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 September 30, 2010




 ̈
            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
HOLDINGS, 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
xNo  ̈





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 November 10, 2010 was 2,157,575.













Merriman
Holdings, Inc.




Index




Page No.PART
      I FINANCIAL INFORMATIONITEM
      1. Financial Statements (unaudited)Consolidated
      Statements of Operations For the Three Months and Nine Months Ended
      September 30, 2010 and 2009
            
            
            3Consolidated
      Statements of Financial Condition as of September 30, 2010 and December
      31, 2009
            
            
            4Consolidated
      Statements of Cash Flows For the Nine Months Ended September 30, 2010 and
      2009
            
            
            5Notes
      to Consolidated Financial Statements
            
            
            7ITEM
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
            
            
            31ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            
            
            48ITEM
      4. Controls and Procedures
            
            
            49PART
      II OTHER INFORMATIONITEM
      1. Legal Proceedings
            
            
            50ITEM
      1A. Risk Factors
            
            
            51ITEM
      6. Exhibits
            
            
            52Signatures
            
            
            53Certifications




2




PART
I.  FINANCIAL INFORMATION





ITEM
1.   Financial Statements (unaudited)




MERRIMAN
HOLDINGS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited)




Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,
            
            
            September
      30,
            
            
            September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Revenue:Commissions
            
            $
            3,959,937
            
            
            $
            3,137,232
            
            
            $
            11,402,663
            
            
            $
            8,818,247Principal
      transactions
            
            
            (309,422
            )
            
            
            (35,522
            )
            
            
            (133,261
            )
            
            
            (128,732
            )Investment
      banking
            
            
            537,187
            
            
            
            3,127,596
            
            
            
            8,099,497
            
            
            
            5,411,463Advisory
      and other
            
            
            49,124
            
            
            
            411,602
            
            
            
            413,465
            
            
            
            1,618,282Total
      revenue
            
            
            4,236,826
            
            
            
            6,640,908
            
            
            
            19,782,364
            
            
            
            15,719,260Operating
      expenses:Compensation
      and benefits
            
            
            4,863,982
            
            
            
            4,003,208
            
            
            
            15,462,360
            
            
            
            11,167,490Brokerage
      and clearing fees
            
            
            361,413
            
            
            
            193,880
            
            
            
            1,131,584
            
            
            
            745,678Professional
      services
            
            
            456,533
            
            
            
            495,905
            
            
            
            1,195,094
            
            
            
            1,718,046Occupancy
      and equipment
            
            
            479,205
            
            
            
            534,130
            
            
            
            1,451,045
            
            
            
            1,575,742Communications
      and technology
            
            
            476,941
            
            
            
            736,755
            
            
            
            1,563,417
            
            
            
            2,065,139Depreciation
      and amortization
            
            
            99,746
            
            
            
            109,922
            
            
            
            302,600
            
            
            
            372,913Travel
      and entertainment
            
            
            303,956
            
            
            
            281,860
            
            
            
            955,525
            
            
            
            532,113Legal
      services and litigation settlement expense
            
            
            855,286
            
            
            
            5,837,699
            
            
            
            1,867,878
            
            
            
            6,616,311Cost
      of underwriting capital
            
            
            8,000
            
            
            
            -
            
            
            
            968,576
            
            
            
            -Other
            
            
            874,232
            
            
            
            248,293
            
            
            
            1,587,580
            
            
            
            1,342,094Total
      operating expenses
            
            
            8,779,294
            
            
            
            12,441,652
            
            
            
            26,485,659
            
            
            
            26,135,526Operating
      loss
            
            
            (4,542,468
            )
            
            
            (5,800,744
            )
            
            
            (6,703,295
            )
            
            
            (10,416,266
            )Other
      income
            
            
            -
            
            
            
            -
            
            
            
            29,319
            
            
            
            2,000,000Interest
      income
            
            
            3,941
            
            
            
            4,425
            
            
            
            10,408
            
            
            
            13,591Change
      in fair value of warrant liability
            
            
            -
            
            
            
            (9,628,460
            )
            
            
            -
            
            
            
            (9,628,460
            )Interest
      expense
            
            
            (7,471
            )
            
            
            (1,289,401
            )
            
            
            (40,167
            )
            
            
            (1,333,569
            )Loss
      from continuing operations before income taxes
            
            
            (4,545,998
            )
            
            
            (16,714,180
            )
            
            
            (6,703,735
            )
            
            
            (19,364,704
            )Income
      tax benefit
            
            
            33,302
            
            
            
            235,727
            
            
            
            4,285
            
            
            
            230,528Loss
      from continuing operations
            
            
            (4,512,696
            )
            
            
            (16,478,453
            )
            
            
            (6,699,450
            )
            
            
            (19,134,176
            )Income
      (loss) from discontinued operations
            
            
            -
            
            
            
            (90,192
            )
            
            
            95,104
            
            
            
            78,904Net
      loss
            
            $
            (4,512,696
            )
            
            $
            (16,568,645
            )
            
            $
            (6,604,346
            )
            
            $
            (19,055,272
            )Preferred
      stock deemed dividend
            
            
            -
            
            
            
            (5,066,702
            )
            
            
            -
            
            
            
            (5,066,702
            )Preferred
      stock cash dividend
            
            
            (146,400
            )
            
            
            (39,100
            )
            
            
            (446,100
            )
            
            
            (39,100
            )Net
      loss attributable to common shareholders
            
            $
            (4,659,096
            )
            
            $
            (21,674,447
            )
            
            $
            (7,050,446
            )
            
            $
            (24,161,074
            )Basic
      and diluted net loss per share:Loss
      from continuing operations
            
            $
            (2.22
            )
            
            $
            (9.11
            )
            
            $
            (3.47
            )
            
            $
            (10.55
            )Income
      (loss) from discontinued operations
            
            
            -
            
            
            
            (0.05
            )
            
            
            0.05
            
            
            
            0.04Net
      loss
            
            $
            (2.22
            )
            
            $
            (9.16
            )
            
            $
            (3.42
            )
            
            $
            (10.51
            )Net
      loss attributable to common shareholders
            
            $
            (2.29
            )
            
            $
            (11.98
            )
            
            $
            (3.65
            )
            
            $
            (13.33
            )Weighted
      average number of common shares:Basic
      and diluted
            
            
            2,030,584
            
            
            
            1,809,724
            
            
            
            1,931,781
            
            
            
            1,813,144




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





3




MERRIMAN
HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
 (unaudited)





September
      30,
                
                
                December
      31,2010
                
                
                2009ASSETSCash
      and cash equivalents
                
                $
                7,514,726
                
                
                $
                5,656,750Securities
      owned:Marketable,
      at fair value
                
                
                2,199,404
                
                
                
                4,728,940Not
      readily marketable, at estimated fair value
                
                
                432,878
                
                
                
                272,463Other
                
                
                43,792
                
                
                
                67,448Restricted
      cash
                
                
                965,000
                
                
                
                1,072,086Due
      from clearing broker
                
                
                185,560
                
                
                
                2,546,581Accounts
      receivable, net
                
                
                765,539
                
                
                
                470,992Prepaid
      expenses and other assets
                
                
                655,935
                
                
                
                801,946Equipment
      and fixtures, net
                
                
                235,452
                
                
                
                506,535Total
      assets
                
                $
                12,998,286
                
                
                $
                16,123,741LIABILITIES AND STOCKHOLDERS’ EQUITYLiabilities:Accounts
      payable
                
                $
                419,998
                
                
                $
                346,220Commissions
      and bonus payable
                
                
                2,428,515
                
                
                
                4,133,924Accrued
      expenses
                
                
                2,240,671
                
                
                
                2,755,831Due
      to clearing and other brokers
                
                
                4,577
                
                
                
                7,185Securities
      sold, not yet purchased
                
                
                121,354
                
                
                
                161,461Deferred
      revenue
                
                
                53,533
                
                
                
                304,334Notes
      payable to related party - short term
                
                
                4,000,000
                
                
                
                -Capital
      lease obligation
                
                
                191,342
                
                
                
                397,958Subordinated
      loan to related parties - long term, net
                
                
                793,735
                
                
                
                -Total
      liabilities
                
                
                10,253,725
                
                
                
                8,106,913Stockholders’
      equity:Convertible
      preferred stock, Series A–$0.0001 par value; 2,000,000 shares
       authorized; 2,000,000 shares issued and 0 shares outstanding as
      of  September 30, 2010 and December 31, 2009; aggregate liquidation
      preference of $0
                
                
                -
                
                
                
                -Convertible
      preferred stock, Series B–$0.0001 par value; 12,500,000 shares
       authorized; 8,750,000 shares issued and 0 shares outstanding as of
       September 30, 2010 and December 31, 2009; aggregate liquidation
       preference of $0
                
                
                -
                
                
                
                -Convertible
      preferred stock, Series C–$0.0001 par value; 14,200,000 shares
       authorized; 11,800,000 shares issued and 0 shares outstanding as of
       September 30, 2010 and December 31, 2009; aggregate liquidation
      preference of $0
                
                
                -
                
                
                
                -Convertible
      preferred stock, Series D–$0.0001 par value; 24,000,000shares
      authorized; 23,720,916 and 23,720,916 shares issuedand
      22,697,662 and 23,720,916 shares outstanding as ofSeptember
      30, 2010 and December 31, 2009, respectively;aggregate
      liquidation preference of $9,759,995 prior to
      conversion,and
      pari passu with common stock on conversion
                
                
                2,269
                
                
                
                2,372Common
      stock, $0.0001 par value; 300,000,000 shares authorized;2,185,632
      and 1,855,439 shares issued and 2,156,296 and1,826,643
      shares outstanding as of September 30, 2010and
      December 31, 2009, respectively
                
                
                216
                
                
                
                187Additional
      paid-in capital
                
                
                134,387,457
                
                
                
                133,055,304Treasury
      stock
                
                
                (225,613
                )
                
                
                (225,613
                )Accumulated
      deficit
                
                
                (131,419,768
                )
                
                
                (124,815,422
                )Total
      stockholders’ equity
                
                
                2,744,561
                
                
                
                8,016,828Total
      liabilities and stockholders’ equity
                
                $
                12,998,286
                
                
                $
                16,123,741




The
accompanying notes are an integral part of these consolidated financial
statements.
  4


MERRIMAN
HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (unaudited)
  Nine
      Months EndedSeptember
      30,
                
                
                September
      30,2010
                
                
                2009Cash
      flows from operating activities:Net
      loss
                
                $
                (6,604,345
                )
                
                $
                (19,055,272
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Gain
      on sale of Institutional Cash Distributors
                
                
                -
                
                
                
                (2,000,000
                )Depreciation
      and amortization
                
                
                302,600
                
                
                
                383,523Stock-based
      compensation
                
                
                1,277,656
                
                
                
                429,986Amortization
      of discounts on debt
                
                
                168
                
                
                
                -Amortization
      of discount on convertible note
                
                
                -
                
                
                
                552,639Amortizatino
      of debt issue costs
                
                
                -
                
                
                
                346,995Amortization
      of beneficial conversion feature
                
                
                -
                
                
                
                180,639Change
      in fair value of warrant liability
                
                
                -
                
                
                
                9,628,460Non-cash
      legal settlement expense
                
                
                -
                
                
                
                1,230,953Non-cash
      professional services
                
                
                -
                
                
                
                35,000Loss
      (gain) on disposal of equipment and fixtures
                
                
                (2,987
                )
                
                
                294,378Provision
      for uncollectible accounts receivable
                
                
                434,783
                
                
                
                58,074Securities
      received for services
                
                
                (944,188
                )
                
                
                (290,331
                )Unrealized
      loss on securities owned
                
                
                1,069,415
                
                
                
                480,292Changes
      in operating assets and liabilities:Securities
      owned and sold, not yet purchased
                
                
                2,227,441
                
                
                
                (132,567
                )Restricted
      cash
                
                
                107,086
                
                
                
                58,411Due
      from clearing broker
                
                
                2,361,021
                
                
                
                (360,768
                )Accounts
      receivable
                
                
                (729,330
                )
                
                
                (1,261,782
                )Prepaid
      expenses and other assets
                
                
                146,012
                
                
                
                172,601Accounts
      payable
                
                
                75,977
                
                
                
                (80,174
                )Commissions
      and bonus payable
                
                
                (1,705,409
                )
                
                
                738,270Accrued
      expenses
                
                
                (508,591
                )
                
                
                (2,436,032
                )Due
      to clearing and other brokers
                
                
                (2,608
                )
                
                
                (18,845
                )Net
      cash used in operating activities
                
                
                (2,495,299
                )
                
                
                (11,045,550
                )Cash
      flows from investing activities:Purchase
      of equipment and fixtures , net
                
                
                (28,529
                )
                
                
                -Sale
      of Panel Intelligence
                
                
                -
                
                
                
                702,966Sale
      of Institutional Cash Distributors
                
                
                -
                
                
                
                2,000,000Net
      cash (used in) provided by investing activities
                
                
                (28,529
                )
                
                
                2,702,966Cash
      flows from financing activities:Proceeds
      from the issuance of Series D Convertible Preferred
      Stock,net
      of reinvestments of previous bridge financing and expenses
                
                
                -
                
                
                
                8,808,256Proceeds
      from the exercise of stock options
                
                
                36,720
                
                
                
                -Issuance
      of bridge note
                
                
                -
                
                
                
                500,000Payments
      on convertible notes payable
                
                
                -
                
                
                
                (125,000
                )Proceeds
      from issuance of convertible notes payable
                
                
                -
                
                
                
                625,000Proceeds
      from issuance of notes payable - short term
                
                
                -
                
                
                
                300,000Payments
      on notes payable - short term
                
                
                -
                
                
                
                (300,000
                )Proceeds
      from subordinated loan
                
                
                22,000,000
                
                
                
                -Payments
      on subordinated loan
                
                
                (18,000,000
                )
                
                
                -Proceeds
      from long term subordinated loan
                
                
                1,000,000
                
                
                
                -Preferred
      stock dividend
                
                
                (448,300
                )
                
                
                -Debt
      service principal payments
                
                
                (206,616
                )
                
                
                (520,774
                )Net
      cash provided by financing activities
                
                
                4,381,804
                
                
                
                9,287,482Increase
      in cash and cash equivalents
                
                
                1,857,976
                
                
                
                944,898Cash
      and cash equivalents at beginning of year
                
                
                5,656,750
                
                
                
                6,358,128Cash
      and cash equivalents, assets held for sale
                
                
                -
                
                
                
                222,892Cash
      and cash equivalents at end of the period
                
                $
                7,514,726
                
                
                $
                7,525,918
  The
accompanying notes are an integral part of these consolidated financial
statements.
  5




MERRIMAN
HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS - CONTINUED
 (unaudited)
 Nine
      Months EndedSeptember
      30,
                
                
                September
      30,2010
                
                
                2009Supplementary
      disclosure of cash flow information:Cash
      paid during the year:Interest
                
                $
                31,615
                
                
                $
                252,252Income
      taxes
                
                $
                35,000
                
                
                $
                5,200Noncash
      investing and financing activities:Warrant
      issued for legal settlement
                
                $
                257,370
                
                
                $
                -Stocks
      issued in connection with issuance of debt
                
                $
                206,433Stock
      received as part of Panel sale
                
                $
                -
                
                
                $
                100,000Conversion
      of note payable and accrued interest into Series D Convertible Preferred
      Stock
                
                $
                -
                
                
                $
                1,060,717Conversion
      of legal settlement into Series D Convertible Preferred
    Stock
                
                $
                -
                
                
                $
                296,027Conversion
      of professional services into Series D Convertible Preferred
      Stock
                
                $
                -
                
                
                $
                35,000




The
accompanying notes are an integral part of these consolidated financial
statements.
  6




MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 1.
Significant Accounting Policies
 
 Basis
of Presentation
 
 The
interim unaudited consolidated financial statements included herein for Merriman
Holdings, Inc. (formerly Merriman Curhan Ford Group, Inc. and MCF Corporation),
or the Company, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). In the opinion of management, the
consolidated financial statements included in this report reflect all normal
recurring adjustments that the Company considers necessary for the fair
presentation of the consolidated results of operations for the interim periods
covered and the consolidated financial position of the Company at the date of
the interim statement of financial condition. Certain information and footnote
disclosures normally included in annual consolidated 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 consolidated financial statements should be read in conjunction with the
Company’s 2009 audited consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K and on Form 10-K/A for the
year ended December 31, 2009.
 
