SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM
10-Q




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





For the
quarterly period ended June 30, 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
CURHAN FORD GROUP, INC.


(Exact
Name of Registrant as Specified in its Charter)




Delaware
            
            11-2936371(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer
              Identification
      No.)




600
      California Street, 9th Floor
              San
      Francisco, CA
            
            94108(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(415)
248-5600


(Registrant’s
Telephone Number, Including Area Code)





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.  Yesx No  ̈





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





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




Large
      accelerated filer   ̈
            
            Accelerated
      filer   ̈Non-accelerated
      filer   ̈
            
            Smaller
      reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes ̈ Nox





The
number of shares of Registrant’s common stock outstanding as of August 9, 2010
was 14,066,542.















Merriman
Curhan Ford Group, Inc.


Index




Page No.PART
      I FINANCIAL INFORMATIONITEM
      1. Financial Statements (unaudited)Consolidated
      Statements of Operations For the Three Months and Six Months Ended June
      30, 2010 and 2009
              
              
              3Consolidated
      Statements of Financial Condition as of June 30, 2010 and December 31,
      2009
              
              
              4Consolidated
      Statements of Cash Flows For the Six Months Ended June 30, 2010 and
      2009
              
              
              5Notes
      to Consolidated Financial Statements
              
              
              6ITEM
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
              
              
              29ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
              
              
              46ITEM
      4. Controls and Procedures
              
              
              47PART
      II OTHER INFORMATIONITEM
      1. Legal Proceedings
              
              
              48ITEM
      1A. Risk Factors
              
              
              49ITEM
      6. Exhibits
              
              
              50Signatures
              
              
              51Certifications


2





PART
I.  FINANCIAL INFORMATION





ITEM
1.   Financial Statements (unaudited)




MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited)





Three Months Ended
                          
                          
                          Six Months EndedJune 30,
                          
                          
                          June 30,
                          
                          
                          June 30,
                          
                          
                          June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Revenue:Commissions
                          
                          $
                          4,136,074
                          
                          
                          $
                          2,636,964
                          
                          
                          $
                          7,442,727
                          
                          
                          $
                          5,681,015Principal
      transactions
                          
                          
                          382,942
                          
                          
                          
                          749,327
                          
                          
                          
                          176,161
                          
                          
                          
                          (93,210
                          )Investment
      banking
                          
                          
                          1,515,637
                          
                          
                          
                          1,067,450
                          
                          
                          
                          7,562,310
                          
                          
                          
                          2,283,867Advisory
      and other
                          
                          
                          124,968
                          
                          
                          
                          647,867
                          
                          
                          
                          364,341
                          
                          
                          
                          1,206,680Total
      revenue
                          
                          
                          6,159,621
                          
                          
                          
                          5,101,608
                          
                          
                          
                          15,545,539
                          
                          
                          
                          9,078,352Operating
      expenses:Compensation
      and benefits
                          
                          
                          5,042,126
                          
                          
                          
                          3,514,595
                          
                          
                          
                          10,598,377
                          
                          
                          
                          7,164,060Brokerage
      and clearing fees
                          
                          
                          333,081
                          
                          
                          
                          253,769
                          
                          
                          
                          770,171
                          
                          
                          
                          551,798Professional
      services
                          
                          
                          476,012
                          
                          
                          
                          456,957
                          
                          
                          
                          738,561
                          
                          
                          
                          1,222,140Occupancy
      and equipment
                          
                          
                          497,237
                          
                          
                          
                          479,566
                          
                          
                          
                          971,840
                          
                          
                          
                          1,038,446Communications
      and technology
                          
                          
                          544,403
                          
                          
                          
                          650,626
                          
                          
                          
                          1,086,476
                          
                          
                          
                          1,328,383Depreciation
      and amortization
                          
                          
                          100,363
                          
                          
                          
                          115,749
                          
                          
                          
                          202,854
                          
                          
                          
                          262,991Travel
      and entertainment
                          
                          
                          353,061
                          
                          
                          
                          171,124
                          
                          
                          
                          651,569
                          
                          
                          
                          250,254Legal
      services and litigation settlement expense
                          
                          
                          691,480
                          
                          
                          
                          449,639
                          
                          
                          
                          1,012,592
                          
                          
                          
                          778,612Cost
      of underwriting capital
                          
                          
                          230,000
                          
                          
                          
                          -
                          
                          
                          
                          960,576
                          
                          
                          
                          -Other
                          
                          
                          385,423
                          
                          
                          
                          461,035
                          
                          
                          
                          713,349
                          
                          
                          
                          1,097,533Total
      operating expenses
                          
                          
                          8,653,186
                          
                          
                          
                          6,553,060
                          
                          
                          
                          17,706,365
                          
                          
                          
                          13,694,217Operating
      loss
                          
                          
                          (2,493,565
                          )
                          
                          
                          (1,451,452
                          )
                          
                          
                          (2,160,826
                          )
                          
                          
                          (4,615,865
                          )Other
      income
                          
                          
                          29,319
                          
                          
                          
                          800,000
                          
                          
                          
                          29,319
                          
                          
                          
                          2,000,000Interest
      income
                          
                          
                          3,132
                          
                          
                          
                          2,679
                          
                          
                          
                          6,467
                          
                          
                          
                          9,166Interest
      expense
                          
                          
                          (17,776
                          )
                          
                          
                          (28,459
                          )
                          
                          
                          (32,696
                          )
                          
                          
                          (43,823
                          )Loss
      from continuing operations before income taxes
                          
                          
                          (2,478,890
                          )
                          
                          
                          (677,232
                          )
                          
                          
                          (2,157,736
                          )
                          
                          
                          (2,650,522
                          )Income
      tax expense
                          
                          
                          (13,723
                          )
                          
                          
                          (1,984
                          )
                          
                          
                          (29,017
                          )
                          
                          
                          (5,200
                          )Loss
      from continuing operations
                          
                          
                          (2,492,613
                          )
                          
                          
                          (679,216
                          )
                          
                          
                          (2,186,753
                          )
                          
                          
                          (2,655,722
                          )Income
      from discontinued operations
                          
                          
                          60,617
                          
                          
                          
                          116,476
                          
                          
                          
                          95,104
                          
                          
                          
                          169,095Net
      loss
                          
                          $
                          (2,431,996
                          )
                          
                          $
                          (562,740
                          )
                          
                          $
                          (2,091,649
                          )
                          
                          $
                          (2,486,627
                          )Preferred
      stock cash dividend
                          
                          
                          (147,900
                          )
                          
                          
                          -
                          
                          
                          
                          (299,700
                          )
                          
                          
                          -Net
      loss attributable to common shareholders
                          
                          $
                          (2,579,896
                          )
                          
                          $
                          (562,740
                          )
                          
                          $
                          (2,391,349
                          )
                          
                          $
                          (2,486,627
                          )Basic
      net income (loss) per share:Loss
      from continuing operations
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.17
                          )
                          
                          $
                          (0.21
                          )Income
      from discontinued operations
                          
                          
                          -
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01Net
      loss
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.16
                          )
                          
                          $
                          (0.20
                          )Net
      loss attributable to common shareholders
                          
                          $
                          (0.19
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.20
                          )Diluted
      net income (loss) per share:Loss
      from continuing operations
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.17
                          )
                          
                          $
                          (0.21
                          )Income
      from discontinued operations
                          
                          
                          -
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01Net
      loss
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.16
                          )
                          
                          $
                          (0.20
                          )Net
      loss attributable to common shareholders
                          
                          $
                          (0.19
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.20
                          )Weighted
      average number of common shares:Basic
                          
                          
                          13,631,208
                          
                          
                          
                          12,510,805
                          
                          
                          
                          13,197,487
                          
                          
                          
                          12,549,477Diluted
                          
                          
                          13,631,208
                          
                          
                          
                          12,510,805
                          
                          
                          
                          13,197,487
                          
                          
                          
                          12,549,477





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


3





MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(unaudited)





June 30,
                        
                        
                        December 31,2010
                        
                        
                        2009ASSETSCash
      and cash equivalents
                        
                        $
                        3,907,094
                        
                        
                        $
                        5,656,750Securities
      owned:Marketable,
      at fair value
                        
                        
                        3,409,272
                        
                        
                        
                        4,728,940Not
      readily marketable, at estimated fair value
                        
                        
                        1,175,017
                        
                        
                        
                        272,463Other
                        
                        
                        62,682
                        
                        
                        
                        67,448Restricted
      cash
                        
                        
                        1,072,086
                        
                        
                        
                        1,072,086Due
      from clearing broker
                        
                        
                        124,936
                        
                        
                        
                        2,546,581Accounts
      receivable, net
                        
                        
                        1,331,063
                        
                        
                        
                        470,992Prepaid
      expenses and other assets
                        
                        
                        1,343,752
                        
                        
                        
                        801,946Equipment
      and fixtures, net
                        
                        
                        318,257
                        
                        
                        
                        506,535Total
      assets
                        
                        $
                        12,744,159
                        
                        
                        $
                        16,123,741LIABILITIES AND STOCKHOLDERS’ EQUITYLiabilities:Accounts
      payable
                        
                        $
                        256,880
                        
                        
                        $
                        346,220Commissions
      and bonus payable
                        
                        
                        2,610,068
                        
                        
                        
                        4,133,924Accrued
      expenses
                        
                        
                        2,683,783
                        
                        
                        
