff. 
The complaint further alleges that Cacchione, while still employed with MCF,
signed an account control agreement purporting to pledge various retail client
stock accounts as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against MCF and others. 
Plaintiff seeks $7 million in damages.  On July 15, 2009, an amended
complaint was filed naming as additional defendants D. Jonathan Merriman, the
Company’s CEO and former CEO of MCF, and Robert E. Ford, an officer of
MCF.  We believe that MCF has meritorious defenses and it intends to
contest this claim vigorously.





Valley
Community Bank v. Merriman Curhan Ford & Co.





In June
2008, MCF.was served with a complaint filed in the Santa Clara County Superior
Court by Valley Community Bank, which loaned money to Del Biaggio, naming as
defendants Del Biaggio, MCF, and Cacchione.  Plaintiff alleges that Del
Biaggio defaulted on a multi-million dollar loan obtained from Plaintiff. 
The complaint further alleges that Cacchione, while still employed with MCF,
signed account control agreements purporting to pledge various retail client
stock accounts as collateral for the Del Biaggio loan. On the basis of these
allegations, Plaintiff asserts various claims against MCF and others. 
Plaintiff seeks over $4 million in damages.  We believe that MCF has
meritorious defenses and it intends to contest this claim
vigorously.


35





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 has brought claims for, among
other things, fraud arising out of the failure to disclose the alleged previous
pledge.  Plaintiff alleges damages in the amount of $1.75 million.  We
believe that MCF has meritorious defenses and it intends to contest this claim
vigorously.





The
Company anticipates at least one additional lawsuit may be filed in the San
Mateo County California Superior Court against MCF by a lender to Del Biaggio,
on similar facts to the lawsuits described above, with a claim believed to be
approximately $10 million.





David
Hengehold v. Merriman Curhan Ford & Co.





In June
2008, MCF was served with a complaint filed in the San Mateo County, California
Superior Court by David Hengehold.  Plaintiff alleges, among other things,
fraud based on Cacchione’s inducing plaintiff into making loans to an entity
associated with Del Biaggio.  This plaintiff is a former client of
MCF.  This matter does not involve account control agreements. Plaintiff in
this lawsuit alleges damages of over $500,000.  We believe that MCF has
meritorious defenses and it intends to contest this claim
vigorously.





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





In July
2008, the Company and MCF were served with a complaint filed in the San
Francisco County, California Superior Court by several plaintiffs who invested
money with Del Biaggio and related entities.  In March 2009, the Company
and MCF were served with an amended consolidated complaint on behalf of 38
plaintiffs which consolidated several similar pending actions filed by the same
law firm.  Plaintiffs allege, among other things, fraud based on
Cacchione’s alleged assistance to Del Biaggio in connection with the allegedly
fraudulent investments and MCF’s failure to discover and stop the continuing
fraud.  This matter does not involve account control agreements.
Plaintiffs in this lawsuit seek damages of over $9 million.  The Company
and MCF responded to the amended consolidated complaint in June 2009 denying all
liability.  We believe that we and MCF have meritorious defenses and
intend to contest these claims vigorously.  (The previously disclosed
Davis, Cook and Bachelor cases now are part of the consolidated
cases.)





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





In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by The Private Bank of the Peninsula.  Plaintiff alleges, among other
things, fraud based on Cacchione having induced plaintiff into making loans to
Del Biaggio.  This matter does not involve account control agreements.
Plaintiff in this lawsuit alleges damages of $916,666.65.  We believe that
MCF has meritorious defenses and it intends to contest this claim
vigorously.





Pacific
Capital Bank v. Merriman Curhan Ford & Co.





In
October 2008, MCF was served with a complaint filed in the San Francisco County
Superior Court by Pacific Capital Bank.  Plaintiff alleges, among other
things, fraud based on Cacchione having induced plaintiff into making loans to
Del Biaggio.  This matter does not involve account control agreements.
Plaintiff in this lawsuit alleges damages of $1.84 million.  We believe
that MCF has meritorious defenses and it intends to contest this claim
vigorously.





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





In early
2009, MCF and David Jonathan Merriman were served with a FINRA arbitration claim
filed by Irving Bronstein and several related family members and entities. 
Claimants allege, among other things, that MCF benefited from the sale of a
particular security it held at the expense of its customers, including the
claimants, and fraud based on Cacchione’s alleged assistance to Del Biaggio in
connection with allegedly fraudulent investments and MCF’s failure to discover
and stop the fraud.  This matter does not involve account control
agreements. Claimants seek damages in a range of $2.7 to $10 million.  MCF
and Mr. Merriman have responded to the statement of claim denying all
liability.  Arbitration is scheduled to begin March 30,
2010.  We believe that MCF and Mr. Merriman have meritorious defenses
and they intend to contest these claims vigorously.


36





John
Zarich v. Merriman Curhan Ford & Co.