 Under
Accounting Standards Codification Topic (“ASC”) 855, “Subsequent Events”, the
Company has evaluated all subsequent events through the date these consolidated
financial statements were issued.
 
 Change in Company and Subsidiary Name
 
 At the
stockholders’ annual meeting on August 10, 2010, the stockholders approved the
adoption of an amendment to the Company’s Amended Certificate of Incorporation
changing the Company’s name from Merriman Curhan Ford Group, Inc. to Merriman
Holdings, Inc.  In September 2010, the Company also changed the name
of its subsidiary from Merriman Curhan Ford & Co. to Merriman Capital, Inc.
(hereafter “MC”).
 
 Reverse
Stock Split
  At the
stockholders’ annual meeting on August 10, 2010, the stockholders also voted to
approve the amendment to the Company’s Amended Certificate of Incorporation to
affect a one-for-seven reverse stock split.  The reverse stock split
became effective at 12:01 am, Eastern Time, on August 16, 2010. Pursuant to the
reverse stock split, each seven shares of authorized and outstanding common
stock was reclassified and combined into one share of new common stock. In
addition, upon the effectiveness of the reverse stock split, seven shares of
Series D Convertible Preferred Stock will be convertible into one share of
common stock of the Company. The reverse stock split did not change the number
of authorized shares or the par value per share of common stock or preferred
stock designated by the Company's Certificate of Incorporation. Currently, the
Company has authorized 300,000,000 shares of common stock. All references to
share and per share data for all periods presented have been retroactively
adjusted to give effect to the one-for-seven reverse stock split.
 
 Securities
Owned and Securities Sold, Not Yet Purchased
 
 Securities
owned and securities sold, not yet purchased in the consolidated statements of
financial condition consist of financial instruments carried at fair value with
related unrealized gains or losses recognized in the consolidated statement of
operations.   The securities owned are classified into
“marketable,” “non-marketable” and “other.”  Marketable securities are
those that can readily be sold, either through a stock exchange or through a
direct sales arrangement.  Non-marketable securities are typically
securities restricted under Rule 144A or have some restriction on their sale
whether or not a buyer is identified.  Other securities consist of
investments accounted for under the equity method.
 
 Fair
Value of Financial Instruments
 
 Substantially
all of our financial instruments are recorded at fair value or contract amounts
that approximate fair value. Securities owned and securities sold, not yet
purchased, are stated at fair value, with any related changes in unrealized
appreciation or depreciation reflected in principal transactions in the
consolidated statements of operations. Financial instruments carried at contract
amounts include cash and cash equivalents and amounts due from and to brokers,
dealers and clearing brokers.
  7
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
  1.
Significant Accounting Policies - continued
 
 Fair
Value Measurement—Definition and Hierarchy
 
 The
Company follows the provisions of ASC 820, “Fair Value Measurement and
Disclosures,”
for our financial assets and liabilities. Under ASC 820, fair value is defined
as the price that would be received to sell an asset or paid to transfer a
liability (i.e., the
“exit price”) in an orderly transaction between market participants at the
measurement date.
 
 Where
available, fair value is based on observable market prices or parameters or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
The Company’s financial assets and liabilities measured and reported at fair
value are classified and disclosed in one of the following
categories:
 
 Fair
Value Measurement—Definition and Hierarchy - continued
 
 Level 1
—Unadjusted, quoted prices are available 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 —
Pricing 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 which are generally
included in this category are stock warrants for which market-based implied
volatilities are available, and unregistered common stock.
 
 Level 3 —
Pricing inputs are both significant to the fair value measurement and
unobservable.  These inputs generally 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. Fair
valued assets which are generally included in this category are 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
of 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 basis, and a description of valuation techniques, see
Note 5, Fair Value of Assets and Liabilities.
 
 Investment
Banking Revenue
 
 Investment
banking revenue includes underwriting and private placement agency fees earned
through the Company’s participation in public offerings, 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.
 
 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.
  8
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 1.
Significant Accounting Policies — continued
 
 Commissions
and Principal Transactions Revenue
 
 Commissions
revenue includes revenue resulting from executing trades in stock
exchange-listed securities, over-the- counter securities and other transactions
as agent for the Company’s clients. Principal transactions consist of a portion
of dealer spreads attributed to the Company’s securities trading activities as
principal in exchange-listed and other securities, and include transactions
derived from activities as a market-maker. Additionally, principal transactions
include gains and losses resulting from market price fluctuations that occur
while holding positions in trading security inventory. Commissions revenue and
related clearing expenses are recorded on a trade-date basis as security
transactions occur. Principal transactions in regular-way trades are recorded on
the trade date, as if they had settled. Profit and loss arising from all
securities and commodities transactions entered into for the account and risk of
the Company are recorded on a trade-date basis.
 
 Stock-based
Compensation Expense
 
 The
Company measures and recognizes compensation expense based on estimated fair
values for all stock-based awards made to employees and directors, including
stock options, restricted stock and warrants. The Company estimates fair value
of stock-based awards on the date of grant using the Black-Scholes
option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense in the Company’s consolidated
statements of operations over the requisite service periods. Stock-based
compensation expense recognized in the Company’s consolidated statement of
operations includes compensation expense for stock-based awards granted
(i) prior to, but not yet vested as of December 31, 2005, based on the
grant date fair value, and (ii) subsequent to December 31, 2005.
Compensation expense for all stock-based awards subsequent to December 31,
2005 is recognized using the straight-line single-option method. Because
stock-based compensation expense is based on awards that are ultimately expected
to vest, stock-based compensation expense has been reduced to account for
estimated forfeitures. Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.
 
 To
calculate stock-based compensation resulting from the issuance of options, and
warrants, the Company uses the Black-Scholes option pricing model, which is
affected by the Company’s stock price as well as assumptions regarding a number
of subjective variables. These variables include, but are not limited to the
Company’s expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise behaviors. No tax benefits
were attributed to the stock-based compensation expense because a valuation
allowance was maintained for all net deferred tax assets.
  Income
Taxes
 
 The
Company uses the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are determined based on temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which temporary differences are expected to reverse. A valuation allowance is
recorded to reduce deferred tax assets to an amount whose realization is more
likely than not. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the consolidated statements of operations in the
period that includes the enactment date.
  9
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 1.
Significant Accounting Policies — continued
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.
 
 Segment
Reporting
 
 The
Company has determined that it has only one operating and reportable segment,
Merriman Capital, Inc. (formerly 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 September 30,
2010 and December 31, 2009, and consolidated total revenues for the
three months and nine months period ended September 30, 2010 and
2009.
 
 New
Accounting Pronouncements
  In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Updates (“ASU”) No. 2010-06, "Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements," which amends the disclosure requirements related to
recurring and nonrecurring fair value measurements. The guidance requires new
disclosures on the transfers of assets and liabilities between Level 1 (quoted
prices in active market for identical assets or liabilities) and Level 2
(significant other observable inputs) of the fair value measurement hierarchy,
including the reasons and the timing of the transfers. Additionally, the
guidance requires a roll forward of activities on purchases, sales, issuance,
and settlements of the assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance also
clarifies the existing disclosure requirements in ASC 820-10 regarding: i) the
level of disaggregation of fair value measurements; and ii) the disclosures
regarding inputs and valuation techniques. The guidance became effective for the
Company with the reporting period beginning January 1, 2010, except for the
disclosure on the roll forward activities for Level 3 fair value measurements,
which will become effective for the Company with the reporting period beginning
January 1, 2011, with early adoption permitted.  Comparative
disclosure for earlier reporting periods that ended before initial adoption is
encouraged but not required. Effective April 1, 2010, the Company early adopted
the guidance in ASC 820-10 related to the disclosure on the roll forward
activities for Level 3 fair value measurements.  Other than requiring
additional disclosures, the adoption of this new guidance did not have an impact
on our consolidated financial statements. (See Note 5 - Fair Value of Assets and
Liabilities.)
 
 In July
2010, the FASB issued ASU No. 2010-20, “Receivables (Topic
310): Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses” (“ASU 2010-20”). The objective of ASU 2010-20 is to provide
financial statement users with greater transparency about an entity’s allowance
for credit losses and the credit quality of its financing receivables. Under ASU
2010-20, an entity is required to provide disclosures so that financial
statement users can evaluate the nature of the credit risk inherent in the
entity’s portfolio of financing receivables, how that risk is analyzed and
assessed to arrive at the allowance for credit losses, and the changes and
reasons for those changes in the allowance for credit losses. ASU 2010-20 is
applicable to all entities, both public and non-public and is effective for
interim and annual reporting periods ending on or after December 15, 2010.
Comparative disclosure for earlier reporting periods that ended before initial
adoption is encouraged but not required. However, comparative disclosures are
required to be disclosed for those reporting periods ending after initial
adoption. Other than requiring additional disclosures, the adoption of this new
guidance will not have an impact on our consolidated financial
statements.
 
 On July
21, 2010, President Barack Obama signed into law the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Wall Street Reform Act).  The Wall
Street Reform Act permanently exempts small public companies with less than $75
million in market capitalization (nonaccelerated filers) from the requirement to
obtain an external audit on the effectiveness of internal financial reporting
controls provided in Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX).
Section 404(b) requires a registrant to provide an attestation report on
management’s assessment of internal controls over financial reporting by the
registrant’s external auditor.  As a result, the Company is not
required and is not planning to obtain an attestation report on management’s
assessment of internal controls over financial reporting from the Company’s
external auditor as of December 31, 2010. Disclosure of management attestations
on internal control over financial reporting under existing Section 404(a)
continues to be required for smaller companies.
  10
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 2.
Liquidity
 
 We
incurred substantial losses and negative cash flows from operations in 2009 and
2008. We had net losses of $5,462,000 and $30,274,000 in 2009 and 2008,
respectively, and negative operating cash flows of $12,648,000 and $24,945,000
for the same respective years. For the nine months ended September 30, 2010, we
also incurred net losses of $6,604,000 and negative operating cash flows of
$2,495,000.  Furthermore, as of September 30, 2010, we had an
accumulated deficit of $131,420,000. While we believe our current funds will be
sufficient to enable us to meet our current expenditures, if anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures and/or to raise additional
capital. We plan to raise additional permanent capital to ensure our operating
flexibility and to reduce our cost of underwriting capital.  Failure
to generate sufficient cash flows from operations, raise additional capital or
reduce certain discretionary spending could have a material adverse effect on
our ability to achieve our intended business objectives.
 
 3.
Issuance of Notes and Warrants
 
 Convertible
Notes
 
 On May
29, 2009, the Company sold and issued $525,000 in principal amount of Secured
Convertible Promissory Notes (each a “Note,” and collectively, the
“Notes”).  On June 1, 2009, the Company issued an additional $100,000
of Notes. The investor group included eight individuals, comprised of
certain officers and employees of the Company as well as an outside
investor.  The Notes were issued in a private placement exempt from
registration requirements.  There were no underwriters, underwriting
discounts or commissions involved in the transactions.  The Notes were
converted into Series D Convertible Preferred Stock on September 8, 2009 (see
Note 4).  No Notes remain outstanding as of September 30,
2010.
 
 The Notes
were issued with warrants to purchase additional shares of common stock of the
Company at $3.50 per share on a post-reverse split basis for a number of shares
of common stock equal to 75% of the principal amount of the Notes purchased,
divided by $3.50.  The warrants issued in connection with the Notes
remain outstanding as of September 30, 2010 and are exercisable at any
time.
 
 Bridge
Note
 
 Ronald L.
Chez is a member of the Company’s Board of Directors.  Prior to Mr.
Chez joining the Board, he received a secured promissory note (the “Chez Note”)
in the principal amount of $500,000 from the Company in July
2009.  The Chez Note was issued in a private placement to Mr. Chez as
an accredited investor exempt from registration requirements.  The
Chez Note carried an interest rate of 9% per annum, payable on
maturity.  The Chez Note was issued with ten-year warrants to purchase
166,113 shares of the Company’s common stock at $4.55 per share on a
post-reverse split basis.  The principal and interest accrued under
the Chez Note was converted into Series D Convertible Preferred Stock on
September 8, 2009.  As of September 30, 2010, no portion of the Chez
Note remains outstanding.  The warrants remain outstanding and may be
exercised at the discretion of the holder.  The Chez Note was
personally guaranteed by Messrs. Merriman and Coleman.
 
 As
compensation for their personal guarantees, D. Jonathan Merriman, the Company’s
Chief Executive Officer, and Peter V. Coleman, the Chief Financial Officer, each
originally received ten-year warrants to purchase 83,056 shares of the Company’s
common stock at $4.55 per share on a post-reverse split
basis.  Subsequent to issuance, Messrs. Merriman and Coleman each
transferred ownership of 32,618 warrants to Mr. Chez and retained ownership of
41,528 warrants each.  The balance of 8,910 warrants was transferred
by each of Messrs. Merriman and Coleman to third parties in connection with
investments in the Company’s Series D Preferred Convertible Stock strategic
transaction of September 2009.
  11
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 3.
Issuance of Notes and Warrants — continued
 
 XL
Settlement Warrants
 
 On
February 12, 2010, the Company settled its lawsuit with XL Specialty Insurance
Company.  As part of its settlement agreement dated September 8, 2009
with DGB Investment, Inc., Craig Leipold, Heritage Bank of Commerce, Modern
Bank, Valley Community Bank, AEG Facilities and the Federal Deposit Insurance
Company (“FDIC”) as receiver for Security Pacific Bank (the “Litigants”), the
Company assigned certain rights of recovery to the Litigants.  The
settlement was for $5,750,000, of which the Company’s portion, pursuant to the
settlement agreement, was $325,000 less expenses.  As a result of the
receipt of the proceeds as insurance recovery on the legal settlement, the
Company was obligated to issue 53,366 warrants to purchase shares of the
Company’s common stock at a price per share of $6.09 on a post-reverse split
basis.  As of December 31, 2009, the Company had accrued for the
$325,000 liability that was paid out as warrants during the first quarter of
2010.
 
 As of
September 30, 2010 and December 31, 2009, the Company had 4,229,081 and
4,146,235 of total warrants outstanding, respectively.
  Long
Term Subordinated Loan
 
 On
September 29, 2010, the Company borrowed $1,000,000 from nine individual
lenders, all of whom are directors, officers or employees of the Company,
pursuant to a series of Unsecured Promissory Notes.  The Unsecured
Promissory Notes are for a term of three years and provide for interest
comprising two components: (i) Six Percent (6.0%) per annum to be paid in cash
monthly (the “Current Interest”); and (ii) Eight (8.0%) per annum to be accrued
and paid in cash upon maturity.  Additional consideration was paid to
the lenders at closing comprising a number of shares of common stock of the
Company equal to: (A) 30% of the principal amount lent; divided by (B) $3.01 per
share.  The total effective interest on the note is approximately
21.73%.  Proceeds were used to supplement underwriting capacity and
working capital for our broker dealer subsidiary, Merriman Capital,
Inc.
 
 The total
proceeds of $1,000,000 raised in the transaction above is accounted for as an
issuance of debt with stocks.  The total proceeds of $1,000,000 have
been allocated to these individual instruments based on the relative fair values
of each instrument.  Based on such allocation method, the value of the
stocks issued in connection with the Unsecured Promissory Notes was $206,000,
which was recorded as a discount on the debt and applied against the Unsecured
Promissory Notes.
 
 As of
September 30, 2010, the Unsecured Promissory Notes of $794,000, net of $206,000
discount, remain outstanding and is included in subordinated loan to related
parties – long term in the Company’s consolidated statement of financial
condition.  The discount on the note is amortized over the term of the
loan using the effective interest method.  For the three and
nine-months ended September 30, 2010, the Company incurred less than $500 as
fees on the Unsecured Promissory Notes, which also remain outstanding as of
September 30, 2010 and is included in accrued expenses in the consolidated
statements of financial position.
 