                        2,755,831Due
      to clearing and other brokers
                        
                        
                        5,376
                        
                        
                        
                        7,185Securities
      sold, not yet purchased
                        
                        
                        132,491
                        
                        
                        
                        161,461Deferred
      revenue
                        
                        
                        40,000
                        
                        
                        
                        304,334Capital
      lease obligation
                        
                        
                        261,213
                        
                        
                        
                        397,958Total
      liabilities
                        
                        
                        5,989,811
                        
                        
                        
                        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 June 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 June 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 June 30, 2010 and December 31, 2009; aggregate
      liquidation preference of $0
                        
                        
                        -
                        
                        
                        
                        -Convertible
      preferred stock, Series D–$0.0001 par value; 24,000,000 shares
      authorized, 23,720,916 and 23,720,916 shares issued and 22,697,662
      and 23,720,916 shares outstanding as of June 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; 14,256,119
      and 12,988,073 shares issued and 14,054,542 and 12,786,496 shares
      outstanding as of June 30, 2010 and December 31, 2009,
      respectively
                        
                        
                        1,423
                        
                        
                        
                        1,299Additional
      paid-in capital
                        
                        
                        133,883,340
                        
                        
                        
                        133,054,192Treasury
      stock
                        
                        
                        (225,613
                        )
                        
                        
                        (225,613
                        )Accumulated
      deficit
                        
                        
                        (126,907,071
                        )
                        
                        
                        (124,815,422
                        )Total
      stockholders’ equity
                        
                        
                        6,754,348
                        
                        
                        
                        8,016,828Total
      liabilities and stockholders’ equity
                        
                        $
                        12,744,159
                        
                        
                        $
                        16,123,741





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


4




MERRIMAN
CURHAN FORD GROUP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited)





Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009Cash
      flows from operating activities:Net
      loss
                
                $
                (2,091,649
                )
                
                $
                (2,486,627
                )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
                
                
                202,854
                
                
                
                273,601Stock-based
      compensation
                
                
                834,780
                
                
                
                259,779Amortization
      of discount on convertible note
                
                
                -
                
                
                
                9,768Loss
      (gain) on disposal of equipment and fixtures
                
                
                (2,987
                )
                
                
                294,379Provision
      for uncollectible accounts receivable
                
                
                44,753
                
                
                
                155,473Securities
      received for services
                
                
                (944,188
                )
                
                
                (168,913
                )Unrealized
      loss on securities owned
                
                
                764,090
                
                
                
                693,648Changes
      in operating assets and liabilities:Securities
      owned and sold, not yet purchased
                
                
                573,006
                
                
                
                (1,564,221
                )Restricted
      cash
                
                
                -
                
                
                
                3,331Due
      from clearing broker
                
                
                2,421,645
                
                
                
                (279,424
                )Accounts
      receivable
                
                
                (904,824
                )
                
                
                (406,191
                )Prepaid
      expenses and other assets
                
                
                (541,806
                )
                
                
                468,929Accounts
      payable
                
                
                (89,341
                )
                
                
                (804,959
                )Commissions
      and bonus payable
                
                
                (1,523,856
                )
                
                
                (5,280
                )Accrued
      expenses
                
                
                (79,011
                )
                
                
                (1,383,720
                )Due
      to clearing and other brokers
                
                
                (1,810
                )
                
                
                (20,132
                )Net
      cash used in operating activities
                
                
                (1,338,344
                )
                
                
                (6,960,559
                )Cash
      flows from investing activities:Purchase
      of equipment and fixtures , net
                
                
                (11,587
                )
                
                
                -Sale
      of Panel Intelligence
                
                
                -
                
                
                
                702,966Sale
      of Institutional Cash Distributors
                
                
                -
                
                
                
                2,000,000Net
      cash (used in) provided by investing activities
                
                
                (11,587
                )
                
                
                2,702,966Cash
      flows from financing activities:Proceeds
      from the exercise of stock options
                
                
                36,720
                
                
                
                -Proceeds
      from issuance of convertible notes payable
                
                
                -
                
                
                
                625,000Proceeds
      from issuance of notes payable - short term
                
                
                -
                
                
                
                300,000Proceeds
      from subordinated loan
                
                
                18,000,000
                
                
                
                -Payments
      on subordinated loan
                
                
                (18,000,000
                )
                
                
                -Preferred
      stock dividend
                
                
                (299,700
                )
                
                
                -Debt
      service principal payments
                
                
                (136,745
                )
                
                
                (381,901
                )Net
      cash (used in) provided by financing activities
                
                
                (399,725
                )
                
                
                543,099Decrease
      in cash and cash equivalents
                
                
                (1,749,656
                )
                
                
                (3,714,494
                )Cash
      and cash equivalents at beginning of year
                
                
                5,656,750
                
                
                
                6,358,128Cash
      and cash equivalents, assets held for sale
                
                
                -
                
                
                
                222,892Cash
      and cash equivalents at end of the period
                
                $
                3,907,094
                
                
                $
                2,866,526Supplementary
      disclosure of cash flow information:Cash
      paid during the year:Interest
                
                $
                25,546
                
                
                $
                34,055Income
      taxes
                
                $
                35,000
                
                
                $
                5,200Noncash
      investing and financing activities:Warrant
      issued for legal settlement
                
                $
                257,370
                
                
                $
                -Stock
      received as part of Panel sale
                
                $
                -
                
                
                $
                100,000





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


5





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





1.
Significant Accounting Policies





Basis
of Presentation





The
interim unaudited consolidated financial statements included herein for Merriman
Curhan Ford Group, Inc. (formerly MCF Corporation), or the Company, have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (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.





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.





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:


6





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)


1.
Significant Accounting Policies - continued





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. This generally is the point at which
all of the following have occurred: (i) the issuer’s registration statement
has become effective with the SEC, or other offering documents are finalized,
(ii) the Company has made a firm commitment for the purchase of the shares
or debt from the issuer, and (iii) the Company has been informed of the
exact number of shares or the principal amount of debt that it has been
allotted.





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





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


7




MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





1.
Significant Accounting Policies — continued





Commissions
and Principal Transactions Revenue





Commissions
revenue includes revenue resulting from executing trades in stock
exchange-listed securities, over-the- counter securities and other transactions
as agent for the Company’s clients. Principal transactions consist of a portion
of dealer spreads attributed to the Company’s securities trading activities as
principal in exchange-listed and other securities, and include transactions
derived from activities as a market-maker. Additionally, principal transactions
include gains and losses resulting from market price fluctuations that occur
while holding positions in trading security inventory. Commissions revenue and
related clearing expenses are recorded on a trade-date basis as security
transactions occur. Principal transactions in regular-way trades are recorded on
the trade date, as if they had settled. Profit and loss arising from all
securities and commodities transactions entered into for the account and risk of
the Company are recorded on a trade-date basis.





Stock-based
Compensation Expense





The
Company measures and recognizes compensation expense based on estimated fair
values for all stock-based awards made to employees and directors, including
stock options, 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.


8





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





1.
Significant Accounting Policies — continued





Use
of Estimates





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





Segment
Reporting





The
Company has determined that it has only one operating and reportable segment,
Merriman Curhan Ford & Co. (MCF), for the purpose of making operating
decisions and assessing performance, which comprised more than 90% of the
Company’s consolidated total assets as of June 30, 2010 and December 31, 2009,
and consolidated total revenues for the three months and six months
period ended June 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.  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.)


9





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





2.
Liquidity





We
incurred substantial losses and negative cash flows from operations in 2009 and
2008. We had net losses of $5,462,000 and $30,274,000 in 2009 and 2008,
respectively, and negative operating cash flows of $12,648,000 and $24,945,000
for the same respective years. For the six months ended June 30, 2010, we also
incurred net losses of $2,092,000 and negative operating cash flows of
$1,338,000.  Furthermore, as of June 30, 2010, we had an accumulated
deficit of $126,907,000. 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 June 30,
2010.





The Notes
were issued with warrants to purchase additional shares of common stock of the
Company at $0.50 per share for a number of shares of common stock equal to 75%
of the principal amount of the Notes purchased, divided by $0.50.  The
warrants issued in connection with the Notes remain outstanding as of June 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
1,162,791 shares of the Company’s common stock at $0.65 per
share.  The principal and interest accrued under the Chez Note was
converted into Series D Convertible Preferred Stock on September 8,
2009.  As of June 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 581,395 shares of the
Company’s common stock at $0.65 per share.  Subsequent to issuance,
Messrs. Merriman and Coleman each transferred ownership of 228,327 warrants to
Mr. Chez and retained ownership of 290,698 warrants each.  The balance
of 62,370 warrants was transferred by each of Messrs. Merriman and Coleman to
third parties in connection with investments in the Company’s Series D Preferred
Convertible Stock strategic transaction of September
2009.


10





MERRIMAN
CURHAN FORD GROUP, 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 373,563 warrants to purchase shares of the
Company’s common stock at a price per share of $0.87.  As of December
31, 2009, the Company had accrued for the $325,000 liability that was paid out
as warrants during the first quarter of 2010.





As of
June 30, 2010 and December 31, 2009, the Company had 29,547,212 and 29,023,649
of total warrants outstanding, respectively.