In or
around April 2009, John Zarich filed an arbitration claim with FINRA naming
MCF.   The statement of claim alleges that Zarich was convinced
by Cacchione to purchase shares of a small, risky stock in which MCF held a
position.  It further alleges that Cacchione convinced Zarich not to
sell the shares when the stock’s price fell.  The statement seeks
$265,000 in compensatory damages plus punitive damages of $200,000 and 10%
interest beginning January 2, 2008.  We believe that MCF has
meritorious defenses and it intends to contest this claim
vigorously.





In
addition, in late 2008, MCF received a demand letter from a former client of MCF
alleging similar claims to those asserted in the Zarich matter
above.  We believe that MCF has meritorious defenses to the claims and
it intends to contest them vigorously. We believe it is unlikely to result
in an adverse outcome.  However, in the event MCF does not prevail, we
do not believe that the outcome will have a material effect on our financial
position, financial results or cash flows.





Gary
Thornhill, et al. v. Merriman Curhan Ford & Co.





In May
2009, a complaint was filed in the San Francisco County Superior Court by Gary
Thornhill and several related family members and entities, naming as defendants
the Company and MCF.  The complaint alleges, , among other things,
fraud based on Cacchione’s alleged assistance to Del Biaggio in connection with
the allegedly fraudulent investments and MCF’s failure to discover and stop the
continuing fraud.  This matter does not involve account control
agreements. Plaintiffs in this lawsuit seek damages of $230,000.  A
response to the complaint is due in August 2009.  We believe that we
and MCF have meritorious defenses and intend to contest these claims
vigorously.





Lawsuits
against MCF unrelated to the Del Biaggio/Cacchione matters are as
follows:





Spare
Backup v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in April 2008, MCF entered into an
engagement to provide investment banking services to Spare Backup, Inc. 
MCF was able to close a round of bridge financing in June 2008.  As a
result of closing the financing transaction, MCF was entitled to reimbursement
of its expenses, a convertible note with principal valued at $161,100 and
370,370 shares of Spare Backup common stock.  As of November 2008, these
transaction fees had not been paid to MCF.  We hired counsel to seek
payment of the fees and to proceed to arbitration, as is specified in the
engagement letter.  In January 2009, MCF filed a petition to compel
arbitration in the San Francisco County Superior Court.  In response to the
petition to compel arbitration, Spare Backup filed a complaint in the Riverside
County Superior Court, Indio Branch, for fraud and declaratory relief alleging
that MCF fraudulently induced it to execute the investment banking engagement
letter.  MCF was successful in raising $1,300,000 in capital for Spare
Backup.  In May 2009, arbitration formally commenced but the parties
have not yet formally met in arbitration.




Wesley
Rusch v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in October 2008, MCF was served with a
claim in FINRA Arbitration by Wesley Rusch. Mr. Rusch is a former at-will
employee of Merriman Curhan Ford & Co. and worked in the compliance
department. Mr. Rusch was terminated by Merriman Curhan Ford & Co.
in July 2007. Mr. Rusch alleges theories of discrimination and lack of
cause for termination.  Mr. Rusch filed a Statement of Claim seeking
damages of over $1 million.  We contested this claim at the
arbitration before a FINRA arbitration panel in March 2009 which resulted
in a decision in our favor in July 2009.





Joy
Ann Fell v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in November 2008, MCF received a demand
letter from a former employee, Joy Ann Fell.  In January 2009, MCF received
a claim filed by Ms. Fell in FINRA arbitration.  Ms. Fell worked in our
investment banking department and was terminated in October of 2008, as part of
a reduction in force.  Ms. Fell alleges claims of breach of an implied
employment contract, emotional distress and work-place discrimination.  The
demand for money damages is approximately $350,000.  We believe that MCF
has meritorious defenses and it intends to contest this claim vigorously. 
MCF has responded to the claim but there has been no discovery to date. 
The parties and FINRA have jointly selected an arbitration panel of three New
York-based arbitrators:  Aaron Tyk, Caryl D. Feldman, and Beth Bird
Pocker.  The matter is set for hearing at the New York FINRA Office
for February 23-25, 2010.


37





Peter
Marcil v. Merriman Curhan Ford & Co.





Unrelated
to the Del Biaggio/Cacchione matters, in January 2009, our broker-dealer
subsidiary, MCF, was served with a claim in FINRA Arbitration by Peter Marcil.
Mr. Marcil is a former at-will employee of Merriman Curhan Ford &
Co. and worked in the investment banking department. Mr. Marcil resigned
from Merriman Curhan Ford & Co. in March of 2007. Mr. Marcil
alleges breach of an implied employment contract, wrongful termination, and
intentional infliction of emotional distress. Damages are not specified in the
arbitration claim.   MCF has not replied to the claim and an
arbitration hearing date has not been set.  The parties have scheduled
a mediation with San Francisco Attorney/Mediator Mark Rudy, for September 14,
2009.  We believe that MCF has meritorious defenses and it intends to
contest this claim vigorously.  However, in the event that MCF does
not prevail, based upon the facts as we know them to date, we do not believe
that the outcome will have a material effect on our financial position,
financial results or cash flows.