 Temporary
Subordinated Loan
 
 During
the year, the Company issued several loans in the form of temporary subordinated
loans to supplement the Company’s net capital and enable it to underwrite
initial public offerings, in accordance with Rule 15c3-1 of the Securities
Exchange Act of 1934.  All temporary subordinated loan transactions
are disclosed separately in Note 13, Related Party Transactions.
  12
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 4.  Series
D Convertible Preferred Stock
 
 On
September 8, 2009, the Company issued 23,720,916 shares of Series D Convertible
Preferred Stock along with 5-year warrants to purchase 3,388,702 shares of the
Company’s common stock with an exercise price of $4.55 per share on a
post-reverse split basis.  The investor group consisted of 56
individuals and entities, including certain officers, directors and employees of
the Company, as well as outside investors.
 
 The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933.  Effective upon the reverse-stock split as mentioned in Note 1,
seven shares of Series D Convertible Preferred Stock are convertible into one
share of common stock of the Company.  The Series D Convertible
Preferred Stock carries a dividend rate of 6% per annum, payable in cash
monthly.  For the three and nine months ended September 30, 2010,
total Series D Convertible Preferred Stock dividends were $146,400 and $446,100,
respectively.  As of September 30, 2010, the Company has an
outstanding cash dividends payable of $48,800 which are included in
accounts payable in the consolidated statements of financial
position.
 
 The
warrants issued in connection with the Series D Convertible Preferred Stock will
expire five years from the date of the transaction.  Holders of the
Series D Convertible Preferred Stock may convert them into shares of the
Company’s common stock at any time in amounts no less than $100,000 unless all
of the shares held by the holder are for a lesser amount.  The Series
D Convertible Preferred Stock will automatically convert at the discretion of
the Company upon 10-day notice given when the average closing price of the
Company’s common stock over a 30-day period is at or above $21.00 per share on a
post-reverse split basis and when the average trading volume for the immediately
prior four-week period is 4,285 shares or more, provided that the shares have
been effectively registered with the Securities and Exchange Commission or all
of the Series D Convertible Preferred Stock may be sold under Rule 144 of the
1933 Exchange Act.
 
 The
Company has accounted for this transaction as issuance of convertible preferred
stock with detachable stock warrants.  The total value of the Series D
Convertible Preferred Stock strategic transaction was $10,200,000, which
consists of $8,808,000 of cash proceeds and $1,392,000 of noncash proceeds from
conversions of prior notes and legal services.  Of the total cash
proceeds, $4,300,000 was used to settle certain legal claims which were in the
aggregate amount of $43,577,000.  The remaining cash of $4,508,000 was
used for working capital.
  13
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 5.
Fair Value of Assets and Liabilities
 
 Fair
value is defined as the price at which an asset would sell for or an amount paid
to transfer a liability in an orderly transaction between market participants at
the measurement date (the exit price). Where available, fair value is based on
observable market prices or parameters or derived from such prices or
parameters. Where observable prices or parameters are not available, valuation
models are applied. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price
transparency for the instruments or the market on which they are primarily
traded, and the instruments’ complexity. Assets and liabilities recorded at fair
value in the consolidated statements of financial condition are categorized
based upon the level of judgment associated with the inputs used to measure
their fair value.
 
 A
description of the valuation techniques applied to the Company’s major
categories of assets and liabilities measured at fair value on a recurring basis
follows.
 
 Corporate
Equities
 
 Corporate
equities are comprised primarily of exchange-traded equity securities that the
Company takes selective proprietary positions based on expectations of future
market movements and conditions.
 
 Also, as
compensation for investment banking services, the Company frequently receives
common stock of the client as an additional compensation to cash
fees.  The common stock is typically issued prior to a registration
statement is effective.  The Company classifies these securities as
“not-readily marketable securities” as they are restricted stock and may be
freely traded only upon the effectiveness of a registration statement covering
them or upon the satisfaction of the requirements to qualify under the exemption
to the Federal Securities Act of 1933 provided by SEC Rule 144 (“Rule 144”),
including the requisite holding period.  Once a registration statement
covering the securities is declared effective by the SEC or the securities have
satisfied the Rule 144 requirements, the Company classifies them as “marketable
securities.”
  Typically,
the common stock is traded on stock exchanges and most are classified as Level 1
securities.  The fair value is based on observed closing stock price
at the measurement date.
  Certain
securities are traded infrequently and therefore do not have observable prices
based on actively traded markets.  These securities are classified as
Level 3 securities, if pricing inputs or adjustments are both significant to the
fair value measurement and unobservable.  The Company determines the
fair value of infrequently trading securities using the observed closing price
at measurement date, discounted for the put option value calculated through the
Black-Scholes model or similar valuation techniques.  Valuation inputs
used in the Black-Scholes model include interest rate, stock volatility,
expected term and market price of the underlying stock.
 
 Stock
Warrants
  Also as
partial compensation for investment banking services, the Company may receive
stock warrants issued by the client.  Stock warrants provide their
holders with the right to purchase equity in a company.  If the
underlying stock of the warrants is freely tradable, the warrants are considered
to be marketable.  If the underlying stock is restricted, subject to a
registration statement or to satisfying the requirements for a Rule 144
exemption, the warrants are considered to be non-marketable.  Such
positions are considered illiquid and do not have readily determinable fair
values, and therefore require significant management judgment or
estimation.
  The fair
value of the stock warrants is determined using the Black-Scholes model or
similar valuation techniques. Valuation inputs used in the Black-Scholes model
include interest rate, stock volatility, expected term and market price of the
underlying stock. As these require significant management assumptions, they are
classified as Level 3 securities.
  14
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 5.
Fair Value of Assets and Liabilities – continued
 
 Underwriters’
Purchase Options
  The
Company may receive partial compensation for its investment banking services
also in the form underwriters’ purchase options (“UPOs”).  UPOs are
identical to warrants other than with respect to the securities for which they
are exercisable. UPOs grant the holder the right to purchase a “bundle” of
securities, including common stock and warrants to purchase common
stock.  UPOs grant the right to purchase securities of companies for
which the Company acted as an underwriter to account for any overallotment of
these securities in a public offering.  Such positions are considered
illiquid and do not have readily determinable fair values, and therefore require
significant management judgment or estimation.
  The fair
value of the UPO is determined using the Black-Scholes model or similar
technique, applied in two stages.  The first stage is to determine the
value of the warrants contained within the “bundle” which is then added to the
fair value of the stock within the bundle.  Once the fair value of the
underlying “bundle” is established, the Black-Scholes model is used again to
estimate a value for the UPO.  The fair value of the “bundle” as
estimated by Black-Scholes in the first stage is used instead of the price of
the underlying stock as one of the inputs in the second stage of the
Black-Scholes.  The use of the valuation techniques requires
significant management assumptions and therefore UPOs are classified as Level 3
securities.
 
 Preferred
Stock
 
 Preferred
stock represents preferred equity in companies.  The preferred stock
owned by the Company is convertible at the Company’s discretion. For these
securities, the Company uses the exchange-quoted price of the common stock
equivalents to value the securities. They are classified within Level 2 or Level
3 of the fair value hierarchy depending on the availability of an observable
stock price on actively traded markets.
 
 Securities
Sold, Not Yet Purchased
 
 Securities
sold, not yet purchased are comprised primarily of exchange-traded equity
securities that the Company sold short based on expectations of future market
movements and conditions. They are generally valued based on quoted prices from
the exchange. To the extent these securities are actively traded, valuation
adjustments are not applied and they are categorized in Level 1 liability of the
fair value hierarchy.
  15
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 5.
Fair Value of Assets and Liabilities — continued
 
 Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
 
 Assets
      and Liabilities at Fair Value at September 30, 2010Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                TotalAssets:Corporate
      equities
                
                $
                1,157,216
                
                
                $
                -
                
                
                $
                143,955
                
                
                $
                1,301,171Stock
      warrants
                
                
                -
                
                
                
                -
                
                
                
                984,443
                
                
                
                984,443Underwriters'
      purchase option
                
                
                -
                
                
                
                -
                
                
                
                346,430
                
                
                
                346,430Preferred
      stock
                
                
                -
                
                
                
                -
                
                
                
                238
                
                
                
                238Total
      securities owned
                
                $
                1,157,216
                
                
                $
                -
                
                
                $
                1,475,066
                
                
                $
                2,632,282Liabilities:Securities
      sold, not yet purchased
                
                
                121,354
                
                
                
                -
                
                
                
                -
                
                
                
                121,354Total
      fair value liabilities
                
                $
                121,354
                
                
                $
                -
                
                
                $
                -
                
                
                $
                121,354
 Assets
      and Liabilities at Fair Value at December 31, 2009Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                TotalAssets:Corporate
      equities
                
                $
                3,403,757
                
                
                $
                -
                
                
                $
                21,731
                
                
                $
                3,425,488Stock
      warrants
                
                
                -
                
                
                
                -
                
                
                
                1,575,481
                
                
                
                1,575,481Underwriters'
      purchase option
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Preferred
      stock
                
                
                434
                
                
                
                -
                
                
                
                -
                
                
                
                434Total
      securities owned
                
                $
                3,404,191
                
                
                $
                -
                
                
                $
                1,597,212
                
                
                $
                5,001,403Liabilities:Securities
      sold, not yet purchased
                
                
                161,461
                
                
                
                -
                
                
                
                -
                
                
                
                161,461Total
      fair value liabilities
                
                $
                161,461
                
                
                $
                -
                
                
                $
                -
                
                
                $
                161,461
 16
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 5.
Fair Value of Assets and Liabilities — continued
 
 The
following summarizes the change in carrying values associated with Level 3
financial instruments for the nine months ended September 30, 2010 and
2009:
 
 Underwriters'Corporate
                
                
                
                Stock
                
                
                Purchase
                
                
                PreferredEquities
                
                
                
                Warrants
                
                
                Options
                
                
                Stock
                
                
                
                TotalBalance
      at December 31, 2009
                
                $
                21,731
                
                
                
                $
                1,575,481
                
                
                $
                -
                
                
                $
                -
                
                
                
                $
                1,597,212Purchases
      or receipt (a)
                
                
                96,890
                
                
                
                
                316,184
                
                
                
                462,399
                
                
                
                -
                
                
                
                
                875,473Sales
      or exercises
                
                
                -
                
                
                
                
                (409,528
                )
                
                
                -
                
                
                
                -
                
                
                
                
                (409,528
                )Transfers
      into
                
                
                248,637
                
                (b)
                
                
                -
                
                
                
                -
                
                
                
                434
                
                (b)
                
                
                249,071Transfers
      out of
                
                
                (21,731
                )
                (c)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                (21,731
                )Losses:Realized
                
                
                -
                
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                -Unrealized
                
                
                (201,572
                )
                
                
                
                (497,694
                )
                
                
                (115,969
                )
                
                
                (196
                )
                
                
                
                (815,430
                )Balance
      at September 30, 2010
                
                $
                143,955
                
                
                
                $
                984,443
                
                
                $
                346,430
                
                
                $
                238
                
                
                
                $
                1,475,066Change
      in unrealized lossesrelating
      to instruments still heldat
      September 30, 2010
                
                $
                (201,572
                )
                
                
                $
                (497,694
                )
                
                $
                (115,969
                )
                
                $
                (196
                )
                
                
                $
                (815,430
                )
 (a)
                Includes
      purchases of securities and securities received for
    services
  (b)
                Principally
      reflects transfers from Level 1, due to reduced trading activity, and
      therefore price transparency, on the underlyinginstruments.
  (c)
                Principally
      reflects transfer to Level 1, due to availability of market data and
      therefore more price transparency.
  Underwriters'Corporate
                  
                  
                  Stock
                  
                  
                  Purchase
                  
                  
                  PreferredEquities
                  
                  
                  Warrants
                  
                  
                  Option
                  
                  
                  Stock
                  
                  
                  TotalAssets:Balance
      at December 31, 2008
                  
                  $
                  695
                  
                  
                  $
                  1,605,451
                  
                  
                  $
                  27,995
                  
                  
                  $
                  -
                  
                  
                  $
                  1,634,141Purchases,
      issuances, settlementsand
      sales
                  
                  
                  50,998
                  
                  
                  
                  254,298
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  305,296Net
      transfers in (out)
                  
                  
                  (51,693
                  )
                  
                  
                  (108,900
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (160,593
                  )Gains
      (losses):Realized
                  
                  
                  -
                  
                  
                  
                  (79,093
                  )
                  
                  
                  (91,058
                  )
                  
                  
                  -
                  
                  
                  
                  (170,151
                  )Unrealized
                  
                  
                  -
                  
                  
                  
                  284,699
                  
                  
                  
                  63,063
                  
                  
                  
                  -
                  
                  
                  
                  347,762Balance
      at September 30, 2009
                  
                  $
                  -
                  
                  
                  $
                  1,956,455
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,956,455Change
      in unrealized gainsrelating
      to instruments still heldat
      September 30, 2009
                  
                  $
                  -
                  
                  
                  $
                  284,699
                  
                  
                  $
                  63,063
                  
                  
                  $
                  -
                  
                  
                  $
                  347,762Liabilities:Balance
      at December 31, 2008
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Value
      at issuance
                  
                  
                  -
                  
                  
                  
                  16,893,251
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,893,251Change
      in value
                  
                  
                  -
                  
                  
                  
                  9,628,460
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,628,460Balance
      at September 30, 2009
                  
                  $
                  -
                  
                  
                  $
                  26,521,711
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  26,521,711
  17
  
 
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 
 5.
Fair Value of Assets and Liabilities — continued
 
 The
following summarizes the change in carrying values associated with Level 3
financial instruments for the three months ended September 30, 2010 and
2009:
  Underwriters'Corporate
                
                
                Stock
                
                
                Purchase
                
                
                PreferredEquities
                
                
                Warrants
                
                
                Options
                
                
                Stock
                
                
                TotalBalance
      at June 30, 2010
                
                $
                42,791
                
                
                $
                1,348,710
                
                
                $
                408,941
                
                
                $
                619
                
                
                $
                1,801,061Purchases
      or receipt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Sales
      or exercises
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Transfers
      into
                
                
                37,890
                (a)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                37,890Transfers
      out of
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Gains
      (losses)Realized
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Unrealized
                
                
                63,274
                
                
                
                (364,267
                )
                
                
                (62,511
                )
                
                
                (381
                )
                
                
                (363,885
                )Balance
      at September 30, 2010
                
                $
                143,955
                
                
                $
                984,443
                
                
                $
                346,430
                
                
                $
                238
                
                
                $
                1,475,066Change
      in unrealized gains(losses)
      relating to instruments still heldat
      September 30, 2010
                
                $
                63,274
                
                
                $
                (364,267
                )
                
                $
                (62,511
                )
                
                $
                (381
                )
                
                $
                (363,885
                )
 (a)
                Principally
      reflects transfers from Level 1, due to reduced trading activity, and
      therefore price transparency, on the underlyinginstruments.
  Underwriters'Corporate
                
                
                Stock
                
                
                PurchaseEquities
                
                
                Warrants
                
                
                Options
                
                
                TotalAssets:Balance
      at June 30, 2009
                
                $
                25,033
                
                
                $
                1,306,930
                
                
                $
                -
                
                
                $
                1,331,963Purchases,
      issuances and settlementsand
      sales
                
                
                -
                
                
                
                121,418
                
                
                
                -
                
                
                
                121,418Net
      transfers out
                
                
                (25,033
                )
                
                
                -
                
                
                
                -
                
                
                
                (25,033
                )Gains
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Realized
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Unrealized
                
                
                -
                
                
                
                528,107
                
                
                
                -
                
                
                
                528,107Balance
      at September 30, 2009
                
                $
                -
                
                
                $
                1,956,455
                
                
                $
                -
                
                
                $
                1,956,455Change
      in unrealized gainsrelating
      to instruments still heldat
      September 30, 2009
                
                $
                -
                
                
                $
                528,107
                
                
                $
                -
                
                
                $
                528,107Liabilities:Balance
      at June 30, 2009
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Value
      at issuance
                
                
                -
                
                
                
                16,893,251
                
                
                
                -
                
                
                
                16,893,251Change
      in value
                
                
                -
                
                
                
                9,628,460
                
                
                
                -
                
                
                
                9,628,460Balance
      at September 30, 2009
                
                $
                -
                
                
                $
                26,521,711
                
                
                $
                -
                
                
                $
                26,521,711
  18
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 5.
Fair Value of Assets and Liabilities — continued
 The
amounts of unrealized losses for the nine months ended September 30, 2010
included in the table above are all attributable to those assets held as of
September 30, 2010. Net gains and losses (both realized and unrealized) for
Level 3 financial assets are a component of principal transactions in the
consolidated statements of operations.
  Transfers
within the Fair Value Hierarchy
  We assess
our financial instruments on a quarterly basis to determine the appropriate
classification within the fair value hierarchy, as defined by ASC Topic 820.
Transfers between fair value classifications occur when there are changes in
pricing observability levels. Transfers of financial instruments among the
levels occur at the end of the reporting period. There were no significant
transfers between our Level 1 and Level 2 classified instruments during the
nine months ended September 30, 2010.
 