4.  Series
D Convertible Preferred Stock





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





The
Series D Convertible Preferred Stock was issued in a private placement exempt
from registration requirements pursuant to Regulation D of the Securities Act of
1933.  Each share of Series D Convertible Preferred Stock is
convertible into one share of common stock of the Company.  The Series
D Convertible Preferred Stock carries a dividend rate of 6% per annum, payable
in cash monthly.  For the three and six months ended June
30, 2010, total Series D Convertible Preferred Stock dividends were $147,900 and
$299,700, respectively.  As of June 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 $3.00 per share and
when the average trading volume for the immediately prior four-week period is
30,000 shares or more, provided that the shares have been effectively registered
with the Securities and Exchange Commission or all of the Series D Convertible
Preferred Stock may be sold under Rule 144 of the 1933 Exchange
Act.





The
Company has accounted for this transaction as 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.


11





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities





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





A
description of the valuation techniques applied to the Company’s major
categories of assets and liabilities measured at fair value on a recurring basis
follows.





Corporate
Equities





Corporate
equities are comprised primarily of exchange-traded equity securities that the
Company takes selective proprietary positions based on expectations of future
market movements and conditions.





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




Typically,
the common stock is traded on stock exchanges and most are classified as Level 1
securities.  The fair value is based on observed closing stock price
at the measurement date.




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.


12





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities – continued





Underwriters’
Purchase Options




The
Company may receive partial compensation for its investment banking services
also in the form underwriters’ purchase options (“UPOs”).  UPOs are
identical to warrants except, instead of a share of common stock, the UPO grants
the holder the right to purchase a “bundle” of securities, including common
stock and warrants to purchase common stock. Underwriters’ purchase options
represent the right to purchase securities of companies for which the Company
acted as an underwriter to account for any overallotment of these securities in
a public offering.  Such positions are considered illiquid and do not
have readily determinable fair values, and therefore require significant
management judgment or estimation.




The fair
value of the UPO is determined using the Black-Scholes model or similar
technique, applied in two stages.  The first stage is to determine the
value of the warrants contained within the “bundle” and added to the fair value
of the stock within the bundle.  Once the fair value of the underlying
“bundle” is established, the Black-Scholes model is used again.  The
fair value of the “bundle” is used instead of the price of the underlying stock
as one of the inputs in the second stage of the Black-Scholes.  The
use of the valuation techniques requires significant management assumptions and
therefore, UPOs are classified as Level 3 securities.





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.


13





MERRIMAN
CURHAN FORD GROUP, 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 at Fair Value at June 30, 2010Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3
                    
                    
                    TotalAssets:Corporate
      equities
                    
                    $
                    2,783,228
                    
                    
                    $
                    -
                    
                    
                    $
                    42,791
                    
                    
                    $
                    2,826,019Stock
      warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,348,710
                    
                    
                    
                    1,348,710Underwriters'
      purchase option
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    408,941
                    
                    
                    
                    408,941Preferred
      stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    619
                    
                    
                    
                    619Total
      securities owned
                    
                    $
                    2,783,228
                    
                    
                    $
                    -
                    
                    
                    $
                    1,801,061
                    
                    
                    $
                    4,584,289Liabilities:Securities
      sold, not yet purchased
                    
                    
                    132,491
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    132,491Total
      fair value liabilities
                    
                    $
                    132,491
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    132,491





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




14





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued





The
following summarizes the change in carrying values associated with Level 3
financial instruments for the six months ended June 30, 2010 and
2009:





Underwriters'Corporate
                          
                          
                          Stock
                          
                          
                          PurchaseEquities
                          
                          
                          Warrants
                          
                          
                          Options
                          
                          
                          Preferred Stock
                          
                          
                          TotalBalance
      at December 31, 2009
                          
                          $
                          21,731
                          
                          
                          $
                          1,575,481
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,597,212Purchases
      or receipt (a)
                          
                          
                          95,000
                          
                          
                          
                          316,184
                          
                          
                          
                          462,399
                          
                          
                          
                          -
                          
                          
                          
                          873,583Sales
      or exercises
                          
                          
                          -
                          
                          
                          
                          (409,528
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (409,528
                          )Transfers
      into
                          
                          
                          210,747
                          (b)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          435
                          (b)
                          
                          
                          211,182Transfers
      out of
                          
                          
                          (21,731
                          )
      (c)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (21,731
                          )Gains
      (losses):
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Realized
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Unrealized
                          
                          
                          (262,956
                          )
                          
                          
                          (133,427
                          )
                          
                          
                          (53,458
                          )
                          
                          
                          184
                          
                          
                          
                          (449,657
                          )Balance
      at June 30, 2010
                          
                          $
                          42,791
                          
                          
                          $
                          1,348,710
                          
                          
                          $
                          408,941
                          
                          
                          $
                          619
                          
                          
                          $
                          1,801,061Change
      in unrealized gains(losses)
      relating to instruments still heldat
      June 30, 2010
                          
                          $
                          (262,956
                          )
                          
                          $
                          (133,427
                          )
                          
                          $
                          (53,458
                          )
                          
                          $
                          184
                          
                          
                          $
                          (449,657
                          )





(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 underlying instruments.


(c)
Principally reflects transfer to Level 1, due to availability of market data and
therefore more price transparency.





Underwriters'Corporate
                      
                      
                      Stock
                      
                      
                      PurchaseEquities
                      
                      
                      Warrants
                      
                      
                      Option
                      
                      
                      TotalBalance
      at December 31, 2008
                      
                      $
                      695
                      
                      
                      $
                      1,605,451
                      
                      
                      $
                      27,995
                      
                      
                      $
                      1,634,141Purchases,
      issuances, settlements  and sales
                      
                      
                      50,998
                      
                      
                      
                      132,879
                      
                      
                      
                      -
                      
                      
                      
                      183,877Net
      transfers in (out)
                      
                      
                      (13,490
                      )
                      
                      
                      (108,900
                      )
                      
                      
                      -
                      
                      
                      
                      (122,390
                      )Gains
      (losses):Realized
                      
                      
                      -
                      
                      
                      
                      (79,093
                      )
                      
                      
                      (91,058
                      )
                      
                      
                      (170,151
                      )Unrealized
                      
                      
                      (13,170
                      )
                      
                      
                      (243,407
                      )
                      
                      
                      63,063
                      
                      
                      
                      (193,514
                      )Balance
      at June 30, 2009
                      
                      $
                      25,033
                      
                      
                      $
                      1,306,930
                      
                      
                      $
                      -
                      
                      
                      $
                      1,331,963Change
      in unrealized gains (losses) relating to instruments still held at June
      30, 2009
                      
                      $
                      (13,171
                      )
                      
                      $
                      (170,004
                      )
                      
                      $
                      -
                      
                      
                      $
                      (183,174
                      )


15





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued





The
following summarizes the change in carrying values associated with Level 3
financial instruments for the three months ended June 30, 2010 and
2009:





Underwriters'Corporate
                          
                          
                          Stock
                          
                          
                          PurchaseEquities
                          
                          
                          Warrants
                          
                          
                          Options
                          
                          
                          Preferred Stock
                          
                          
                          TotalBalance
      at March 31, 2010
                          
                          $
                          227,003
                          
                          
                          $
                          1,186,716
                          
                          
                          $
                          304,607
                          
                          
                          $
                          470
                          
                          
                          $
                          1,718,796Purchases
      or receipt (a)
                          
                          
                          95,000
                          
                          
                          
                          107,560
                          
                          
                          
                          74,903
                          
                          
                          
                          -
                          
                          
                          
                          277,463Sales
      or exercises
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (11,660
                          )
                          
                          
                          -
                          
                          
                          
                          (11,660
                          )Transfers
      into
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Transfers
      out of
                          
                          
                          (164,993
                          )
      (b)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (164,993
                          )Gains
      / (losses)
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Realized
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Unrealized
                          
                          
                          (114,219
                          )
                          
                          
                          54,434
                          
                          
                          
                          41,091
                          
                          
                          
                          149
                          
                          
                          
                          (18,545
                          )Balance
      at June 30, 2010
                          
                          $
                          42,791
                          
                          
                          $
                          1,348,710
                          
                          
                          $
                          408,941
                          
                          
                          $
                          619
                          
                          
                          $
                          1,801,061Change
      in unrealized gains(losses)
      relating to instruments still heldat
      June 30, 2010
                          
                          $
                          (114,219
                          )
                          
                          $
                          54,434
                          
                          
                          $
                          41,091
                          
                          
                          $
                          149
                          
                          
                          $
                          (18,545
                          )





(a)
Includes purchases of securities and securities received for
services


(b)
Principally reflects transfer to Level 1, due to availability of market data and
therefore more price transparency.