Demand
By Shelly Schaffer to Merriman Curhan Ford & Co. for Payment of Attorneys’
Fees




Unrelated
to the Del Biaggio/Cacchione matters, on April 24, 2009, former Vice President
of Client Services Shelly Schaffer, through her attorney, Robert Shartsis, made
a written demand for payment of attorneys’ fees for Ms. Schaffer’s defense in a
civil action by the Securities and Exchange Commission.  Ms. Schaffer,
who was hired by MCF on May 25, 2006, retained Mr. Shartsis to respond to an SEC
Enforcement action in which it is alleged that Ms. Schaffer violated the
antifraud provisions of federal securities laws and applicable
regulations.  Ms. Schaffer worked for Cacchione prior to their coming
to MCF.  MCF has denied Ms. Schaffer’s requests for payment of her
attorneys’ fees on the grounds that the accusations against her concern
activities that were outside the course and scope of her
employment.  Ms. Schaffer’s attorney has stated his intention to sue
MCF for payment of his fees, which he claims are approximately $100,000.00 and
will increase as the SEC investigation continues.  We believe that MCF
has meritorious defenses and it intends to contest the claims
vigorously.





Dow
Corning Corporation





Unrelated
to the Del Biaggio/Cacchione matters, in late July and early August 2009,
counsel for Dow Corning Corporation (“DCC”) indicated in correspondence and
communications that DCC may have some type of claim against MCF and the Company
in connection with its purchases of auction rate securities through MCF’s ICD
Division.  Counsel would not furnish any specifics about the purported
claim or any purported damages, but requested an agreement tolling any
applicable statute of limitations for sixty (60) days to allow the parties to
undertake “settlement discussions.”  MCF, the Company, Institutional
Cash Distributors, LLC and certain representatives of MCF’s ICD Division have
entered into such a tolling agreement with DCC cancelable on ten (10) days
notice.  No discussions have ensued as of the date of this
report.  Accordingly the Company is not aware of the basis of any
purported claim.





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





Insurance
Litigation





On
January 14, 2009, Merriman Curhan Ford & Co. and Merriman Curhan Ford Group,
Inc. (collectively the “Company”) filed a civil action in the Superior Court for
Los Angeles County (the “Coverage Lawsuit”) against its directors and officers
liability insurer, XL Specialty Insurance Company (“XL
Specialty”).  In the Coverage Lawsuit, the Company has asserted claims
for breach of contract, tortious breach of contract, and declaratory relief,
alleging that XL Specialty wrongfully denied coverage for various ongoing
third-party claims and government investigations.  The Company seeks
an award of compensatory damages, punitive damages, attorneys’ fees and
costs.  XL Specialty has filed a cross-complaint against the Company
for declaratory relief, by which XL Specialty seeks a judicial determination
that it does not owe any coverage obligations regarding the third-party claims
and government investigations (XL Specialty is not pursuing any claims for
damages against the Company).  The parties are presently engaged in
discovery, and the case is set for trial on February 16, 2010.





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


38





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, 2008, filed on March 31,
2009, as amended by our Form 10-K/A filed on April 30, 2009, and the additional
risk factors described below.





Our
assets are Subject to a Security Agreement which may impact stockholders rights
if we liquidate.





On May
29, 2009, the Company sold and issued an aggregate of $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 the same Notes. As part of this transaction, the Company entered into a
Security Agreement with the investors in the Notes by which the Company pledged
all assets of the Company as security for the Notes.  On July 31,
2009, the Company issued and sold $500,000 in principal amount of Secured
Promissory Notes (the “Note”).  As part of this transaction, the
Company entered into an additional Security Agreement with the investors in the
Notes by which the Company pledged all assets of the Company as security for the
Notes. If the Company were to liquidate, the investors in the Convertible Notes
and the Note would have to be repaid before any other obligations of the
Company, which would reduce the amount of assets available for distribution to
the Company’s Stockholders.





Your
ownership percentage may be diluted by outstanding Warrants.





The
Convertible Notes issued on May 29, 2009 and June 1, 2009 are convertible into
1,250,000 shares of the Common Stock of the Company.  In addition, the
investors in the Convertible Notes received warrants to purchase an aggregate of
937,500 shares of the Common Stock of the Company at $0.50 per
share.  The investor and guarantors of the Note issued on July 31,
2009 received warrants to purchase an aggregate of 2,326,000 shares of the
Common Stock of the Company at $0.65 per share.  Conversion of the
Convertible Notes and exercise of these warrants would dilute the ownership
percentage of exiting stockholders in the Company.


39





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.


40




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.August
      11, 2009
                        By:
                        
                        /s/ D.
      JONATHAN MERRIMAND.
      Jonathan Merriman,
                          Chief
      Executive Officer
                          (Principal
      Executive
Officer)




August
      11, 2009
                  By:
                  
                  /s/ PETER
      V. COLEMANPeter
      V. Coleman
                    Chief
      Financial Officer
                    (Principal
      Financial
Officer)




41