 6.
Stock-Based Compensation Expense
 
 Stock
Options
 
 As
of September 30, 2010, there were 2,155,915 shares authorized for issuance under
the Option Plans, and 87,551 shares authorized for issuance outside of the
Option Plans. As of September 30, 2010, 517,398 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 and nine months ended September 30, 2010 was $258,000
and $1,254,000, respectively.  Of the total stock compensation expense
for the nine months ended September 30, 2010, $138,000 was incurred due to
acceleration of vesting terms of stock options of three employees upon their
termination. Compensation expense for stock options during the
three months and nine months ended September 30, 2009 was $119,000 and
$329,000, respectively.
 
 The
following table is a summary of the Company’s stock option activity for the nine
months ended September 30, 2010:
 
 Weighted-AverageExerciseShares
                
                
                PriceOutstanding
      at December 31, 2009
                
                
                1,364,236
                
                
                $
                8.68Granted
                
                
                204,228
                
                
                
                4.86Exercised
                
                
                (15,428
                )
                
                
                (2.38
                )Cancelled
                
                
                (247,268
                )
                
                
                (12.54
                )Outstanding
      at September 30, 2010
                
                
                1,305,768
                
                
                $
                7.43Exercisable
      at September 30, 2010
                
                
                336,480
                
                
                $
                8.43
 
 19
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 6. Stock-based Compensation Expense —
continued
 
 The
following table summarizes information with respect to stock options vested and
outstanding at September 30, 2010:
  Options
      Outstanding at September 30, 2010
                
                
                
                
                
                Vested
      Options at September 30, 2010Weighted-Average
                
                
                Weighted-
                
                
                
                
                
                
                
                
                Weighted-Remaining
                
                
                Average
                
                
                Aggregate
                
                
                
                
                
                Average
                
                
                AggregateRange
      of
                
                
                
                
                
                Contractual
                
                
                Exercise
                
                
                Intrinsic
                
                
                
                
                
                Exercise
                
                
                IntrinsicExercise
      Price
                
                
                Number
                
                
                Life
      (Years)
                
                
                Price
                
                
                Value
                
                
                Number
                
                
                Price
                
                
                Value$
                0.0000
      - $3.4999
                
                
                
                496,747
                
                
                
                8.36
                
                
                $
                2.96
                
                
                $
                -
                
                
                
                268,591
                
                
                $
                2.92
                
                
                $
                -$
                3.5000
      - $6.9999
                
                
                
                204,071
                
                
                
                9.36
                
                
                
                5.84
                
                
                
                -
                
                
                
                6,371
                
                
                
                3.80
                
                
                
                -$
                7.0000
      - $10.4999
                
                
                
                509,817
                
                
                
                9.11
                
                
                
                8.42
                
                
                
                -
                
                
                
                1,274
                
                
                
                9.52
                
                
                
                -$
                10.5000
      - $13.9999
                
                
                
                24,385
                
                
                
                7.29
                
                
                
                11.43
                
                
                
                -
                
                
                
                10,457
                
                
                
                12.01
                
                
                
                -$
                14.0000
      - $27.9999
                
                
                
                37,720
                
                
                
                4.31
                
                
                
                23.51
                
                
                
                -
                
                
                
                20,579
                
                
                
                20.70
                
                
                
                -$
                28.0000
      - $48.9999
                
                
                
                18,940
                
                
                
                6.10
                
                
                
                32.52
                
                
                
                -
                
                
                
                15,120
                
                
                
                32.84
                
                
                
                -$
                49.0000
      - $84.4999
                
                
                
                13,925
                
                
                
                1.46
                
                
                
                68.18
                
                
                
                
                
                
                
                13,925
                
                
                
                68.18$
                85.5000
      - $110.0000
                
                
                
                163
                
                
                
                0.25
                
                
                
                107.31
                
                
                
                -
                
                
                
                163
                
                
                
                107.31
                
                
                
                -1,305,768
                
                
                
                8.56
                
                
                $
                7.43
                
                
                $
                -
                
                
                
                336,480
                
                
                $
                8.43
                
                
                $
                -
  As of
September 30, 2010, total unrecognized compensation expense related to unvested
stock options was $3,448,000. This amount is expected to be recognized as
expense over a weighted-average period of 2.98 years.
 
 The
weighted average fair value of each stock option granted for the three and nine
months ended September 30, 2010 was $4.25 and $2.63, respectively. The
weighted average fair value of each stock option granted for the three months
and nine months ended September 30, 2009 was $5.53 and $2.38,
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 nine months ended September 30, 2010 and 2009:
  Nine
      Months Ended September 30,2010
                
                
                2009Expected
      Volatility
                
                
                135.55
                %
                
                
                117.67
                %Average
      expected term (years)
                
                
                2.67
                
                
                
                2.35Risk-free
      interest rate
                
                
                1.43
                %
                
                
                1.17
                %Dividend
      yield
                
                
                -
                
                
                
                -
  20
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 6. Stock-based Compensation Expense —
continued
  Restricted
Stock
 
 At the
date of grant, the recipients of restricted stock have most of the rights of a
stockholder other than voting rights, subject to certain restrictions on
transferability and a risk of forfeiture. The fair value of restricted stock is
equal to the market value of the shares on the date of grant. The Company
recognizes the compensation expense for restricted stock on a straight-line
basis over the requisite service period. Compensation expense for restricted
stock during the three months and nine months ended September 30, 2010 was
$164,000 and ($80,000), respectively. We had a negative stock compensation
expense for the nine months ended September 30, 2010 due to cancellation of
restricted stock that had been granted to an employee who was terminated during
the three months ended March 31, 2010.  Compensation expense for
restricted stock during the three and nine months ended September 30, 2009 was
$30,000 and $80,000, respectively.
 
 The
following table is a summary of the Company's restricted stock activity for the
nine months ended September 30, 2010:
 Weighted-Restricted
                
                
                
                Average
                
                
                
                AggregateStock
                
                
                
                Grant
      Date
                
                
                
                IntrinsicOutstanding
                
                
                
                Fair
      Value
                
                
                
                ValueBalance
      as of December 31, 2009
                
                
                5,522
                
                
                $
                74.07Granted
                
                
                173,305
                
                
                
                2.87Vested
                
                
                (163,182
                )
                
                
                3.10Cancelled
                
                
                (4,725
                )
                
                
                79.53Balance
      as of September 30, 2010
                
                
                10,920
                
                
                $
                6.91
                
                
                $
                26,863
  The
weighted average fair value of the restricted stock granted under the Company's
stock option plans for the three months and nine months ended September 30, 2010
was $2.77 and $2.87 per share, respectively. The weighted average fair value of
the restricted stock granted under the Company's stock option plans for the
three and nine months ended September 30, 2009 was $1.50 per
share.  The fair value of the restricted stock award is estimated on
the date of grant using the intrinsic value method.
 
 As of
September 30, 2010, total unrecognized compensation expense related to
restricted stock was $61,000. This expense is expected to be recognized over a
weighted-average period of 3.27 years.
 
 Warrants
Issued as Compensation
 
 Starting
September 2009, the Company has been issuing five-year warrants to purchase
shares of the Company’s common stock at $4.55 on a post-reverse split basis to
the Chairman of the Strategic Advisory Committee, a committee of the Board of
Directors, as compensation for serving in that capacity.  For the
three months and nine months ended September 30, 2010, the Company issued
8,099 and 29,525 warrants on a post-reverse split basis,
respectively.  For the three months and nine months ended
September 30, 2010, the Company recorded stock compensation expense of $21,000
and $103,000, respectively, based on the calculated fair value of the warrants
using the Black-Scholes option valuation model.  As of September 30,
2010, a total of 42,857 warrants have been issued and remain
outstanding.
  21
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 7.
Income Taxes
 
 At the
end of each interim reporting period, the Company calculates an effective tax
rate based on the Company’s estimate of the tax provision (benefit) that will be
provided for the full year, stated as a percentage of estimated annual pre-tax
income (loss).  The tax provision (benefit) for the interim period is
determined using this estimated annual effective tax rate.  For the
three and nine months ended September 30, 2010, we recorded a $33,000 and $4,000
income tax benefit, respectively.  This relates primarily to
additional interest received from IRS for refund claimed in previous
year.  For the three and nine months ended September 30, 2009, the
Company recorded an income tax benefit of $235,000 and $230,000,
respectively.  The tax benefit for the nine months ended September 30,
2009 is primarily related to a state tax benefit recorded upon filing of the
Company's 2008 tax returns.
  Historically and currently, the Company
has recorded a valuation allowance on the deferred tax assets, the significant
component of which relates to net operating loss 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.
  The
Company does not have any material accrued interest or penalties associated with
any unrecognized tax benefits. The Company’s policy is to account for interest,
if any, as interest expense and penalties as income tax expense.
 
 8.
Compliance with Listing Requirements
 
 On March
4, 2010, the Company received notice from the NASDAQ Stock Market that the
Company is not currently in compliance with the requirements of NASDAQ Listing
Rule 5550(a)(2), which requires listed securities to maintain a minimum bid
price of $1.00 per share.
 
 On August
10, 2010, at the stockholders’ annual meeting, a one-for-seven reverse stock
split was approved.  On August 30, 2010, Merriman Holdings, Inc.
received notice from the NASDAQ Stock Market that the company is currently in
compliance with the requirements of NASDAQ Listing Rule
5550(a)(2).  Thus, the delisting proceedings which were instituted by
NASDAQ on March 4, 2010 have been terminated.
 
 9.
Discontinued Operations
 
 Panel
Intelligence LLC
 
 On April
17, 2007, the Company acquired 100 percent of the outstanding common shares of
MedPanel Corp. which was subsequently renamed Panel Intelligence LLC (“Panel”)
and made into a subsidiary of the Merriman Holdings, Inc. The results of Panel’s
operations had been included in the Company’s consolidated financial statements
since that date. As a result of the acquisition, the Company began providing
independent market data and information to clients in the biotechnology,
pharmaceutical, medical device, and financial industries by leveraging Panel's
proprietary methodology and vast network of medical experts.
 
 The
Company paid $6.1 million in common stock for Panel. The value of the 221,106
shares of common shares issued on a post-reverse split basis was determined
based on the average market price of the Company’s common stock over the period
including three days before and after the terms of the acquisition were agreed
to and announced. The selling stockholders were also entitled to additional
consideration on the third anniversary from the closing which is based upon
Panel Intelligence achieving specific revenue and profitability
milestones.
 
 In
December 2008, management determined that the sale of Panel would reduce
investments required to develop Panel’s business and generate capital necessary
for the Company’s core business.   The sale of Panel was
completed in January 2009.  Management determined that the plan of
sale criteria in ASC 360, “Property, Plant and Equipment”, had been met. As a
result, the revenue and expenses of Panel have been reclassified and included in
discontinued operations in the consolidated statements of
operations. Accordingly, the carrying value of the Panel assets was
adjusted to their fair value less costs to sell.  As a result, an
impairment loss in the amount of $1,937,000 was recorded and is included in
other expenses for the year ended December 31, 2008.  In January 2009,
the Company sold Panel to Panel Intelligence, LLC (Newco) for $1,000,000 and
shares of its common stock in the amount of $100,000.
 
 For the
three and nine months ended September 30, 2010, income from discontinued
operations related to Panel was $0 and $33,340, respectively.  For the
three and nine months ended September 30, 2009, the Company incurred loss from
discontinued operations of $0 and $94,894, respectively.
  22
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 9.
Discontinued Operations - continued
 
 Institutional
Cash Distributors
 
 On
January 16, 2009, the Company entered into an agreement to sell the assets of
Institutional Cash Distributors (ICD), a division of MC, for $2,000,000 to
a group of investors who were also its employees in order to raise capital. The
assets sold included MC’s rights in trademark, copyright, and other intellectual
property used in the business, customer lists, marketing materials, and books
and records, which did not have any carrying values.  In accordance
with SEC Staff Accounting Bulletin (SAB) 104, “Revenue Recognition”, the
Company recognized $2,000,000 as other income in the consolidated statement of
operations during the six months ended June 30, 2009.  In the second
quarter of 2010, ICD, LLC, formed by the new group of investors, started
supporting its operations fully and as such, did not require significant
assistance from MC.  The Company terminated all employees supporting
ICD business, and will not have significant involvement going forward. The
Company determined that the criteria for discontinued operations under guidance
ASC Topic 205, “Discontinued
Operations”, have been met as of June 30, 2010. As a result, the revenue
and expenses of ICD have been included in discontinued operations in the
consolidated statements of operations.
 
 As of
December 31, 2009 and September 30, 2010, there were no assets or liabilities
held for sale by the Company that related to ICD that were included in the
Company’s consolidated statements of financial condition.
 
 The
following revenue and expenses related to ICD have been reclassified as
discontinued operations for the three and nine months ended September 30, 2010
and 2009:
 Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      2010
                
                
                September
      2009
                
                
                September
      2010
                
                
                September
      2009Total
      revenue
                
                $
                -
                
                
                $
                6,667,486
                
                
                $
                9,167,983
                
                
                $
                20,072,033Operating
      expensesCompensation
      & benefits
                
                
                -
                
                
                
                6,227,472
                
                
                
                7,870,502
                
                
                
                18,519,995Brokerage
      & clearing fees
                
                
                -
                
                
                
                14,172
                
                
                
                27,219
                
                
                
                45,729Professional
      services
                
                
                -
                
                
                
                65,205
                
                
                
                345,450
                
                
                
                96,997Occupancy
      & equipment
                
                
                -
                
                
                
                17,170
                
                
                
                180,948
                
                
                
                41,606Communications
      & technology
                
                
                -
                
                
                
                145,124
                
                
                
                213,867
                
                
                
                377,840Other
      expenses
                
                
                -
                
                
                
                288,535
                
                
                
                468,233
                
                
                
                816,068Total
      expense
                
                
                -
                
                
                
                6,757,678
                
                
                
                9,106,219
                
                
                
                19,898,235Income
      (loss) from operations
                
                $
                -
                
                
                $
                (90,192
                )
                
                $
                61,764
                
                
                $
                173,798
 23
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 
 10.
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 September 30,
                
                
                Nine
      Months Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Loss
      from continuing operations
                
                $
                (4,512,696
                )
                
                $
                (16,478,453
                )
                
                $
                (6,699,450
                )
                
                $
                (19,134,176
                )Income
      (loss) from discontinued operations
                
                
                -
                
                
                
                (90,192
                )
                
                
                95,104
                
                
                
                78,904Net
      loss
                
                $
                (4,512,696
                )
                
                $
                (16,568,645
                )
                
                $
                (6,604,346
                )
                
                $
                (19,055,272
                )Convertible
      preferred stock, series D dividends
                
                
                (146,400
                )
                
                
                (5,105,802
                )
                
                
                (446,100
                )
                
                
                (5,105,802
                )Net
      loss attributable to common shareholders - basic and
    diluted
                
                $
                (4,659,096
                )
                
                $
                (21,674,447
                )
                
                $
                (7,050,446
                )
                
                $
                (24,161,074
                )Weighted-average
      number of common shares -basic
                
                
                2,030,584
                
                
                
                1,809,724
                
                
                
                1,931,781
                
                
                
                1,813,144Assumed
      exercise or conversion of all potentially dilutivecommon
      shares outstanding
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Weighted-average
      number of common shares -diluted
                
                
                2,030,584
                
                
                
                1,809,724
                
                
                
                1,931,781
                
                
                
                1,813,144Basic
      and diluted net loss per share:Loss
      from continuing operations
                
                $
                (2.22
                )
                
                $
                (9.11
                )
                
                $
                (3.47
                )
                
                $
                (10.55
                )Income
      (loss) from discontinued operations
                
                
                -
                
                
                
                (0.05
                )
                
                
                0.05
                
                
                
                0.04Net
      loss per share
                
                $
                (2.22
                )
                
                $
                (9.16
                )
                
                $
                (3.42
                )
                
                $
                (10.51
                )Basic
      and diluted net lossper
      share attributable to common shareholders
                
                $
                (2.29
                )
                
                $
                (11.98
                )
                
                $
                (3.65
                )
                
                $
                (13.33
                )
 24
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 10.
Loss per Share — continued
 
 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 loss 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
nine months ended September 30, 2010 and 2009 because the addition of common
shares that would be issued assuming exercise or conversion would be
anti-dilutive.  Interest and dividends are also not considered since
including them in the calculation of diluted loss 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 nine months ended September 30, 2010
and  2009, the Company excluded the impact of all stock options and
warrants in the computation of diluted loss per share, as their effect would be
anti-dilutive.
 