Underwriters'Corporate
                        
                        
                        Stock
                        
                        
                        PurchaseEquities
                        
                        
                        Warrants
                        
                        
                        Options
                        
                        
                        TotalBalance
      at March 31, 2009
                        
                        $
                        27,966
                        
                        
                        $
                        1,477,769
                        
                        
                        $
                        -
                        
                        
                        $
                        1,505,735Purchases,
      issuances and settlements and sales
                        
                        
                        -
                        
                        
                        
                        (264,027
                        )
                        
                        
                        -
                        
                        
                        
                        (264,027
                        )Net
      transfers in / (out)
                        
                        
                        (12,794
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (12,794
                        )Gains
      / (losses)
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Realized
                        
                        
                        -
                        
                        
                        
                        (79,093
                        )
                        
                        
                        -
                        
                        
                        
                        (79,093
                        )Unrealized
                        
                        
                        9,861
                        
                        
                        
                        172,281
                        
                        
                        
                        -
                        
                        
                        
                        182,142Balance
      at June 30, 2009
                        
                        $
                        25,033
                        
                        
                        $
                        1,306,930
                        
                        
                        $
                        -
                        
                        
                        $
                        1,331,963Change
      in unrealized gains (losses) relating to instruments still held at June
      30, 2009
                        
                        $
                        9,861
                        
                        
                        $
                        82,772
                        
                        
                        $
                        -
                        
                        
                        $
                        92,633


16





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





5.
Fair Value of Assets and Liabilities — continued





The
amounts of unrealized losses for the three and six months ended June 30,
2010 included in the tables above are all attributable to those assets held as
of June 30, 2010. Net gains and losses (both realized and unrealized) for
Level 3 financial assets (securities owned by the Company) are a component
of Principal Transactions in the Consolidated Statements of
Operations.




Transfers
within the Fair Value Hierarchy




We assess
our financial instruments on a quarterly basis to determine the appropriate
classification within the fair value hierarchy, as defined by ASC Topic 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
three and six months ended June 30, 2010.





6.
Stock-Based Compensation Expense





Stock
Options





As
of June 30, 2010, there were 15,091,430 shares authorized for issuance under the
Option Plans, and 612,858 shares authorized for issuance outside of the Option
Plans. As of June 30, 2010, 3,383,452 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 six months ended June 30, 2010 was $544,000 and $997,000,
respectively.  Of the total stock compensation expense for the six
months ended June 30, 2010, $184,000 was incurred due to acceleration of vesting
terms of stock options of two employees upon their
termination.  Compensation expense for stock options during the
three months and six months ended June 30, 2009 was $146,000 and $210,000,
respectively.





The
following table is a summary of the Company’s stock option activity for the
six months ended June 30, 2010:





Weighted-AverageExerciseShares
                    
                    
                    PriceOutstanding
      at December 31, 2009
                    
                    
                    9,550,117
                    
                    
                    $
                    1.24Granted
                    
                    
                    732,850
                    
                    
                    
                    0.84Exercised
                    
                    
                    (108,000
                    )
                    
                    
                    (0.34
                    )Cancelled
                    
                    
                    (451,612
                    )
                    
                    
                    (4.01
                    )Outstanding
      at June 30, 2010
                    
                    
                    9,723,355
                    
                    
                    $
                    1.09Exercisable
      at June 30, 2010
                    
                    
                    1,895,753
                    
                    
                    $
                    1.40


17





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





6. Stock-based Compensation Expense —
continued





The
following table summarizes information with respect to stock options vested and
outstanding at June 30, 2010:





Options Outstanding at June 30, 2010
                                
                                
                                Vested Options at June 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
      - $0.4999
                                
                                
                                
                                3,406,385
                                
                                
                                
                                8.75
                                
                                
                                $
                                0.43
                                
                                
                                $
                                421,710
                                
                                
                                
                                1,437,108
                                
                                
                                $
                                0.42
                                
                                
                                $
                                190,129$
                                0.5000
      - $0.9999
                                
                                
                                
                                1,422,270
                                
                                
                                
                                9.36
                                
                                
                                
                                0.84
                                
                                
                                
                                -
                                
                                
                                
                                43,902
                                
                                
                                
                                0.54
                                
                                
                                
                                413$
                                1.0000
      - $1.4999
                                
                                
                                
                                4,169,339
                                
                                
                                
                                9.36
                                
                                
                                
                                1.20
                                
                                
                                
                                -
                                
                                
                                
                                4,458
                                
                                
                                
                                1.42
                                
                                
                                
                                -$
                                1.5000
      - $1.9999
                                
                                
                                
                                172,788
                                
                                
                                
                                7.45
                                
                                
                                
                                1.63
                                
                                
                                
                                -
                                
                                
                                
                                42,788
                                
                                
                                
                                1.82
                                
                                
                                
                                -$
                                2.0000
      - $4.9999
                                
                                
                                
                                407,260
                                
                                
                                
                                5.11
                                
                                
                                
                                3.57
                                
                                
                                
                                -
                                
                                
                                
                                230,306
                                
                                
                                
                                3.32
                                
                                
                                
                                -$
                                5.0000
      - $9.9999
                                
                                
                                
                                88,808
                                
                                
                                
                                5.87
                                
                                
                                
                                6.62
                                
                                
                                
                                -
                                
                                
                                
                                80,686
                                
                                
                                
                                6.74
                                
                                
                                
                                -$
                                10.0000
      - $19.9999
                                
                                
                                
                                56,505
                                
                                
                                
                                3.27
                                
                                
                                
                                11.17
                                
                                
                                
                                -
                                
                                
                                
                                56,505
                                
                                
                                
                                11.17
                                
                                
                                
                                -9,723,355
                                
                                
                                
                                8.87
                                
                                
                                $
                                1.09
                                
                                
                                $
                                421,710
                                
                                
                                
                                1,895,753
                                
                                
                                $
                                1.40
                                
                                
                                $
                                190,542





As of
June 30, 2010, total unrecognized compensation expense related to unvested stock
options was $4,254,000. This amount is expected to be recognized as expense over
a weighted-average period of 3.21 years.





The
weighted average fair value of each stock option granted for the three and six
months ended June 30, 2010 was $0.55 and $0.61, respectively. The weighted
average fair value of each stock option granted for the three months and
six months ended June 30, 2009 was $0.28 and $0.27, respectively. The
fair value of each option award is estimated on the date of grant using the
Black-Scholes stock option pricing model, with the following assumptions for the
six months ended June 30, 2010 and 2009:





Six Months Ended June 30,2010
                      
                      
                      2009Expected
      Volatility
                      
                      
                      135.77
                      %
                      
                      
                      110.65
                      %Average
      expected term (years)
                      
                      
                      2.66
                      
                      
                      
                      2.95Risk-free
      interest rate
                      
                      
                      1.42
                      %
                      
                      
                      1.35
                      %Dividend
      yield
                      
                      
                      -
                      
                      
                      
                      -


18





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





6. Stock-based Compensation Expense —
continued





Restricted
Stock





At the
date of grant, the recipients of restricted stock have most of the rights of a
stockholder other than voting rights, subject to certain restrictions on
transferability and a risk of forfeiture. 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 six months ended June 30, 2010 was
$27,000 and ($244,000), respectively. We had a negative stock compensation
expense for the six months ended June 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 six months ended June 30, 2009 was
$24,000 and $49,000, respectively.





The
following table is a summary of the Company's restricted stock activity for the
six months ended June 30, 2010:





Weighted-Restricted
                                    
                                    
                                    Average
                                    
                                    
                                    AggregateStock
                                    
                                    
                                    Grant Date
                                    
                                    
                                    IntrinsicOutstanding
                                    
                                    
                                    Fair Value
                                    
                                    
                                    ValueBalance
      as of December 31, 2009
                                    
                                    
                                    38,366
                                    
                                    
                                    $
                                    9.84Granted
                                    
                                    
                                    168,935
                                    
                                    
                                    
                                    0.80Vested
                                    
                                    
                                    (97,015
                                    )
                                    
                                    
                                    (0.90
                                    )Cancelled
                                    
                                    
                                    (32,143
                                    )
                                    
                                    
                                    (11.55
                                    )Balance
      as of June 30, 2010
                                    
                                    
                                    78,143
                                    
                                    
                                    $
                                    1.05
                                    
                                    
                                    $
                                    42,979





The
weighted average fair value of the restricted stock granted under the Company's
stock option plans for the three months and six months ended June 30,
2010 was $0.64 and $0.80 per share, respectively. The weighted average fair
value of the restricted stock granted under the Company's stock option plans for
the three and six months ended June 30, 2009 was $0 per
share.  The fair value of the restricted stock award is estimated on
the date of grant using the intrinsic value method.





As of
June 30, 2010, total unrecognized compensation expense related to restricted
stock was $73,000. This expense is expected to be recognized over a
weighted-average period of 3.22 year.





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 $0.65 to the Chairman of the Strategic
Advisory Committee, a committee of the Board of Directors, as compensation for
serving in that capacity.  For the three months and
six months ended June 30, 2010, the Company issued 75,000 and 150,000
warrants, respectively.  For the three months and six months
ended June 30, 2010, the Company recorded stock compensation expense of $37,000
and $82,000, respectively, based on the calculated fair value of the warrants
using the Black-Scholes option valuation model.  As of June 30, 2010,
a total of 243,333 warrants have been issued and remain
outstanding.


19





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





7.
Income Taxes




At the
end of each interim reporting period, the Company calculates an effective tax
rate based on the Company’s estimate of the tax provision (benefit) that will be
provided for the full year, stated as a percentage of estimated annual pre-tax
income (loss). The tax provision (benefit) for the interim period is determined
using this estimated annual effective tax rate. For the three and six months
ended June 30, 2010, the Company recorded $14,000 and $29,000 of income tax
expense, respectively. This relates primarily to federal and state income tax
recorded during the quarter as a result of projected pre-tax profit after
utilization of federal and state NOL carryforward.  For the three and
six months ended June 30, 2009, the Company recorded an immaterial income tax
expense.  The minimal tax provision for the three and six months ended
June 30, 2009 is the result of the pre-tax loss of the period.




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





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





8.
Compliance with Listing Requirements





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





On August
10, 2010, at the stockholders’ annual meeting, a one-for-seven reverse stock
split was approved.  See Note 14, Subsequent Events, for additional
details.  We believe that we will regain compliance with NASDAQ
Listing Rule 5550(a)(2) requirements within the required time period by NASDAQ
upon the effectivity of such reverse stock split.





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 Curhan Ford Group, Inc. The results
of Panel’s operations had been included in the Company’s consolidated financial
statements since that date. As a result of the acquisition, the Company began
providing independent market data and information to clients in the
biotechnology, pharmaceutical, medical device, and financial industries by
leveraging Panel's proprietary methodology and vast network of medical
experts.





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





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





For the
three and six months ended June 30, 2010, income from discontinued operations
related to Panel was $33,340.  For the three and six months ended June
30, 2009, the Company incurred loss from discontinued operations of $0 and
$94,894, respectively.


20





MERRIMAN
CURHAN FORD GROUP, 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
ICD, a division of MCF, for $2,000,000 to a group of investors who were
also its employees in order to raise capital. The assets sold included MCF’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 MCF.  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 June 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 six months ended June 30, 2010
and 2009:





Three Months Ended
                          
                          
                          Six Months EndedJune 30, 2010
                          
                          
                          June 30, 2009
                          
                          
                          June 30, 2010
                          
                          
                          June 30, 2009Total
      revenue
                          
                          $
                          2,046,381
                          
                          
                          $
                          7,330,670
                          
                          
                          $
                          9,167,983
                          
                          
                          $
                          13,404,547Operating
      expensesCompensation
      & benefits
                          
                          
                          1,511,221
                          
                          
                          
                          6,676,820
                          
                          
                          
                          7,870,502
                          
                          
                          
                          12,292,523Brokerage
      & clearing fees
                          
                          
                          6,092
                          
                          
                          
                          16,627
                          
                          
                          
                          27,219
                          
                          
                          
                          31,557Professional
      services
                          
                          
                          72,239
                          
                          
                          
                          13,199
                          
                          
                          
                          345,450
                          
                          
                          
                          31,793Occupancy
      & equipment
                          
                          
                          172,771
                          
                          
                          
                          6,926
                          
                          
                          
                          180,948
                          
                          
                          
                          24,435Communications
      & technology
                          
                          
                          61,438
                          
                          
                          
                          189,210
                          
                          
                          
                          213,867
                          
                          
                          
                          232,717Other
      expenses
                          
                          
                          195,343
                          
                          
                          
                          311,412
                          
                          
                          
                          468,234
                          
                          
                          
                          527,533Total
      expense
                          
                          
                          2,019,104
                          
                          
                          
                          7,214,194
                          
                          
                          
                          9,106,220
                          
                          
                          
                          13,140,558Income
      from operations
                          
                          $
                          27,277
                          
                          
                          $
                          116,476
                          
                          
                          $
                          61,763
                          
                          
                          $
                          263,989


21





MERRIMAN
CURHAN FORD GROUP, 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 June 30,
                          
                          
                          Six Months Ended June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Loss
      from continuing operations
                          
                          $
                          (2,492,613
                          )
                          
                          $
                          (679,216
                          )
                          
                          $
                          (2,186,753
                          )
                          
                          $
                          (2,655,722
                          )Income
      from discontinued operations
                          
                          
                          60,617
                          
                          
                          
                          116,476
                          
                          
                          
                          95,104
                          
                          
                          
                          169,095Net
      loss
                          
                          $
                          (2,431,996
                          )
                          
                          $
                          (562,740
                          )
                          
                          $
                          (2,091,649
                          )
                          
                          $
                          (2,486,627
                          )Convertible
      preferred stock, series D dividends
                          
                          
                          147,900
                          
                          
                          
                          -
                          
                          
                          
                          299,700
                          
                          
                          
                          -Net
      loss attributable to common shareholders - basic and
    diluted
                          
                          $
                          (2,579,896
                          )
                          
                          $
                          (562,740
                          )
                          
                          $
                          (2,391,349
                          )
                          
                          $
                          (2,486,627
                          )Weighted-average
      number of common shares -basic
                          
                          
                          13,631,208
                          
                          
                          
                          12,510,805
                          
                          
                          
                          13,197,487
                          
                          
                          
                          12,549,477Assumed
      exercise or conversion of all potentially dilutive common shares
      outstanding
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Weighted-average
      number of common shares -diluted
                          
                          
                          13,631,208
                          
                          
                          
                          12,510,805
                          
                          
                          
                          13,197,487
                          
                          
                          
                          12,549,477Basic
      net loss per share:Loss
      from continuing operations
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.17
                          )
                          
                          $
                          (0.21
                          )Loss
      from discontinued operations
                          
                          
                          0.00
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01Net
      loss per share
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.16
                          )
                          
                          $
                          (0.20
                          )Basic
      net loss per share attributable to common shareholders
                          
                          $
                          (0.19
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.20
                          )Diluted
      net income (loss) per share:Loss
      from continuing operations
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.17
                          )
                          
                          $
                          (0.21
                          )Income
      (loss) from discontinued operations
                          
                          
                          0.00
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01
                          
                          
                          
                          0.01Net
      loss per share
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.16
                          )
                          
                          $
                          (0.20
                          )Diluted
      net loss per share attributable to common shareholders
                          
                          $
                          (0.19
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.18
                          )
                          
                          $
                          (0.20
                          )


22





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





10.
Loss per Share — continued





Basic
earnings per share is computed by dividing net loss by the weighted average
number of common shares outstanding, excluding shares of non-vested stock.
Diluted earnings per share is calculated by dividing net earnings by the
weighted average number of common shares used in the basic earnings per share
calculation plus the number of common shares that would be issued assuming
exercise or conversion of all potentially dilutive common shares outstanding,
including non-vested stock. Diluted loss per share is unchanged from basic loss
per share for the three and six months ended June 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 earnings per share
would be anti-dilutive.





Shares
used in the diluted net loss per share computation include the dilutive impact
of the Company’s stock options and warrants. The impact of the Company’s stock
options and warrants on shares used for the diluted loss per share computation
is calculated based on the average share price of the Company’s common stock for
each period using the treasury stock method. Under the treasury stock method,
the tax-effected proceeds that would be hypothetically received from the
exercise of all stock options and warrants with exercise prices below the
average share price of the Company’s common stock are assumed to be used to
repurchase shares of the Company’s common stock. Because the Company reported a
net loss during the three and six months ended June 30, 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 June 30,
                          
                          
                          Six Months Ended June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Weighted-average
      stock options and warrants excluded  due to the exercise price
      exceeding the average fair value of the Company's common stock during the
      period
                          
                          
                          6,787,634
                          
                          
                          
                          4,177,082
                          
                          
                          
                          6,389,372
                          
                          
                          
                          2,803,375Weighted-average
      restricted stock, stock options and  stock warrants, calculated
      using the treasury stock method, that were excluded due to the Company
      reporting a net loss during the period
                          
                          
                          2,085,272
                          
                          
                          
                          43,974
                          
                          
                          
                          5,483,986
                          
                          
                          
                          45,263Weighted-average
      shares issuable upon conversion of the Convertible Preferred stock,
      Series D
                          
                          
                          23,065,666
                          
                          
                          
                          -
                          
                          
                          
                          23,379,146
                          
                          
                          
                          -Total
      common stock equivalents excluded from diluted net loss per
      share
                          
                          
                          31,938,572
                          
                          
                          
                          4,221,056
                          
                          
                          
                          35,252,504
                          
                          
                          
                          2,848,638


23





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





11.
Regulatory Requirements





Merriman
Curhan Ford & Co. is a broker-dealer subject to Rule 15c3-1 of the
Securities and Exchange Commission, which specifies uniform minimum net capital
requirements, as defined, for their registrants. As of June 30, 2010, Merriman
Curhan Ford & Co. had regulatory net capital, as defined, of $939,000, which
exceeded the amount required by $606,000. Merriman Curhan Ford & Co. is
exempt from Rules 15c3-3 and 17a-13 under the Securities Exchange Act of 1934
because it does not carry customer accounts, nor does it hold customer
securities or cash.





12. Contingencies





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





United
American Bank v. Merriman Curhan Ford & Co. (Dismissed)





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





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




In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by The Private Bank of the Peninsula. Plaintiff alleges, among other
things, fraud based on Cacchione having induced plaintiff into making loans to
Del Biaggio. Plaintiff in this lawsuit alleges damages of
$916,667.  On June 18, 2010, plaintiff and MCF settled all legal
claims.  The Company has appropriately accrued the settlement claim
for this matter as of June 30, 2010.




Peter
Marcil v. Merriman Curhan Ford & Co. (Settled)




In
January 2009, our broker-dealer subsidiary, MCF, was served with a claim in
FINRA Arbitration by Peter Marcil. Mr. Marcil is a former at-will employee of
MCF and worked in the investment banking department. Mr. Marcil resigned from
MCF in March of 2007. Mr. Marcil alleged breach of an implied employment
contract, wrongful termination, and intentional infliction of emotional
distress. 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 MCF settled all legal claims.  The Company has
appropriately paid the settlement claim for this matter as of June 30,
2010.