 The
Company excludes all potentially dilutive securities from its diluted net loss
per share computation when their effect would be anti-dilutive. The common stock
equivalents excluded from the diluted net loss per share computation, as their
inclusion would have been anti-dilutive, are as follows:
 
 Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Weighted-average
      stock options and warrants excludeddue
      to the exercise price exceeding the average fairvalue
      of the Company's common stock during the period
                
                
                5,370,599
                
                
                
                173,551
                
                
                
                893,054
                
                
                
                778,659Weighted-average
      restricted stock, stock options andstock
      warrants, calculated using the treasurystock
      method, that were excluded due to theCompany
      reporting a net loss during the period
                
                
                12,329
                
                
                
                370,564
                
                
                
                132,365
                
                
                
                18,911Weighted-average
      shares issuable upon conversionof
      the convertible notes payable
                
                
                -
                
                
                
                133,928
                
                
                
                -
                
                
                
                164,128Weighted-average
      shares issuable upon conversionof
      the Convertible Preferred stock, Series D
                
                
                3,242,525
                
                
                
                847,175
                
                
                
                3,307,071
                
                
                
                274,086Total
      common stock equivalents excluded fromdiluted
      net loss per share
                
                
                8,625,453
                
                
                
                1,525,218
                
                
                
                4,332,490
                
                
                
                1,235,784
  25
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
  11.
Regulatory Requirements
 
 Merriman
Capital, Inc. 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 September 30, 2010, Merriman Capital,
Inc. had regulatory net capital, as defined, of $3,077,000, which exceeded the
amount required by $2,706,000. Merriman Capital, Inc. 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.
 
 12. Contingencies
 
 A number
of lawsuits have been filed against the Company’s wholly owned subsidiary,
Merriman Capital, Inc., 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 Merriman Capital, Inc. and David Scott
Cacchione (“Cacchione”), a former retail broker of Merriman Capital, Inc. 
Cacchione was fired in June of 2008.  The Company selected seven claims it
judged to be the most threatening with the aggregate amount of $43,577,000 and
settled them simultaneously with its strategic transaction of $10.2 million that
closed on September 8, 2009.   The amount for which the claims
were settled was $4,300,000, with issuance of five-year warrants and the
assignment of certain rights to collect potential payments from the Company’s
insurers.  The Company has also settled and dismissed five additional
lawsuits.
 
 United
American Bank v. Merriman Capital, Inc. (Dismissed)
 
 In July
2008, MC 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
MC entered into an account control agreement for an account that Del Biaggio had
previously pledged to another lender. The account pledged was in the name of Del
Biaggio. Plaintiff brought claims for, among other things, fraud arising out of
the failure to disclose the alleged previous pledge. Plaintiff alleges damages
in the amount of $1.75 million. After ensuring that the proper clearance had
been obtained from the court in Del Biaggio's bankruptcy case, MC turned over
the pledged collateral to Plaintiff United American Bank, performing its
obligation under the account control agreement. MC then demanded that it be
dismissed from the action.  On May 7, 2010, MC was successfully
dismissed from this action with prejudice.
 
 The
Private Bank of the Peninsula v. Merriman Capital, Inc. (Settled)
  In July
2008, MC 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. Plaintiff in this lawsuit alleges damages of
$916,667.  On June 18, 2010, plaintiff and MC settled all legal
claims.  The Company has appropriately paid the settlement claim for
this matter as of September 30, 2010.
  Peter
Marcil v. Merriman Capital, Inc. (Settled)
  In
January 2009, our broker-dealer subsidiary, MC, was served with a claim in FINRA
Arbitration by Peter Marcil. Mr. Marcil is a former at-will employee of MC and
worked in the investment banking department. Mr. Marcil resigned from MC in
March of 2007. Mr. Marcil alleged breach of an implied employment contract,
wrongful termination, and intentional infliction of emotional distress. Damages
were not specified in the arbitration claim. The parties participated in a
mediation with San Francisco Attorney/Mediator Mark Rudy on September 14, 2009
and a second mediation on March 1, 2010.  On May 14, 2010, plaintiff
and MC settled all legal claims.  The Company has appropriately paid
the settlement claim for this matter as of September 30, 2010.
 
 Irving
Bronstein et al v. Merriman Capital, Inc. (Settled)
 
 On March
1, 2010, Irving Bronstein, other plaintiffs and MC settled all legal
claims.  The Company has appropriately paid the settlement claim for
this matter as of September 30, 2010.
  26
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 12. Contingencies —
continued
 
 Joy
Ann Fell v. Merriman Capital, Inc. (Settled)
  In
November 2008, MC received a demand letter from a former employee, Joy Ann Fell.
In January 2009, MC 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 alleged claims of breach of
an implied employment contract, emotional distress and work-place
discrimination. The demand for money damages is approximately $350,000. On July
22, 2010, plaintiff and MC settled all legal claims.  The Company has
appropriately paid the legal settlement claim for this matter as of September
30, 2010.
 
 Don Arata and Gary Thornhill,
et al. v. MerrimanCapital, Inc.
 
 In July 2008, MC and the
Company 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, MC and the Company were served with
an amended consolidated complaint on behalf of 38 plaintiffs which consolidated
several similar pending actions filed by the same law firm. Out of the 38
plaintiffs, only 2 were clients of MC.  Plaintiffs allege, among other
things, fraud based on Cacchione’s alleged assistance to Del Biaggio in
connection with the allegedly fraudulent investments and MC’s failure to
discover and stop the continuing fraud. Plaintiffs in this lawsuit seek damages
of over $9 million. MC and the Company responded to the amended consolidated
complaint in June 2009 denying all liability. We believe that MC and the Company
have meritorious defenses and intend to contest these claims
vigorously.
 
 Pacific Capital Bank v.
MerrimanCapital, Inc.
 
 In October 2008, MC 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. Plaintiff
in this lawsuit alleges damages of $1.84 million. We believe that MC has
meritorious defenses and intends to contest this claim
vigorously.
 
 Henry
Khachaturian v. Merriman Capital, Inc.
 
 In
January 2010, the Company was served with a complaint filed in the San Francisco
County Superior Court by Henry Khachaturian. The complaint also names as
defendants officers and former officers D. Jonathan Merriman, Gregory
Curhan, and Robert Ford. The statement of claim alleges that Mr. Khachaturian
was convinced by the Company to purchase shares of a small capitalization stock
in which the Company held a position. It further alleges that the Company’s
retail broker Cacchione did not permit Mr. Khachaturian to sell the shares at
its high before the stock’s price fell. The complaint seeks unspecified
compensatory and punitive damages. The Company believes it has meritorious
defenses and intends to contest these claims vigorously.
 
 Chuck
Peterson v. Merriman Capital, Inc.
 
 On
February 23, 2010, Chuck Peterson filed a complaint with the San Francisco
Superior Court, California, for fraud, breach of fiduciary duty, and
misrepresentation related to Cacchione. The complaint was served on MC on March
5, 2010. The statement of claim alleges that Mr. Peterson was convinced by the
Company to purchase shares of a small capitalization stock in which the Company
held a position. It further alleges that the Company did not permit Mr. Peterson
to sell the shares at its high before the stock’s price fell. The complaint
seeks unspecified compensatory and punitive damages.  The Company
believes it has meritorious defenses and intends to contest these claims
vigorously.
  27
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 12. Contingencies —
continued
 
 John Zarich v. MerrimanCapital, Inc.
 
 In or around April 2009, John
Zarich filed an arbitration claim with FINRA naming MC. The statement of claim
alleges that Zarich was convinced by Cacchione to purchase shares of a small,
risky stock in which MC held a position. It further alleges that Cacchione
convinced Zarich not to sell the shares at its high before 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 MC has
meritorious defenses and intends to contest this claim
vigorously.
 
 Midsummer Investment, Ltd.,
v. Merriman Holdings, Inc.
 
 On November 6, 2009,
Midsummer Investment, Ltd. (“Midsummer”) filed a complaint in federal court,
Southern District of New York, alleging that Midsummer was denied an
anti-dilution adjustment to a warrant issued by the Company to them, and that
the Company refused to honor an exercise of that warrant. The Company believes
that Midsummer is not entitled to any anti-dilution adjustment and its attempted
exercise was not accompanied by proper payment.The Company has accrued
appropriately as of September 30, 2010 for this matter.
 
 The Company and MC deny
any liability and are vigorously contesting the remaining lawsuits and
arbitrations. At this point, the Company cannot estimate the amount of damages
if they are resolved unfavorably and accordingly, management has not provided an
accrual for adverse judgments in these lawsuits and
arbitrations.  However, the Company is expecting to settle one or more
cases and will accrue legal settlement claims appropriately as the amount
of the settlement becomes estimable.
 
 Additionally,
from time to time, the Company is also named as a defendant and acts as a
plaintiff in the routine conduct of its business.
 
 For the
three and nine months ended September 30, 2010, the Company incurred legal
services and litigation settlement expense of $855,000 and $1,868,000,
respectively.
  28
 
 MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
  13.
Related Party Transactions
 
 Long
Term Subordinated Loan
 
 As
mentioned in Note 3, on September 29, 2010, the Company borrowed $1,000,000 from
nine individual lenders, all of whom are directors, officers or employees of the
Company, pursuant to a series of Unsecured Promissory Notes.   The
effective interest rate on the note is 21.73% with a maturity date of September
29, 2013.  As of September 30, 2010, the Unsecured Promissory Notes of
$794,000, net of $206,000 discount, remain outstanding and is included in
subordinated loan to related parties – long term in the Company’s consolidated
statement of financial condition.  For the three and nine-months ended
September 30, 2010, the Company incurred less than $500 as fees on the Unsecured
Promissory Notes, which also remain outstanding as of September 30, 2010 and is
included in accrued expenses in the consolidated statements of financial
position.
 
 Temporary
Subordinated Loan
 
 On
September 28, 2010, the Company borrowed $4,000,000 from DGB Investment, Inc.
(“DGB”).  DGB is controlled by Douglas G. Bergeron, who is a member of
the Board of Directors.  The loan was in the form of a temporary
subordinated loan to supplement the Company’s net capital and enabled it to
underwrite an initial public offering, in accordance with Rule 15c3-1 of the
Securities Exchange Act of 1934.  Interest on the loan is $80,000 for
each 10-day period.  As of September 30, 2010, the loan is still
outstanding and is included in notes payable to related party – short term in
the Company’s consolidated statement of financial condition.  For the
three and nine-months ended September 30, 2010, the Company incurred a total of
$8,000 as fees on the loan, which is included in cost of underwriting capital in
the Company’s consolidated statements of operations.  As of September
30, 2010, the $8,000 fee on the loan remains outstanding and is included in
accrued expenses in the consolidated statements of financial
position.  The loan and fees payable in relation to this loan have
been repaid in full in October 2010.  Total fees paid on this loan
were $80,000.
 
 On April
23, 2010, the Company borrowed $1,000,000 from DGB and $6,000,000 from Ronald L.
Chez IRA.  Mr. Chez is also a member of the Company’s Board of
Directors. The loan was in the form of a temporary subordinated loan to
supplement the Company’s net capital and enabled it to underwrite an initial
public offering, in accordance with Rule 15c3-1 of the Securities Exchange Act
of 1934.  The Company incurred a total of $230,000 as fees on the
loans from DGB and Ronald L. Chez IRA.  As of September 30, 2010, the
loans and fees have been paid in full and no balance remains
outstanding.
 
 On
January 20, 2010, the Company borrowed $11,000,000 from DGB Investment, Inc. and
the Bergeron Family Trust, both controlled by Douglas G. Bergeron, a member of
the Company’s Board of Directors. The loan was in the form of a temporary
subordinated loan to supplement the Company’s net capital and enabled it to
underwrite an initial public offering, in accordance with Rule 15c3-1 of the
Securities Exchange Act of 1934.  The Company compensated Mr. Bergeron
$731,000 in fees for the loan.  As of March 31, 2010, the loan and
fees have been paid in full and no balance remains outstanding.
  29
  MERRIMAN
HOLDINGS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
 (unaudited)
 
 13.
Related Party Transactions – continued
 
 Board
of Directors Compensation
 
 In August
2010, the stockholders approved Ronald L. Chez to be the Co-Chairman of the
Board of Directors of the Company.  During the first year of his term
as co-chairman, Mr. Chez was compensated with 42,857 shares of the Company’s
common stock.  For the three and nine-months ended September 30, 2010,
the Company recorded $135,000 of stock-based compensation expense in relation
Mr. Chez’s compensation.
 
 Series
D Convertible Preferred Stock
 
 As
mentioned in Note 4, Series D Convertible Preferred Stock, on September 8, 2009,
the Company issued 23,720,916 shares of Series D Convertible Preferred Stock
along with 5-year warrants to purchase 3,388,702 shares of the Company’s common
stock with an exercise price of $4.55 per share on a post-reverse split
basis.  The investor group constituted of 56 individuals and entities
including certain officers, directors and employees of the Company, as well as
outside investors.
 
 Three of
the investors in the Series D Convertible Preferred Stock, Messrs. Andrew Arno,
Douglas Bergeron, and Ronald Chez, have since joined the Company’s Board of
Directors.  In addition, the Company’s Chief Executive Officer and
Chief Financial Officer, who are also officers of Merriman Capital, Inc., the
Company’s primary operating subsidiary, along with 11 other executives and
senior managers of MC were also investors in the Series D Convertible Preferred
Stock.  Finally, all 5 members of the Company’s Board of Directors
prior to the transaction were investors in the Series D Convertible Preferred
Stock transaction.
 
 Strategic
Advisory Committee
 
 In
September 2009, the Company formed a Strategic Advisory Committee of the Board
of Directors chaired by Ronald L. Chez, the lead investor in the Series D
Convertible Preferred Stock strategic transaction.  During the first
year of his term as the Chair of the Committee, Mr. Chez was compensated with
warrants to purchase 42,857 shares of the Company’s common stock at $4.55 per
share on a post-reverse split basis, to be issued prorata on a monthly
basis.  There is one other member of the Strategic Advisory Committee,
our CEO, D. Jonathan Merriman.  Mr. Merriman does not receive any
additional compensation for such service and no other compensation arrangement
for service on the Committee has been made.
 