24





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





12.
Contingencies — continued





Irving
Bronstein et al v. Merriman Curhan Ford & Co. (Settled)





On March
1, 2010, Irving Bronstein, other plaintiffs and MCF settled all legal
claims.  The Company has appropriately paid the settlement claim for
this matter as of June 30, 2010.





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





In July 2008, MCF 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, MCF 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 MCF.  Plaintiffs allege,
among other things, fraud based on Cacchione’s alleged assistance to Del Biaggio
in connection with the allegedly fraudulent investments and MCF’s failure to
discover and stop the continuing fraud. Plaintiffs in this lawsuit seek damages
of over $9 million. MCF and the Company responded to the amended consolidated
complaint in June 2009 denying all liability. We believe that MCF and the
Company have meritorious defenses and intend to contest these claims
vigorously.





Pacific Capital Bank v.
Merriman Curhan Ford & Co.





In October 2008, MCF was
served with a complaint filed in the San Francisco County Superior Court by
Pacific Capital Bank. Plaintiff alleges, among other things, fraud based on
Cacchione having induced plaintiff into making loans to Del Biaggio. Plaintiff
in this lawsuit alleges damages of $1.84 million. We believe that MCF has
meritorious defenses and intends to contest this claim
vigorously.





Henry
Khachaturian v. Merriman Curhan Ford & Co.





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





Chuck
Peterson v. Merriman Curhan Ford & Co.





On
February 23, 2010, Chuck Peterson filed a complaint with the San Francisco
Superior Court, California, for fraud, breach of fiduciary duty, and
misrepresentation. The complaint was served on MCF on March 5, 2010. The Company
believes it has meritorious defenses and intends to contest these claims
vigorously.





John Zarich v. Merriman
Curhan Ford & Co.





In or around April 2009, John
Zarich filed an arbitration claim with FINRA naming MCF. The statement of claim
alleges that Zarich was convinced by Cacchione to purchase shares of a small,
risky stock in which MCF held a position. It further alleges that Cacchione
convinced Zarich not to sell the shares 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 MCF has
meritorious defenses and intends to contest this claim
vigorously.


25





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





12.
Contingencies — continued





Midsummer Investment, Ltd.,
v. Merriman Curhan Ford Group, 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. We believe that the Company has
meritorious defenses and intends to contest this claim
vigorously.





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





On April 24, 2009, former
Vice President of Client Services, Shelly Schaffer, through her attorney, Robert
Shartsis, made a written demand for payment of attorneys’ fees for Ms.
Schaffer’s defense in a civil action by the Securities and Exchange Commission.
Ms. Schaffer, who was hired by MCF on May 25, 2006, retained Mr. Shartsis to
respond to an SEC Enforcement action in which it is alleged that Ms. Schaffer
violated the antifraud provisions of federal securities laws and applicable
regulations. Ms. Schaffer worked for Cacchione prior to their coming to MCF. MCF
has denied Ms. Schaffer’s requests for payment of her attorneys’ fees on the
grounds that the accusations against her concern activities that were outside
the course and scope of her employment. Ms. Schaffer’s attorneys are demanding
payment of their fees from MCF in a total amount of approximately $150,000. We
believe that MCF has meritorious defenses and intends to contest the claims
vigorously.





Spare Backup Inc. v. Merriman Curhan
Ford & Co.




In April
2008, MCF entered into an engagement to provide investment banking services to
Spare Backup, Inc. (“Spare Backup”). MCF was able to close a round of bridge
financing in June 2008 and was successful in raising $1,300,000 in capital for
Spare Backup. As a result of closing the financing transaction, MCF was entitled
to reimbursement of its expenses, a convertible note with principal valued at
$161,100 and 370,370 shares of Spare Backup common stock. As of November 2008,
these transaction fees had not been paid to MCF. We hired counsel to seek
payment of the fees and to proceed to arbitration, as is specified in the
engagement letter. In January 2009, MCF filed a petition to compel arbitration
in the San Francisco County Superior Court. In response to the petition to
compel arbitration, Spare Backup filed a complaint in the Riverside County
Superior Court, Indio Branch, for fraud and declaratory relief alleging that MCF
fraudulently induced it to execute the investment banking engagement letter. The
petition for arbitration was granted in May of 2009 and the Indio action was
stayed for all purposes pending the outcome of arbitration. The arbitration date
has been rescheduled for September 10, 2010.





The
Company and MCF deny any liability and are vigorously contesting the remaining
lawsuits and arbitrations. At this point, the Company cannot estimate the amount
of damages if they are resolved unfavorably and accordingly, management has not
provided an accrual for adverse judgments in these lawsuits and
arbitrations.  However, the Company is expecting to settle one or more
cases and will accrue legal settlement claims appropriately as the amount
of the settlement becomes estimable.  (See Note 14, Subsequent Events,
below.)





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 six months ended June 30, 2010, the Company incurred legal services
and litigation settlement expense of $691,000 and $1,013,000,
respectively.


26





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





13.
Related Party Transactions





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 23,720,916 shares of the Company’s common
stock at $0.65 each share.  The investor group constituted of 56
individuals and entities including certain officers, directors and employees of
the Company, as well as outside investors.





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 Curhan Ford &
Co., the Company’s primary operating subsidiary, along with 11 other executives
and senior managers of MCF 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.





Temporary
Subordinated Loan





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





On April 23, 2010, the Company borrowed
$1,000,000 from DGB Investment, Inc. (“DGB”) and $6,000,000 from Ronald L. Chez
IRA.  DGB is controlled by Douglas G. Bergeron.  Both Mr.
Bergeron and Mr. Chez are members of the Company’s Board of Directors. The loan
was in the form of a temporary subordinated loan to supplement the Company’s net
capital and enabled it to underwrite an initial public offering, in accordance
with Rule 15c3-1 of the Securities Exchange Act of 1934.  The Company
incurred a total of $230,000 as fees on the loans from DGB and Ronald L. Chez
IRA.  As of June 30, 2010, the loans have been paid in full and no
balance remains outstanding.  As of June 30, 2010, interest payable of
$200,000 remains outstanding and is included in Accrued Expenses in the
Consolidated Statements of Financial Position.





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 will be compensated
with warrants to purchase 300,000 shares of the Company’s common stock at $0.65
per share, to be issued pro-rata 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.


27





MERRIMAN
CURHAN FORD GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED


(unaudited)





14.
Subsequent Events





Change
in Company Name and Reverse Stock Split





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. The Company also intends to change the name of its subsidiary
Merriman Curhan Ford & Co. to Merriman & Co. The change in name will
become effective upon the execution, acknowledgement and filing of the
certificate of amendment with the Delaware Secretary of State.





At the
stockholders’ annual meeting, 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 will become effective
the next business day after the filing of the amendment. Pursuant to the reverse
stock split, each seven shares of authorized and outstanding common stock will
be reclassified and combined into one share of new common stock. In addition,
upon the effectivity 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.





Joy
Ann Fell v. Merriman Curhan Ford & Co. (Settled)




In
November 2008, MCF received a demand letter from a former employee, Joy Ann
Fell. In January 2009, MCF received a claim filed by Ms. Fell in FINRA
arbitration. Ms. Fell worked in our investment banking department and was
terminated in October of 2008, as part of a reduction in force. Ms. Fell 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 MCF settled all legal claims. The
Company has appropriately accrued the legal settlement claim for this matter as
of June 30, 2010.




28


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





Overview





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





MCF is an
investment bank and securities broker-dealer focused on fast-growing companies
and institutional investors. Our mission is to become a leader in the 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”) is a division of MCF which brokers money market funds
serving the short-term investing needs of corporate finance departments at
companies throughout the United States and Europe. ICD was founded as a division
of MCF 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 MCF. 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.





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. In
an effort to refocus the holding company back to its core investment banking/
broker-dealers services, management liquidated the funds under management and
returned investments to the investors in the fourth quarter of 2008. We no
longer have, for all practical purposes, a subsidiary dedicated to asset
management. At June 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 June 30, 2010 and December 31, 2009, we had 85 and 94 employees respectively.
Merriman Curhan Ford & Co. is registered with the Securities and Exchange
Commission (“SEC”) as a broker-dealer and is a member of Financial Industry
Regulatory Authority (“FINRA”) and the Securities Investors Protection
Corporation (“SIPC”).




29


Executive
Summary





Revenue
from continuing operations grew by 21% in the second quarter of 2010 relative to
the second quarter of 2009. Our commissions revenue for the same period grew by
57% year-over-year, due primarily to increase in trading volume and active
clients. Investment banking revenue continues to recover from the near paralysis
of late 2008 and early 2009 financial markets and grew by 42% year over year,
although down significantly from the first quarter of 2010’s performance. Gains
from principal transactions declined 49% for the three months ended June 30,
2010 compared to the same period of 2009 mainly due to a decrease in the value
of our portfolio holdings. We incurred a loss from continuing operations of
$2,493,000 for the three months ended June 30, 2010. For the six months ended
June 30, 2010, we incurred a loss from continuing operations of $2,187,000 or
$0.17 per share, however, we only used $1,338,000 to support our operations for
the first six months of 2010. For the six months ended June 30, 2009, we
incurred a loss from continuing operations of $2,656,000 or $0.21 per share and
used $6,961,000 of cash to support operations. .