 14.
Subsequent Events
 
 The loan
and fees payable in relation to the $4,000,000 related party loan from DGB have
been repaid in full in October 2010.  Total fees paid on this loan
were $80,000.
  30
  ITEM 2.
 Management's Discussion and Analysis of Financial Condition and Results of
Operations
 
 This
Quarterly Report on Form 10-Q, including this Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements regarding future events and our future results that
are based on current expectations, estimates, forecasts, and projections about
the industries in which we operate and the beliefs and assumptions of our
management. Words such as “may,” “should,” “expects,” “anticipates,” “targets,”
“goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,”
“predicts,” “potential” or “continue,” variations of such words, and similar
expressions are intended to identify such forward-looking statements. In
addition, any statements that refer to projections of our future financial
performance, our anticipated growth and trends in our businesses, and other
characterizations of future events or circumstances, are forward-looking
statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties, and assumptions that are
difficult to predict. Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements. Readers are
referred to risks and uncertainties identified under“Risk Factors” beginning on
Page 51 and elsewhere herein. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason. Numbers expressed herein
may be rounded to thousands of dollars.
 
 Overview
 
 We are a
financial services holding company that provides equity research, capital
markets services, corporate and venture services, and investment banking through
our primary operating subsidiary, Merriman Capital, Inc. (formerly Merriman
Curhan Ford & Co.).  In 2009, we sold the operating assets of
Panel Intelligence, LLC, and discontinued operations of MCF Asset Management,
LLC.
 
 Merriman
Capital, Inc. (“MC”) 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 research, advising, financing, trading and investment
in fast-growing companies under $1 billion in market capitalization. We
provide equity research, brokerage and trading services primarily to
institutions, as well as investment banking and advisory services to corporate
clients. We are attempting to gain market share by originating differentiated
research for our institutional investor clients and providing specialized and
integrated services for our fast-growing corporate clients.
 
 Institutional
Cash Distributors (“ICD”) was a division of MC which brokered money market funds
serving the short-term investing needs of corporate finance departments at
companies throughout the United States and Europe.  ICD was founded as
a division of MC in 2004 and grew rapidly over five years.  In January
2009, we sold the primary assets related to the ICD operations to a group of
investors which included some of our employees.  To assist in the
transition of operations to the new owners, we provided substantial services to
ICD, including collecting its revenues.  In the second quarter of
2010, ICD, LLC, formed by the new group of investors, started supporting
its operations fully and as such, did not require significant assistance from
MC. The Company terminated all employees supporting ICD business, and will
not have significant involvement going forward. The Company determined that the
criteria for discontinued operations under guidance Accounting Standards
Codification (ASC) Topic 205, “Discontinued Operations”,
have been met as of June 30, 2010. As a result, the revenue and expenses of ICD
have been included in discontinued operations in the consolidated statements of
operations.
 
 Panel
Intelligence, LLC was acquired in April 2007.  It offered custom and
published primary research to industry clients and investment professionals
through online panel discussions, quantitative surveys and an extensive research
library. Panel Intelligence, LLC provided greater access, compliance, insights
and productivity to clients in the health care, CleanTech and financial
industries. In January 2009, the majority of the assets of Panel Intelligence,
LLC were sold to an investor group that included certain members of its
management team. For financial reporting purposes, we have included the
operations of the business as part of discontinued operations.
 
 MCF Asset
Management, LLC managed absolute return investment products for institutional
and high-net worth clients. We were the sub-advisor for the MCF Focus fund. As a
result of the legal expenses incurred due to the matters involving the former
retail broker, David Scott Cacchione, the Company focused on its core investment
banking and broker dealer services, and liquidated the funds under management
and returned investments to the investors in the fourth quarter of 2008. We no
longer have, for all practical purposes, a subsidiary dedicated to asset
management.  At September 30, 2010, we held an immaterial amount of
illiquid assets and are in the process of distributing these to
investors.
 
 We are
headquartered in San Francisco, CA with additional offices in New York, NY. As
of September 30, 2010 and December 31, 2009, we had 81 and 94 employees
respectively. Merriman Capital, Inc. is registered with the Securities and
Exchange Commission (“SEC”) as a broker-dealer and is a member of Financial
Industry Regulatory Authority (“FINRA”) and the Securities Investors Protection
Corporation (“SIPC”).
  31
  Executive
Summary
 
 Revenue
from continuing operations grew by 26% for the nine-months ended September 30,
2010 compared to the same period in 2009.  Our commissions revenue for
the same period grew by 29% year-over-year, due primarily to increase in trading
volume.  Investment banking revenue increased by 50% year over year
but down significantly from the first and second quarter of 2010’s performance.
Losses from principal transactions were flat for the nine months ended September
30, 2010 compared to the same period of 2009.   For the nine
months ended September 30, 2010, we incurred a loss from continuing operations
of $6,699,000 or $3.47 per share, however, cash used to support our
operations was only $2,495,000 for the first nine months of 2010 mainly due to
noncash operating expenses and decrease in net operating assets.
 
 Revenue
from continuing operations declined by 36% in the third quarter of 2010 compared
to the third quarter of 2009. Our commissions revenue for the same period grew
by 26% year-over-year, due primarily to more effective research penetration of
our institutional customer base.  Investment banking revenue decreased
by 83% year over year and down significantly from the first and second quarter
of 2010’s performance. We incurred a loss from continuing operations of
$4,513,000 for the three months ended September 30, 2010 primarily due to lack
of banking business.  The overall banking business environment was
very slow in the third quarter of 2010.
 
 
 
 Business
Environment
 
 Investor
sentiment continued to fluctuate into the third quarter as small cap stocks
continued to display a high degree of volatility. The quarter began with ongoing
concerns about the state of the economy and investors handicapping odds of a
double-dip recession.  While economic growth in the U.S. and most
Europe is still very weak, the major economic indicators are pointing to a slow
and choppy recovery.
 
 The Fed’s
consistent messaging of the push to revive the weak economy, as well as
aggressive telegraphing of “Quantitative Easing Part II” provided a firm
underpinning to the market.  The S&P 500® Index generated return
of 11.3% for the third quarter and 3.9% year to date, similar to the Russell
3000® Index posted return of 11.5% for the third quarter and 4.8% year to date.
For the third quarter, all ten U.S. equity market sectors rose. The best
performing sectors were telecommunication services and materials, while the
worst performing were health care and financials.  The preponderance
of negative investor sentiment, a slowly improving economy and high cash levels
drove the market higher in the third quarter.  At some point,
corporate and mutual fund cash will begin to flow back into equities, which
would seem to bode well for a solid fourth quarter and 2011.
 
 Corporations
continue to keep hiring to a minimum and are focusing on margins. The
unemployment rate continues to remain high and at 9.6% appears to be impeding
the recovery in consumer spending. Many governments around the world face large
budget deficits and mounting debt burdens adding to investor uncertainty. The US
economy appears to be a call on how much stimulus will be directed at the
consumer and small businesses.  Much of this will be decided in the
November elections.
 
 Our
business activities are focused in the
Technology,  Consumer/Internet/Media, and CleanTech 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.
 
 Performance
in the financial services industry in which we operate is highly correlated to
the overall strength of economic conditions and financial market activity.
Overall market conditions are a product of many factors which may affect the
financial decisions made by investors, including their level of participation in
the financial markets. In turn, these decisions may affect our business results.
With respect to financial market activity, our revenues and profitability are
sensitive to a variety of factors, including the demand for investment banking
services as reflected by the number and size of equity financings and merger and
acquisition transactions, the volatility of the equity markets, and the volume
and value of trading in securities.
  32
 
 Reverse
Stock Split
  At the
stockholders’ annual meeting on August 10, 2010, the stockholders also voted to
approve the amendment to the Company’s Amended Certificate of Incorporation to
affect a one-for-seven reverse stock split.  The reverse stock split
became effective at 12:01 am, Eastern Time, on August 16, 2010. Pursuant to the
reverse stock split, each seven shares of authorized and outstanding common
stock was reclassified and combined into one share of new common stock. In
addition, upon the effectiveness of the reverse stock split, seven shares of
Series D Convertible Preferred Stock will be convertible into one share of
common stock of the Company. The reverse stock split did not change the number
of authorized shares or the par value per share of common stock or preferred
stock designated by the Company's Certificate of Incorporation. Currently, the
Company has authorized 300,000,000 shares of common stock. All references to the
number of shares and per share data for all periods presented have been
retroactively adjusted to give effect to the one-for-seven reverse stock
split.
 
 Series
D Convertible Preferred Stock
 
 On
September 8, 2009, we issued 23,720,916 shares of Series D Convertible Preferred
Stock along with 5-year warrants to purchase 3,388,702 shares of the Company’s
common stock with an exercise price of $4.55 per share on a post-reverse split
basis.  The investor group of 56 constituted of individuals and
entities including certain of our officers, directors and employees, as well as
outside investors.  All or portions of the principal and accrued
interest of debt issued previously in 2009 were converted into the Series D
Convertible Preferred Stock shares.  None of these debt instruments
remain outstanding after September 8, 2009.  The warrants issued in
conjunction with the May 29 Convertible Notes and with the July 31 Bridge Note
remain outstanding as of September 30, 2010.
 
 The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933, as amended, which closed on September 8, 2009.  Effective upon
the reverse-stock split as mentioned above, seven shares of Series D Convertible
Preferred Stock are convertible into one share of our Common
Stock.
 
 The
Series D Convertible Preferred Stock has anti-dilution features including a full
ratchet provision so that if we were to pay dividends, split (forward or
reverse) our common shares, or adjust our shares outstanding due to a
combination, the conversion and exercises prices, respectively, would also
adjust proportionally.  The warrants issued in conjunction with the
Series D Convertible Preferred Stock were amended and the full ratchet provision
originally included was removed as of December 28, 2009. These warrants were
assessed in accordance with ASC 815 “Derivatives and Hedging” and it was
determined that the full ratchet provision included in the warrant triggered
derivative liability accounting. On the grant date the fair value of the
warrants was reported as warrant liability in the consolidated statement of
financial position, and marked to market.  On the removal of the full
ratchet provision, which had triggered the derivative accounting, the market
value was reclassified as additional paid-in capital.
 
 The
warrants will expire 5 years from the date of the
transaction.  Holders of the Series D Convertible Preferred Stock may
convert their Series D Convertible Preferred Stock into shares of our common
stock at any time in amounts of no less that $100,000 unless it is for all of
the shares held by the holder.  The Series D Convertible Preferred
Stock will automatically convert at our discretion upon 10-day notice given when
the average closing price of our common stock over a 30-day period is at or
above $21.00 per share on a post-reverse split basis and when the average
trading volume for the most recent four-week period is 4,285 shares or more,
provided that the shares have been effectively registered with the Securities
and Exchange Commission or all of the Series D Convertible Preferred Stock may
be sold under Rule 144 of the 1933 Exchange Act.
 
 The total
proceeds of $10,200,000 raised in the transaction described above are accounted
for under generally accepted accounting principles, primarily ASC 470, “Debt”. We accounted for this
transaction as issuance of convertible preferred stock with detachable stock
warrant. The $10,200,000 consisted of $8,808,000 of cash proceeds and $1,392,000
of noncash proceeds from conversions of prior notes and legal
services.  Of the total cash proceeds, $4,300,000 was used to settle
certain legal claims which were in the aggregate amount of
$43,577,000.  The remaining cash of $4,508,000 was used for working
capital.
 
 The
Series D Convertible Preferred Stock pays dividends to the holders at an annual
rate of 6%, payable monthly in arrears.  For the three and nine
months ended September 30, 2010, total Series D Convertible Preferred Stock
dividends were $146,400 and $446,100, respectively.  As of September
30, 2010, the Company has an outstanding cash dividends payable of $48,800
which are included in accounts payable in the consolidated statements of
financial position.
  33
  Liquidity
and Capital Resources
 
 As of
September 30, 2010, liquid assets consisted primarily of cash and cash
equivalents of $7,515,000 and marketable securities of $2,199,000, for a total
of $9,714,000.
 
 Merriman
Capital, Inc., 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 September 30, 2010, Merriman Capital,
Inc. had regulatory net capital of $3,077,000, which exceeded the amount
required by $2,706,000.
  34
 
 Results
of Operations
 
 The
following table sets forth the results of operations for the three months and
nine months ended September 30, 2010 and 2009:
 
 Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                September
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenue:Commissions
                
                $
                3,959,937
                
                
                $
                3,137,232
                
                
                $
                11,402,663
                
                
                $
                8,818,247Principal
      transactions
                
                
                (309,422
                )
                
                
                (35,522
                )
                
                
                (133,261
                )
                
                
                (128,732
                )Investment
      banking
                
                
                537,187
                
                
                
                3,127,596
                
                
                
                8,099,497
                
                
                
                5,411,463Advisory
      and other
                
                
                49,124
                
                
                
                411,602
                
                
                
                413,465
                
                
                
                1,618,282Total
      revenue
                
                
                4,236,826
                
                
                
                6,640,908
                
                
                
                19,782,364
                
                
                
                15,719,260Operating
      expenses:Compensation
      and benefits
                
                
                4,863,982
                
                
                
                4,003,208
                
                
                
                15,462,360
                
                
                
                11,167,490Brokerage
      and clearing fees
                
                
                361,413
                
                
                
                193,880
                
                
                
                1,131,584
                
                
                
                745,678Professional
      services
                
                
                456,533
                
                
                
                495,905
                
                
                
                1,195,094
                
                
                
                1,718,046Occupancy
      and equipment
                
                
                479,205
                
                
                
                534,130
                
                
                
                1,451,045
                
                
                
                1,575,742Communications
      and technology
                
                
                476,941
                
                
                
                736,755
                
                
                
                1,563,417
                
                
                
                2,065,139Depreciation
      and amortization
                
                
                99,746
                
                
                
                109,922
                
                
                
                302,600
                
                
                
                372,913Travel
      and entertainment
                
                
                303,956
                
                
                
                281,860
                
                
                
                955,525
                
                
                
                532,113Legal
      services and litigation settlement expense
                
                
                855,286
                
                
                
                5,837,699
                
                
                
                1,867,878
                
                
                
                6,616,311Cost
      of underwriting capital
                
                
                8,000
                
                
                
                -
                
                
                
                968,576
                
                
                
                -Other
                
                
                874,232
                
                
                
                248,293
                
                
                
                1,587,580
                
                
                
                1,342,094Total
      operating expenses
                
                
                8,779,294
                
                
                
                12,441,652
                
                
                
                26,485,659
                
                
                
                26,135,526Operating
      loss
                
                
                (4,542,468
                )
                
                
                (5,800,744
                )
                
                
                (6,703,295
                )
                
                
                (10,416,266
                )Other
      income
                
                
                -
                
                
                
                -
                
                
                
                29,319
                
                
                
                2,000,000Interest
      income
                
                
                3,941
                
                
                
                4,425
                
                
                
                10,408
                
                
                
                13,591Change
      in fair value of warrant liability
                
                
                -
                
                
                
                (9,628,460
                )
                
                
                -
                
                
                
                (9,628,460
                )Interest
      expense
                
                
                (7,471
                )
                
                
                (1,289,401
                )
                
                
                (40,167
                )
                
                
                (1,333,569
                )Loss
      from continuing operations before income taxes
                
                
                (4,545,998
                )
                
                
                (16,714,180
                )
                
                
                (6,703,735
                )
                
                
                (19,364,704
                )Income
      tax benefit
                
                
                33,302
                
                
                
                235,727
                
                
                
                4,285
                
                
                
                230,528Loss
      from continuing operations
                
                
                (4,512,696
                )
                
                
                (16,478,453
                )
                
                
                (6,699,450
                )
                
                
                (19,134,176
                )Income
      (loss) from discontinued operations
                
                
                -
                
                
                
                (90,192
                )
                
                
                95,104
                
                
                
                78,904Net
      loss
                
                $
                (4,512,696
                )
                
                $
                (16,568,645
                )
                
                $
                (6,604,346
                )
                
                $
                (19,055,272
                )Preferred
      stock deemed dividend
                
                
                -
                
                
                
                (5,066,702
                )
                
                
                -
                
                
                
                (5,066,702
                )Preferred
      stock cash dividend
                
                
                (146,400
                )
                
                
                (39,100
                )
                
                
                (446,100
                )
                
                
                (39,100
                )Net
      loss attributable to common shareholders
                
                $
                (4,659,096
                )
                
                $
                (21,674,447
                )
                
                $
                (7,050,446
                )
                
                $
                (24,161,074
                )
  35
  Our net
loss for the three months and nine months ended September 30, 2010 and 2009
included the following noncash expenses:
 
 Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Stock-based
      compensation
                
                $
                442,876
                
                
                $
                170,207
                
                
                $
                1,277,656
                
                
                $
                429,986Depreciation
      and amortization
                
                
                99,746
                
                
                
                109,922
                
                
                
                302,600
                
                
                
                383,523Amortization
      of discounts on debt
                
                
                168
                
                
                
                542,871
                
                
                
                168
                
                
                
                552,639Amortization
      of debt issuance costs
                
                
                -
                
                
                
                346,995
                
                
                
                -
                
                
                
                346,995Amortization
      of beneficial conversion feature
                
                
                -
                
                
                
                180,639
                
                
                
                -
                
                
                
                180,639Change
      in fair value of warrant liability
                
                
                -
                
                
                
                9,628,460
                
                
                
                -
                
                
                
                9,628,460Loss
      (gain) on disposal of equipment and fixtures
                
                
                -
                
                
                
                (100
                )
                
                
                (2,987
                )
                
                
                294,378Provision
      for uncollectible accounts receivable
                
                
                416,602
                
                
                
                (97,399
                )
                
                
                434,783
                
                
                
                58,074Securities
      received for services
                
                
                -
                
                
                
                (121,418
                )
                
                
                (944,188
                )
                
                
                (290,331
                )Unrealized
      (gain) loss on securities owned
                
                
                305,325
                
                
                
                (213,356
                )
                
                
                1,069,415
                
                
                
                480,292Total
                
                $
                1,264,717
                
                
                $
                10,546,821
                
                
                $
                2,137,447
                
                
                $
                12,064,655
 The
following table sets forth our revenue and transaction volumes from our
investment banking activities for the three months and nine months ended
September 30, 2010 and 2009:
  Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenue:Capital
      raising
                
                $
                262,187
                
                
                $
                1,816,667
                
                
                $
                7,282,788
                
                
                $
                2,680,799Financial
      advisory
                
                
                275,000
                
                
                
                1,310,929
                
                
                
                816,709
                
                
                
                2,730,664Total
      investment banking revenue
                
                $
                537,187
                
                
                $
                3,127,596
                
                
                $
                8,099,497
                
                
                $
                5,411,463Transaction
      Volumes:Public
      offerings:Capital
      underwritten participations
                
                $
                104,275,000
                
                
                $
                416,895,000
                
                
                $
                342,775,000
                
                
                $
                451,270,000Number
      of transactions
                
                
                1
                
                
                
                4
                
                
                
                5
                
                
                
                5Private
      placements:Capital
      raised
                
                $
                -
                
                
                $
                37,390,000
                
                
                $
                94,369,150
                
                
                $
                89,018,000Number
      of transactions
                
                
                -
                
                
                
                4
                
                
                
                7
                
                
                
                7Financial
      advisory:Transaction
      amounts
                
                $
                15,000,000
                
                
                $
                141,900,000
                
                
                $
                43,028,500
                
                
                $
                194,800,000Number
      of transactions
                
                
                1
                
                
                
                4
                
                
                
                4
                
                
                
                9
  Our
investment banking revenue was $537,000 or 13% of our revenue during the third
quarter of 2010, representing an 83% decrease from the same quarter in
2009. In the third quarter of 2010, there were less number of transactions that
we participated in with lower average transaction sizes compared to the third
quarter of 2009. Overall banking business environment was very slow in the
third quarter of 2010.
  During
the three months ended September 30, 2010 and 2009, there were no investment
banking clients that accounted for more than 10% of our total
revenue.
  36
  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 of our trading
activity:
  Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Commissions:Institutional
      equities
                
                $
                3,959,937
                
                
                $
                3,137,232
                
                
                $
                11,402,663
                
                
                $
                8,818,247Total
      commissions revenue
                
                $
                3,959,937
                
                
                $
                3,137,232
                
                
                $
                11,402,663
                
                
                $
                8,818,247Principal
      transactions:Customer
      principal transactions, proprietarytrading
      and market making
                
                $
                (74,909
                )
                
                $
                (547,345
                )
                
                $
                837,575
                
                
                $
                (217,235
                )Investment
      portfolio
                
                
                (234,513
                )
                
                
                511,823
                
                
                
                (970,836
                )
                
                
                88,503Total
      principal transactions revenue
                
                $
                (309,422
                )
                
                $
                (35,522
                )
                
                $
                (133,261
                )
                
                $
                (128,732
                )Transaction
      Volumes:Number
      of shares traded
                
                
                178,819,198
                
                
                
                162,350,775
                
                
                
                542,839,680
                
                
                
                643,702,710Number
      of active clients
                
                
                214
                
                
                
                204
                
                
                
                286
                
                
                
                279
 
 We had
eight equity research analysts, which covered 94 and 100 companies as of
September 30, 2010 and 2009, respectively.
 
 Commissions
amounted to $3,960,000, or 93%, of our revenue during the third quarter of 2010,
representing a 26% increase in commissions revenue from the same period in 2009.
The increase was mostly attributable to more effective research penetration
of our institutional customer base in the third quarter of 2010 as compared to
the same period in 2009.
  37
  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.  Principal
transactions loss increased by $274,000 during the third quarter of 2010 versus
the third quarter of 2009. The year-over-year increase in loss is due mainly to
change in our investment portfolio’s fair value at the end of each reporting
period.
 
 During
the third quarter of 2010, there were two brokerage customer that accounted for
more than 10% of our total revenue and none in the third quarter of
2009.
 
 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 also includes other
qualitative factors and is determined by management. Salaries, payroll taxes and
employee benefits vary based primarily on overall headcount.
 
 The
following table sets forth the major components of our compensation and benefits
for the three and nine months ended September 30, 2010 and 2009:
 
 Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Incentive
      compensation and discretionary bonuses
                
                $
                2,027,627
                
                
                $
                2,218,702
                
                
                $
                7,240,040
                
                
                $
                4,605,332Salaries
      and wages
                
                
                1,960,080
                
                
                
                1,303,696
                
                
                
                5,485,457
                
                
                
                4,936,115Stock-based
      compensation
                
                
                442,876
                
                
                
                170,207
                
                
                
                1,277,656
                
                
                
                429,986Payroll
      taxes, benefits and other
                
                
                433,399
                
                
                
                310,603
                
                
                
                1,459,207
                
                
                
                1,196,057Total
      compensation and benefits
                
                $
                4,863,982
                
                
                $
                4,003,208
                
                
                $
                15,462,360
                
                
                $
                11,167,490Total
      compensation and benefits as apercentage
      of revenue
                
                
                115
                %
                
                
                60
                %
                
                
                78
                %
                
                
                71
                %Cash
      compensation and benefits as apercentage
      of revenue
                
                
                104
                %
                
                
                58
                %
                
                
                72
                %
                
                
                68
                %
 The
increase in compensation and benefits expense of $861,000 or 22%, from the third
quarter of 2009 to the third quarter of 2010 was due mostly to increase in
salaries as a retention effort and increase in stock-based compensation to
motivate key employees.  Furthermore, in the third quarter of 2009,
the Company executives decided to forego a portion of their salaries which
resulted in a reduction of salaries and wages during third quarter of
2009.
  38
 
 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 104% of revenues during the third quarter of 2010 as
compared to 58% in the same period in 2009. This increase was primarily the
result of a decrease in revenues during the quarter accompanied by a change in
the Company’s variable compensation plan during 2010 and increase in salaries
and wages due to increase in salaries to retain and motivate key
employees.
 
 Stock-based
compensation expense increased by 160% in the third quarter of 2010 as compared
to the same period in 2009. The increase in stock-based compensation expense can
be attributed to additional equity grants as board compensation during the three
months ended September 30, 2010.  Additionally, the Company continues
to use equity-based awards as incentive compensation, which is continued to be
amortized over the vesting term.
 
 There
were four sales professional that each accounted for more than 10% of our total
revenue during the three months ended September 30, 2010 and none in the same
period of 2009.
  Other
Operating Expenses
  Brokerage
and clearing fees include trade processing expenses that we pay to our clearing
broker and execution fees that we pay to floor brokers and electronic
communication networks. Merriman Capital, Inc. 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 Capital, Inc. and maintains the detailed
customer records. These expenses are almost entirely variable, and are based on
commission revenue and the volume of brokerage transactions. Our brokerage and
clearing fees increased by $168,000, or 86%, during the third quarter of 2010
over the third quarter of 2009, due mostly to higher level of commissions during
the third quarter of 2010.
 
 Cost of
underwriting capital for the three months ended September 30, 2010 includes
$8,000 of expenses incurred directly related to underwriting deals, such as cost
of borrowing to be able to underwrite offerings as required by FINRA
rules.  (Refer to Related Party Transactions below.)  No
such expenses were incurred in the third quarter of 2009.
 
 Communications
and technology expense includes market data and quote services, voice, data and
internet service fees, and data processing costs. The decrease of $260,000, or
35%, in the third quarter of 2010 over the third quarter of 2009 was primarily
due to our continued cost reduction program.
  39
  Legal
services and litigation settlement fees were significantly lower in the third
quarter of 2010 compared to the third quarter of 2009 due to settlement of
certain cases related to Del Biaggio and Cacchione (see Legal Proceedings in
Item 1 of Part II) prior to the third quarter of 2010.  During the
third quarter of 2010 and 2009, the majority of the fees were related to
settlement costs.
 
 Other
operating expense includes company events, recruiting fees, professional
liability and property insurance, marketing, business licenses and taxes, office
supplies, write-off of receivables and other miscellaneous expenses. The
increase of approximately $626,000, or 252%, in the third quarter of 2010 over
the third quarter of 2009 was due to provision for uncollectible accounts
receivable as the collectability of the accounts receivables become
questionable.
  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 nine months ended September 30, 2010, we recorded a $33,000 and $4,000
income tax benefit, respectively.  This relates primarily to
additional interest received from IRS for refund claimed in previous
year.  For the three and nine months ended September 30, 2009, the
Company recorded an income tax benefit of $235,000 and $230,000,
respectively.  The tax benefit for the nine months ended September 30,
2009 is primarily related to a state tax benefit recorded upon filing of the
Company's 2008 tax returns.
  Historically and currently, the Company
has recorded a valuation allowance on the deferred tax assets, the significant
component of which relates to net operating loss 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.
  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.
  40
 
 Off-Balance
Sheet Arrangements
 
 We were
not a party to any off-balance sheet arrangements during the three months
and nine months ended September 30, 2010 and 2009. In particular, we do not have
any interest in so-called limited purpose entities, which include special
purpose entities and structured finance entities.
 
 Commitments
 
 The
following table summarizes our significant commitments as of September 30, 2010,
consisting of capital leases and future minimum lease payments under all
non-cancelable operating leases and other non-cancelable commitments with
initial or remaining terms in excess of one year.
 
 Notes
                
                
                Operating
                
                
                Operating
                
                
                CapitalPayable
                
                
                Commitments
                
                
                Leases
                
                
                Leases
                
                
                Total2010
                
                $
                4,095,123
                
                
                $
                435,378
                
                
                $
                398,911
                
                
                $
                73,323
                
                
                $
                5,002,7352011
                
                
                60,000
                
                
                
                978,603
                
                
                
                1,547,625
                
                
                
                122,205
                
                
                
                2,708,4332012
                
                
                60,164
                
                
                
                60,640
                
                
                
                1,093,338
                
                
                
                -
                
                
                
                1,214,1422013
                
                
                1,284,932
                
                
                
                -
                
                
                
                630,000
                
                
                
                -
                
                
                
                1,914,9322014
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Thereafter
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      commitments
                
                
                5,500,219
                
                
                
                1,474,621
                
                
                
                3,669,874
                
                
                
                195,528
                
                
                
                10,840,242Interest
                
                
                (500,219
                )
                
                
                -
                
                
                
                -
                
                
                
                (4,186
                )
                
                
                (504,405
                )Net
      commitments
                
                $
                5,000,000
                
                
                $
                1,474,621
                
                
                $
                3,669,874
                
                
                $
                191,342
                
                
                $
                10,335,837
  Loss
from Discontinued Operations
 
 Panel
Intelligence LLC
 
 On April
17, 2007, the Company acquired 100 percent of the outstanding common shares of
MedPanel Corp. which was subsequently renamed Panel Intelligence LLC (“Panel”)
and made into a subsidiary of the Merriman Holdings, Inc. The results of Panel’s
operations had been included in the Company’s consolidated financial statements
since that date. As a result of the acquisition, the Company began providing
independent market data and information to clients in the biotechnology,
pharmaceutical, medical device, and financial industries by leveraging Panel's
proprietary methodology and vast network of medical experts.
 
 The
Company paid $6.1 million in common stock for Panel. The value of the 221,106
shares of common shares issued on a post-reverse split basis was determined
based on the average market price of the Company’s common stock over the period
including three days before and after the terms of the acquisition were agreed
to and announced. The selling stockholders were also entitled to additional
consideration on the third anniversary from the closing which is based upon
Panel Intelligence achieving specific revenue and profitability
milestones.
 
 In
December 2008, management determined that the sale of Panel would reduce
investments required to develop Panel’s business and generate capital necessary
for the Company’s core business.   The sale of Panel was
completed in January 2009.  Management determined that the plan of
sale criteria in ASC 360, “Property, Plant and
Equipment”, had been met. As a result, the revenue and expenses of Panel
have been reclassified and included in discontinued operations in the
consolidated statements of operations. Accordingly, the carrying value of
the Panel assets was adjusted to their fair value less costs to
sell.  As a result, an impairment loss in the amount of $1,937,000 was
recorded and is included in other expenses for the year ended December 31,
2008.  In January 2009, the Company sold Panel to Panel Intelligence,
LLC (Newco) for $1,000,000 and shares of its common stock in the amount of
$100,000.
 
 For the
three and nine months ended September 30, 2010, income from discontinued
operations related to Panel was $0 and $33,340, respectively.  For the
three and nine months ended September 30, 2009, the Company incurred loss from
discontinued operations of $0 and $94,894, respectively.
  41
  Institutional
Cash Distributors
 
 On
January 16, 2009, the Company entered into an agreement to sell the assets of
ICD, a division of MC, for $2,000,000 to a group of investors who were also
its employees in order to raise capital. The assets sold included MC’s rights in
trademark, copyright, and other intellectual property used in the business,
customer lists, marketing materials, and books and records, which did not have
any carrying values.  In accordance with SEC Staff Accounting Bulletin
(SAB) 104, “Revenue
Recognition”, the Company recognized $2,000,000 as other income in the
consolidated statement of operations during the six months ended June 30,
2009.  In the second quarter of 2010, ICD, LLC, formed by the new
group of investors, started supporting its operations fully and as such, did not
require significant assistance from MC.  The Company terminated all
employees supporting ICD business, and will not have significant involvement
going forward. The Company determined that the criteria for discontinued
operations under guidance ASC 205, “Discontinued Operations”,
have been met as of June 30, 2010. As a result, the revenue and expenses of ICD
have been included in discontinued operations in the consolidated statements of
operations.
 
 As of
December 31, 2009 and September 30, 2010, there were no assets or liabilities
held for sale by the Company that related to ICD that were included in the
Company’s consolidated statements of financial condition.
 