Business
Environment





The
recovery lost momentum in the second quarter of 2010 as growth slowed to a rate
of 2.4%, the slowest in nearly a year. Global equity markets experienced a sharp
decline, reflecting investor fears related to Europe’s sovereign debt crisis,
moderating growth expectations in China, and the perception of a further
weakening to the US consumer’s balance sheet. US markets rallied in early April
but declined significantly in the following months. The Russell 3000® Index
posted a second quarter return of -11.32%, and -6.05% year to date, similar to
the S&P 500® Index’s return of -11.43% in the quarter and -6.65% year to
date. All sectors were down during the quarter, though those considered
defensive outperformed economically sensitive sectors. The best performing
sectors were utilities and consumer staples, while the worst performers were
materials & processing and financial services.





With the
strength of the recovery still highly uncertain, companies are sitting on record
amounts of cash. Corporations are keeping hiring to a minimum and are focusing
on margins. Overall economic growth was sustained in the second quarter by
strong federal government spending, which boosted spending at a rate of 9.2%,
the most in a year. Also, state and local governments increased their spending
for the first time in a year. Consumer spending slowed in the second quarter,
rising at a sluggish rate of 1.6%, which was down from a 1.9% rate in the first
quarter and the weakest showing since the end of last year. 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 CleanTech, Consumer/Internet/Media,
Resources and Technology sectors. By their nature, our business activities are
highly competitive and are not only subject to general market conditions,
volatile trading markets and fluctuations in the volume of market activity, but
also to the conditions affecting the companies and markets in our areas of
focus.





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




30


Series
D Convertible Preferred Stock





On
September 8, 2009, we issued 23,720,916 shares of Series D Convertible Preferred
Stock along with 5-year warrants to purchase 23,720,916 shares of our common
stock with an exercise price of $0.65 per share. The investor group of 56
constituted of individuals and entities including certain of our officers,
directors and employees, as well as outside investors. All or portions of the
principal and accrued interest of debt issued previously in 2009 were converted
into the Series D Convertible Preferred Stock shares. None of these debt
instruments remain outstanding after September 8, 2009. The warrants issued in
conjunction with the May 29 Convertible Notes and with the July 31 Bridge Note
remain outstanding as of June 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. Each share of Series D
Convertible Preferred Stock is convertible into one share of our Common Stock.
The Series D Convertible Preferred Stock carries a dividend rate of 6% per
annum, payable in cash monthly.





The
Series D Convertible Preferred Stock has anti-dilution features including a full
ratchet provision so that if we were to pay dividends, split (forward or
reverse) our common shares, or adjust our shares outstanding due to a
combination, the conversion and exercises prices, respectively, would also
adjust proportionally. The warrants issued in conjunction with the Series D
Convertible Preferred Stock were amended and the full ratchet provision
originally included was removed as of December 28, 2009. 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 financial Statements, 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 than $100,000 unless it is for all of the shares held by the holder. The
Series D Convertible Preferred Stock will automatically convert at our
discretion upon 10-day notice given when the average closing price of our common
stock over a 30-day period is at or above $3.00 per share and when the average
trading volume for the most recent four-week period is 30,000 shares or more,
provided that the shares have been effectively registered with the Securities
and Exchange Commission or all of the Series D Convertible Preferred Stock may
be sold under Rule 144 of the 1933 Exchange Act.





The total
proceeds of $10,200,000 raised in the transaction described above are accounted
for under generally accepted accounting principles, primarily ASC 470, “Debt”.
We 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.




The
Series D Convertible Preferred Stock pays dividends to the holders at an annual
rate of 6%, payable monthly in arrears. For the three months and six months
ended June 30, 2010, total Series D Convertible Preferred Stock dividends were
$147,900 and $299,700, respectively. As of June 30, 2010, the Company has an
outstanding cash dividends payable of $48,800, which are included in Accounts
Payable on the Consolidated Statements of Financial Condition.




31


Liquidity
and Capital Resources





As of
June 30, 2010, liquid assets consisted primarily of cash and cash equivalents of
$3,907,000 and marketable securities of $3,409,000, for a total of
$7,316,000.





Merriman
Curhan Ford & Co., as a broker-dealer, is subject to Rule 15c3-1 of the
Securities Exchange Act of 1934, which specifies uniform minimum net capital
requirements, as defined, for their registrants. As of June 30, 2010, Merriman
Curhan Ford & Co. had regulatory net capital of $939,000, which exceeded the
amount required by $606,000.




32


Results
of Operations





The
following table sets forth the results of operations for the three months and
six months ended June 30, 2010 and 2009:





Three Months Ended
                
                
                Six Months EndedJune 30,
                
                
                June 30,
                
                
                June 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenue:Commissions
                
                $
                4,136,074
                
                
                $
                2,636,964
                
                
                $
                7,442,727
                
                
                $
                5,681,015Principal
      transactions
                
                
                382,942
                
                
                
                749,327
                
                
                
                176,161
                
                
                
                (93,210
                )Investment
      banking
                
                
                1,515,637
                
                
                
                1,067,450
                
                
                
                7,562,310
                
                
                
                2,283,867Advisory
      and other fees
                
                
                124,968
                
                
                
                647,867
                
                
                
                364,341
                
                
                
                1,206,680Total
      revenue
                
                
                6,159,621
                
                
                
                5,101,608
                
                
                
                15,545,539
                
                
                
                9,078,352Operating
      expenses:Compensation
      and benefits
                
                
                5,042,126
                
                
                
                3,514,595
                
                
                
                10,598,377
                
                
                
                7,164,060Brokerage
      and clearing fees
                
                
                333,081
                
                
                
                253,769
                
                
                
                770,171
                
                
                
                551,798Professional
      services
                
                
                476,012
                
                
                
                456,957
                
                
                
                738,561
                
                
                
                1,222,140Occupancy
      and equipment
                
                
                497,237
                
                
                
                479,566
                
                
                
                971,840
                
                
                
                1,038,446Communications
      and technology
                
                
                544,403
                
                
                
                650,626
                
                
                
                1,086,476
                
                
                
                1,328,383Depreciation
      and amortization
                
                
                100,363
                
                
                
                115,749
                
                
                
                202,854
                
                
                
                262,991Travel
      and business development
                
                
                353,061
                
                
                
                171,124
                
                
                
                651,569
                
                
                
                250,254Legal
      services and litigation settlement expense
                
                
                691,480
                
                
                
                449,639
                
                
                
                1,012,592
                
                
                
                778,612Cost
      of underwriting capital
                
                
                230,000
                
                
                
                -
                
                
                
                960,576
                
                
                
                -Other
                
                
                385,423
                
                
                
                461,035
                
                
                
                713,349
                
                
                
                1,097,533Total
      operating expenses
                
                
                8,653,186
                
                
                
                6,553,060
                
                
                
                17,706,365
                
                
                
                13,694,217Operating
      loss
                
                
                (2,493,565
                )
                
                
                (1,451,452
                )
                
                
                (2,160,826
                )
                
                
                (4,615,865
                )Other
      income
                
                
                29,319
                
                
                
                800,000
                
                
                
                29,319
                
                
                
                2,000,000Interest
      income
                
                
                3,132
                
                
                
                2,679
                
                
                
                6,467
                
                
                
                9,166Interest
      expense
                
                
                (17,776
                )
                
                
                (28,459
                )
                
                
                (32,696
                )
                
                
                (43,823
                )Loss
      from continuing operations before income taxes
                
                
                (2,478,890
                )
                
                
                (677,232
                )
                
                
                (2,157,736
                )
                
                
                (2,650,522
                )Income
      tax expense
                
                
                (13,723
                )
                
                
                (1,984
                )
                
                
                (29,017
                )
                
                
                (5,200
                )Loss
      from continuing operations
                
                
                (2,492,613
                )
                
                
                (679,216
                )
                
                
                (2,186,753
                )
                
                
                (2,655,722
                )Income
      on discontinued operations
                
                
                60,617
                
                
                
                116,476
                
                
                
                95,104
                
                
                
                169,095Net
      loss
                
                $
                (2,431,996
                )
                
                $
                (562,740
                )
                
                $
                (2,091,649
                )
                
                $
                (2,486,627
                )Preferred
      stock cash dividend
                
                
                (147,900
                )
                
                
                -
                
                
                
                (299,700
                )
                
                
                -Net
      loss attributable to common shareholders
                
                $
                (2,579,896
                )
                
                $
                (562,740
                )
                
                $
                (2,391,349
                )
                
                $
                (2,486,627
                )




33


Our net
loss for the three months and six months ended June 30, 2010 and 2009 included
the following non-cash expenses:





Three Months Ended June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Stock-based
      compensation
                
                $
                607,148
                
                
                $
                170,163
                
                
                $
                834,780
                
                
                $
                259,779Depreciation
      and amortization
                
                
                100,363
                
                
                
                115,749
                
                
                
                202,854
                
                
                
                273,601Amortization
      of discounts on debt
                
                
                -
                
                
                
                9,768
                
                
                
                -
                
                
                
                9,768Loss
      (gain) on disposal of equipment and fixtures
                
                
                (2,987
                )
                
                
                -
                
                
                
                (2,987
                )
                
                
                294,379Provision
      for uncollectible accounts receivable
                
                
                48,595
                
                
                
                155,473
                
                
                
                44,753
                
                
                