 The
following revenue and expenses related to ICD have been reclassified as
discontinued operations for the three and nine months ended September 30, 2010
and 2009:
 Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      2010
                
                
                September
      2009
                
                
                September
      2010
                
                
                September
      2009Total
      revenue
                
                $
                -
                
                
                $
                6,667,486
                
                
                $
                9,167,983
                
                
                $
                20,072,033Operating
      expensesCompensation
      & benefits
                
                
                -
                
                
                
                6,227,472
                
                
                
                7,870,502
                
                
                
                18,519,995Brokerage
      & clearing fees
                
                
                -
                
                
                
                14,172
                
                
                
                27,219
                
                
                
                45,729Professional
      services
                
                
                -
                
                
                
                65,205
                
                
                
                345,450
                
                
                
                96,997Occupancy
      & equipment
                
                
                -
                
                
                
                17,170
                
                
                
                180,948
                
                
                
                41,606Communications
      & technology
                
                
                -
                
                
                
                145,124
                
                
                
                213,867
                
                
                
                377,840Other
      expenses
                
                
                -
                
                
                
                288,535
                
                
                
                468,233
                
                
                
                816,068Total
      expense
                
                
                -
                
                
                
                6,757,678
                
                
                
                9,106,219
                
                
                
                19,898,235Income
      (loss) from operations
                
                $
                -
                
                
                $
                (90,192
                )
                
                $
                61,764
                
                
                $
                173,798
 42
 
 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.  Certain securities are traded infrequently and
therefore do not have observable prices based on actively traded
markets.  These securities are classified as Level 3 securities, if
pricing inputs or adjustments are both significant to the fair value measurement
and unobservable.  The Company determines the fair value of
infrequently trading securities using the observed closing price at measurement
date, discounted for the put option value calculated through the Black-Scholes
model or similar valuation techniques.
 
 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, 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 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 we own
(long positions) are marked to bid prices, and instruments that we have sold,
but not yet purchased (short positions), are marked to offer prices. Fair value
measurements are not adjusted for transaction costs. Fair values of our
financial instruments are generally obtained from quoted market prices in active
markets, broker or dealer price quotations, or alternative pricing sources with
reasonable levels of price transparency. To the extent certain financial
instruments trade infrequently or are non-marketable securities and, therefore,
have little or no price transparency, we value these instruments based on
management’s estimates.
  Substantially
all of our financial instruments are recorded at fair value or contract amounts
that approximate fair value. Securities owned and securities sold, not yet
purchased, are stated at fair value, with any related changes in unrealized
appreciation or depreciation reflected in Principal Transactions in the
consolidated statements of operations. Financial instruments carried at contract
amounts include cash and cash equivalents and amounts due from and to brokers,
dealers and clearing brokers.
  43
 
 Fair
Value Measurement—Definition and Hierarchy
 
 The
Company follows the provisions of ASC 820, “Fair Value Measurement and
Disclosures” for our financial assets and liabilities. Under ASC 820, fair value
is defined as the price that would be received to sell an asset or paid to
transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement
date.
 
 Where
available, fair value is based on observable market prices or parameters or
derived from such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation techniques involve
some level of management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market and the
instruments’ complexity. Assets and liabilities recorded at fair value in the
consolidated statement of financial condition are categorized based upon the
level of judgment associated with the inputs used to measure their fair value.
The Company’s financial assets and liabilities measured and reported at fair
value are classified and disclosed in one of the following
categories:
  Level 1
—Unadjusted, quoted prices are available 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 —
Pricing 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 market-based implied
volatilities are available, and unregistered common stock.
 
 Level 3 —
Pricing inputs are both significant to the fair value measurement and
unobservable.  These inputs generally 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. Fair
valued assets that are generally included in this category are 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
of 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 basis, and a description of valuation techniques, see
Note 5, Fair Value of Assets and Liabilities, of the Notes to the Consolidated
Financial Statements in Item 1 of Part 1.
  44
 
 Revenue
Recognition
  Investment
banking revenue includes underwriting and private placement agency fees earned
through our participation in public offerings, private placements of equity and
convertible debt securities and fees earned as financial advisor in mergers and
acquisitions and similar transactions. Underwriting revenue is earned in
securities offerings in which we act as an underwriter and includes management
fees, selling concessions and underwriting fees. Fee revenue relating to
underwriting commitments is recorded when all significant items relating to the
underwriting cycle have been completed and the amount of the underwriting
revenue has been determined.
 
 Syndicate
expenses related to securities offerings in which we act as underwriter or agent
are deferred until the related revenue is recognized or we determine that it is
more likely than not that the securities offerings will not ultimately be
completed. Underwriting revenue is presented net of related expenses. As
co-manager for registered equity underwriting transactions, management must
estimate our share of transaction-related expenses incurred by the lead manager
in order to recognize revenue. Transaction-related expenses are deducted from
the underwriting fee and therefore reduce the revenue that is recognized as
co-manager. Such amounts are adjusted to reflect actual expenses in the period
in which we receive the final settlement, typically 90 days following the
closing of the transaction.
 
 Merger
and acquisition fees, and other advisory service revenue are generally earned
and recognized only upon successful completion of the engagement. Unreimbursed
expenses associated with private placement and advisory transactions are
recorded as expenses as incurred.
 
 Commissions
revenue and related clearing expenses are recorded on a trade-date basis as
security transactions occur. Principal transactions in regular-way trades are
recorded on the trade date, as if they had settled. Profit and loss arising from
all securities and commodities transactions entered into for the account and
risk of our company are recorded on a trade-date basis.
 
 OTCQX
revenue is recognized in two parts – Due Diligence and Listing Fees. Due
Diligence Fees are recognized upon completion. The Listing Fees are pro-rated
monthly from the completion of the Due Diligence until the end of the engagement
term.
 
 Stock-based
Compensation Expense
 
 The
Company measures and recognizes compensation expense based on estimated fair
values for all stock-based awards made to employees and directors, including
stock options, restricted stock and warrants. The Company estimates fair value
of stock-based awards on the date of grant using the Black-Scholes
option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense in the Company’s consolidated
statements of operations over the requisite service periods. Stock-based
compensation expense recognized in the Company’s consolidated statement of
operations includes compensation expense for stock-based awards granted
(i) prior to, but not yet vested as of December 31, 2005, based on the
grant date fair value, and (ii) subsequent to December 31, 2005.
Compensation expense for all stock-based awards subsequent to December 31,
2005 is recognized using the straight-line single-option method. Because
stock-based compensation expense is based on awards that are ultimately expected
to vest, stock-based compensation expense has been reduced to account for
estimated forfeitures. Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.
 
 To
calculate stock-based compensation resulting from the issuance of options, and
warrants, the Company uses the Black-Scholes option pricing model, which is
affected by the Company’s stock price as well as assumptions regarding a number
of subjective variables. These variables include, but are not limited to the
Company’s expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise behaviors. No tax benefits
were attributed to the stock-based compensation expense because a valuation
allowance was maintained for all net deferred tax assets.
  45
 
 Deferred
Tax Valuation Allowance
 
 We
account for income taxes in accordance with the provision of ASC 740, “Income
Taxes”, which requires the recognition of deferred tax assets and liabilities at
tax rates expected to be in effect when these balances reverse. Future tax
benefits attributable to temporary differences are recognized to the extent that
the realization of such benefits is more likely than not. We have concluded that
it is not more likely than not that we will be able to realize the benefit of
our deferred tax assets as of September 30, 2010 and 2009 based on the
scheduling of deferred tax liabilities and projected taxable income. The amount
of the deferred tax assets actually realized, however, could vary if there are
differences in the timing or amount of future reversals of existing deferred tax
liabilities or changes in the actual amounts of future taxable income. Should we
determine that we will be able to realize all or part of the deferred tax asset
in the future, an adjustment to the deferred tax asset will be recorded in the
period such determination is made.
 
 Related
Party Transactions
 
 Long
Term Subordinated Loan
 
 On
September 29, 2010, the Company borrowed $1,000,000 from nine individual
lenders, all of whom are directors, officers or employees of the Company,
pursuant to a series of Unsecured Promissory Notes.   The effective
interest rate on the note is 21.73% with a maturity date of September 29,
2013.  As of September 30, 2010, the Unsecured Promissory Notes of
$794,000, net of $206,000 discount, remain outstanding and is included in
subordinated loan to related parties – long term in the Company’s consolidated
statement of financial condition.  For the three and nine-months ended
September 30, 2010, the Company incurred less than $500 as fees on the Unsecured
Promissory Notes, which also remain outstanding as of September 30, 2010 and is
included in accrued expenses in the consolidated statements of financial
position.
 
 Temporary
Subordinated Loan
 
 On
September 28, 2010, the Company borrowed $4,000,000 from DGB Investment, Inc.
(“DGB”).  DGB is controlled by Douglas G. Bergeron, who is a member of
the Board of Directors.  The loan was in the form of a temporary
subordinated loan to supplement the Company’s net capital and enabled it to
underwrite an initial public offering, in accordance with Rule 15c3-1 of the
Securities Exchange Act of 1934.  Interest on the loan is $80,000 for
each 10-day period.  As of September 30, 2010, the loan is still
outstanding and is included in notes payable to related party – short term in
the Company’s consolidated statement of financial condition.  For the
three and nine-months ended September 30, 2010, the Company incurred a total of
$8,000 as fees on the loan, which is included in cost of underwriting capital in
the Company’s consolidated statements of operations.  As of September
30, 2010, the $8,000 fee on the loan remains outstanding and is included in
accrued expenses in the consolidated statements of financial
position.  The loan and fees payable in relation to this loan have
been repaid in full in October 2010.  Total fees paid on this loan
were $80,000.
 
 On April
23, 2010, the Company borrowed $1,000,000 from DGB and $6,000,000 from Ronald L.
Chez IRA.  Mr. Chez is also a member of the Company’s Board of
Directors. The loan was in the form of a temporary subordinated loan to
supplement the Company’s net capital and enabled it to underwrite an initial
public offering, in accordance with Rule 15c3-1 of the Securities Exchange Act
of 1934.  The Company incurred a total of $230,000 as fees on the
loans from DGB and Ronald L. Chez IRA.  As of September 30, 2010, the
loans and fees have been paid in full and no balance remains
outstanding.
 
 On
January 20, 2010, the Company borrowed $11,000,000 from DGB Investment, Inc. and
the Bergeron Family Trust, both controlled by Douglas G. Bergeron, a member of
the Company’s Board of Directors. The loan was in the form of a temporary
subordinated loan to supplement the Company’s net capital and enabled it to
underwrite an initial public offering, in accordance with Rule 15c3-1 of the
Securities Exchange Act of 1934.  The Company compensated Mr. Bergeron
$731,000 in fees for the loan.  As of March 31, 2010, the loan and
fees have been paid in full and no balance remains outstanding.
  46
  Board
of Directors Compensation
 
 In August
2010, the stockholders approved Ronald L. Chez to be the Co-Chairman of the
Board of Directors of the Company.  During the first year of his term
as co-chairman, Mr. Chez was compensated with 42,857 shares of the Company’s
common stock.  For the three and nine-months ended September 30, 2010,
the Company recorded $135,000 of stock-based compensation expense in relation
Mr. Chez’s compensation.
 
 Series
D Convertible Preferred Stock
 
 Series D
Convertible Preferred Stock, on September 8, 2009, the Company issued 23,720,916
shares of Series D Convertible Preferred Stock along with 5-year warrants to
purchase 3,388,702 shares of the Company’s common stock with an exercise price
of $4.55 per share on a post-reverse split basis.  The investor group
constituted of 56 individuals and entities including certain officers, directors
and employees of the Company, as well as outside investors.
 
 Three of
the investors in the Series D Convertible Preferred Stock, Messrs. Andrew Arno,
Douglas Bergeron, and Ronald Chez, have since joined the Company’s Board of
Directors.  In addition, the Company’s Chief Executive Officer and
Chief Financial Officer, who are also officers of Merriman Capital, Inc., the
Company’s primary operating subsidiary, along with 11 other executives and
senior managers of MC were also investors in the Series D Convertible Preferred
Stock.  Finally, all 5 members of the Company’s Board of Directors
prior to the transaction were investors in the Series D Convertible Preferred
Stock transaction.
 
 Strategic
Advisory Committee
 
 In
September 2009, the Company formed a Strategic Advisory Committee of the Board
of Directors chaired by Ronald L. Chez, the lead investor in the Series D
Convertible Preferred Stock strategic transaction.  During the first
year of his term as the Chair of the Committee, Mr. Chez was compensated with
warrants to purchase 42,857 shares of the Company’s common stock at $4.55 per
share on a post-reverse split basis, to be issued prorata on a monthly
basis.  There is one other member of the Strategic Advisory Committee,
our CEO, D. Jonathan Merriman.  Mr. Merriman does not receive any
additional compensation for such service and no other compensation arrangement
for service on the Committee has been made.
 
 Subsequent
Events
 
 The loan
and fees payable in relation to the $4,000,000 related party loan from DGB have
been repaid in full in October 2010.  Total fees paid on this loan
were $80,000.
  47
 
 ITEM 3.  
Quantitative and Qualitative Disclosures About Market Risk
  Information
concerning market risk is incorporated herein by reference to Item 7A of
our Annual Report on Form 10-K and Form 10-K/A for the year ended
December 31, 2009. There has been no material change in the quantitative
and qualitative disclosure about market risk since December 31,
2009.
  48
  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
the 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 September 30, 2010.
 
 Changes
in internal controls
 
 There
have been no changes 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 fiscal quarter ended September 30, 2010, that materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
  49
  PART
II. OTHER INFORMATION
  ITEM 1. Legal
Proceedings
 
 A number
of lawsuits have been filed against the Company’s wholly owned broker-dealer
subsidiary, Merriman Capital, Inc. (“MC”), 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 MC and David Scott
Cacchione (“Cacchione”), a former retail broker of MC. The Company selected the
claims it judged to be the most threatening and settled all of them
simultaneously with its strategic transaction of $10.2 million that closed on
September 8, 2009.  There are also claims remaining in lawsuits and
arbitrations filed against MC disclosed previously.  Cases in which
there were material developments since the beginning of the second quarter 2010
are disclosed below.
 
 Midsummer
Investment, Ltd., v. Merriman Holdings, Inc.
  On
November 6, 2009, Midsummer Investment, Ltd. (“Midsummer”) filed a complaint in
federal court, Southern District of New York, alleging that Midsummer was denied
an anti-dilution adjustment to a warrant issued by the Company to them, and that
the Company refused to honor an exercise of that warrant. The Company believes
that Midsummer is not entitled to any anti-dilution adjustment and its attempted
exercise was not accompanied by proper payment.  The Company has
accrued appropriately as of September 30, 2010 for this matter.
 
 Joy
Ann Fell v. Merriman Capital, Inc. (Settled)
  In
November 2008, MC received a demand letter from a former employee, Joy Ann Fell.
In January 2009, MC 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 alleged claims of breach of
an implied employment contract, emotional distress and work-place
discrimination. The demand for money damages is approximately $350,000. On July
22, 2010, plaintiff and MC settled all legal claims.  The Company has
appropriately paid the settlement claim for this matter as of September 30,
2010.
 
 From time
to time, the Company is also named as a defendant and acts as a plaintiff in the
routine conduct of its business.
  50
 
 ITEM 1A. Risk
Factors
 
 In addition to the other information set forth in this report,
including reports we incorporate by reference, you should carefully consider the
risk factors previously disclosed in response to Item 1A to Part 1 of our Annual
Report on Form 10-K for the year ended December 31, 2009, filed on
March 18, 2010, as amended by our Form 10-K/A filed on April 30,
2010.
  51
   ITEM
6. Exhibits
 
 3.5
              
              Certificate
      of Amendment of Certificate of Incorporation implementing one-for seven
      reverse stock split, effective August 16, 20103.6
              
              Certificate
      of Amendment of Certificate of Incorporation changing name of registrant
      from Merriman Curhan Ford Group, Inc. to Merriman Holdings, Inc.,
      effective August 16, 201010.47
              
              Form
      of Unsecured Promissory Note dated September 29,
      2010.  (Incorporated by reference to Current Report on Form 8-K
      filed on October 5, 2010)
 
 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.
  52
  SIGNATURES
  Pursuant
to the requirements 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
      HOLDINGS, INC.November
      15, 2010
              By:
              /s/ D.
      JONATHAN MERRIMAND.
      Jonathan Merriman,Chief
      Executive Officer(Principal
      Executive Officer)November
      15, 2010
              By:
              /s/ PETER
      V. COLEMANPeter
      V. ColemanChief
      Financial Officer(Principal
      Financial Officer)
  53