                155,473Securities
      received for services
                
                
                (216,947
                )
                
                
                -
                
                
                
                (944,188
                )
                
                
                (168,913
                )Unrealized
      (gain) loss on securities owned
                
                
                316,292
                
                
                
                (318,129
                )
                
                
                764,090
                
                
                
                693,648Total
                
                $
                852,464
                
                
                $
                133,024
                
                
                $
                899,302
                
                
                $
                1,517,735





The
following table sets forth our revenue and transaction volumes from our
investment banking activities for the three months and six months ended June 30,
2010 and 2009:





Three Months Ended June 30,
                  
                  
                  Six Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue:Capital
      raising
                  
                  $
                  1,082,262
                  
                  
                  $
                  571,250
                  
                  
                  $
                  7,020,601
                  
                  
                  $
                  924,133Financial
      advisory
                  
                  
                  433,375
                  
                  
                  
                  496,200
                  
                  
                  
                  541,709
                  
                  
                  
                  1,359,734Total
      investment banking revenue
                  
                  $
                  1,515,637
                  
                  
                  $
                  1,067,450
                  
                  
                  $
                  7,562,310
                  
                  
                  $
                  2,283,867Transaction
      Volumes:Public
      offerings:Capital
      underwritten participations
                  
                  $
                  55,000,000
                  
                  
                  $
                  34,375,000
                  
                  
                  $
                  238,500,000
                  
                  
                  $
                  34,375,000Number
      of transactions
                  
                  
                  1
                  
                  
                  
                  1
                  
                  
                  
                  4
                  
                  
                  
                  1Private
      placements:Capital
      raised
                  
                  $
                  -
                  
                  
                  $
                  6,000,000
                  
                  
                  $
                  94,369,150
                  
                  
                  $
                  7,753,000Number
      of transactions
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  7
                  
                  
                  
                  2Financial
      advisory:Transaction
      amounts
                  
                  $
                  10,500,000
                  
                  
                  $
                  23,300,000
                  
                  
                  $
                  28,028,500
                  
                  
                  $
                  52,900,000Number
      of transactions
                  
                  
                  1
                  
                  
                  
                  2
                  
                  
                  
                  3
                  
                  
                  
                  5





Our
investment banking revenue was $1,516,000 or 25% of our revenue during second
quarter of 2010, representing a 42% increase from the similar quarter in 2009.
During the second quarter 2010, the financial markets were quieter than the
first quarter of 2010, and were stabilizing versus the same period of 2009. In
the second quarter of 2010, there were less number of transactions that we
participated in compared to the second quarter of 2009, however average
transaction size in the second quarter 2010 was about twice the average
transaction size for the same period in 2009.




During
the three months ended June 30, 2010, we had two investment banking clients that
accounted for more than 10% of our total revenue. During the three months ended
June 30, 2009, we had no investment banking clients that accounted for more than
10% of our total revenue.




34


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 June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Commissions:Institutional
      equities
                
                $
                4,136,074
                
                
                $
                2,636,964
                
                
                $
                7,442,727
                
                
                $
                5,681,015Total
      commissions revenue
                
                $
                4,136,074
                
                
                $
                2,636,964
                
                
                $
                7,442,727
                
                
                $
                5,681,015Principal
      transactions:Customer
      principal transactions, proprietary trading and market
    making
                
                $
                519,032
                
                
                $
                702,906
                
                
                $
                912,484
                
                
                $
                330,110Investment
      portfolio
                
                
                (136,090
                )
                
                
                46,421
                
                
                
                (736,323
                )
                
                
                (423,320
                )Total
      principal transactions revenue
                
                $
                382,942
                
                
                $
                749,327
                
                
                $
                176,161
                
                
                $
                (93,210
                )Transaction
      Volumes:Number
      of shares traded
                
                
                182,442,028
                
                
                
                186,961,322
                
                
                
                364,020,482
                
                
                
                476,548,239Number
      of active clients
                
                
                208
                
                
                
                186
                
                
                
                257
                
                
                
                239





We had
seven and ten equity research analysts, which covered 89 and 106 companies as of
June 30, 2010 and 2009, respectively.





Commissions
amounted to $4,136,000, or 67%, of our revenue during the second quarter of
2010, representing a 57% increase from the similar period in 2009. The increase
was mostly attributable to greater number of research-focused clients and higher
commission levels in the second quarter of 2010 as compared to the same period
in 2009.




35


Principal
transactions gain decreased by 49% during the second quarter of 2010 versus the
second quarter of 2009. The year-over-year decline was primarily a result of
lower unrealized gains from proprietary trading. Principal transactions revenue
consists of four different activities - customer principal trades, market
making, trading for our proprietary account, and realized and unrealized gains
and losses in our investment portfolio. As a broker-dealer, we account for all
of our marketable security positions on a trading basis and as a result, all
security positions are marked to fair market value each day. Returns from market
making and proprietary trading activities tend to be more volatile than acting
as agent or principal for customers.





During
the second quarter of 2010, we had a gain of $383,000 in principal transactions
trading revenue versus a gain of $749,000 in the same period in 2009. For the
second quarter of 2010, the $383,000 in principal transactions revenue was
comprised of an unrealized loss of $316,000 and a realized gain of
$699,000.





During
the second quarter of 2010, there was one brokerage customer that accounted for
more than 10% of our total revenue and none in the second 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 six months ended June 30, 2010 and 2009:





Three Months Ended June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Incentive
      compensation and discretionary bonuses
                
                $
                2,248,583
                
                
                $
                1,258,451
                
                
                $
                5,212,412
                
                
                $
                2,386,630Salaries
      and wages
                
                
                1,772,448
                
                
                
                1,726,858
                
                
                
                3,525,377
                
                
                
                3,632,419Stock-based
      compensation
                
                
                607,148
                
                
                
                170,163
                
                
                
                834,780
                
                
                
                259,779Payroll
      taxes, benefits and other
                
                
                413,947
                
                
                
                359,123
                
                
                
                1,025,808
                
                
                
                885,232Total
      compensation and benefits
                
                $
                5,042,126
                
                
                $
                3,514,595
                
                
                $
                10,598,377
                
                
                $
                7,164,060Total
      compensation and benefits as a percentage of revenue
                
                
                82
                %
                
                
                69
                %
                
                
                68
                %
                
                
                79
                %Cash
      compensation and benefits as a percentage of revenue
                
                
                72
                %
                
                
                66
                %
                
                
                63
                %
                
                
                76
                %





The
increase in compensation and benefits expense of $1,528,000 or 43%, from the
second quarter of 2009 to the second quarter of 2010 was due mostly to increased
brokerage and investment banking revenue and corresponding incentive
compensation and benefits expenses. In 2009, we had completed three reductions
in force and have re-built our staff slightly since then.




36


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 72% of revenues during the second quarter of 2010 as
compared to 66% in the same period in 2009. This increase was primarily the
result of a change in the Company’s variable compensation plan during
2010.





Stock-based
compensation expense increased by 257% in the second 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 compensation subsequent to the
Company’s Stock Options Give-Back Program in October 2008 as the Company
continues to use equity-based awards as incentive compensation. The Stock
Options Give-Bank Program resulted in about 3 million shares of stock options
given back and an atypically low expense for the three months ended June 30,
2009. The program was open to all employees. Executive management gave back the
large majority of all stock options. Furthermore, the Company incurred $184,000
of stock compensation expense in the second quarter of 2010 in relation to
acceleration of vesting terms of stock options granted to two employees, upon
their termination.





There
were two sales professional that each accounted for more than 10% of our total
revenue during the three months ended June 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 Curhan Ford & Co. is a fully-disclosed
broker-dealer which has engaged a third party clearing broker to perform all of
the clearance functions. The clearing broker-dealer processes and settles the
customer transactions for Merriman Curhan Ford & Co. and maintains the
detailed customer records. These expenses are almost entirely variable, and are
based on commission revenue and the volume of brokerage transactions. Our
brokerage and clearing fees increased by $79,000, or 31%, during the second
quarter of 2010 over the second quarter of 2009, due mostly to higher level of
commissions during the second quarter of 2010.





Cost of
underwriting capital for the three months ended June 30, 2010 includes $230,000
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
second 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 $106,000, or
16%, in the second quarter of 2010 over the second quarter of 2009 was primarily
due to our continued cost reduction program.




37


Travel
and entertainment expense results from business development activities across
our various businesses. The increase of $182,000, or 106%, in the second quarter
of 2010 from the second quarter of 2009 was due mostly to increased business
development as the Company tries to grow its revenues.





Legal
services and litigation settlement fees were higher in the second quarter of
2010 compared to the second quarter of 2009 due to settlement of certain cases
related to Del Biaggio and Cacchione (see Legal Proceedings in Item 1 of Part
II). During the second quarter of 2009, the majority of the fees were related to
legal service fees.





Other
operating expense includes company events, recruiting fees, professional
liability and property insurance, marketing, business licenses and taxes, office
supplies and other miscellaneous expenses. The decrease of approximately
$76,000, or 16%, in the second quarter of 2010 over the second quarter of 2009
was due to higher bad debt expense incurred in the second quarter of
2009.




Income
Taxes




At the
end of each interim reporting period, the Company calculates an effective tax
rate based on the Company’s estimate of the tax provision (benefit) that will be
provided for the full year, stated as a percentage of estimated annual pre-tax
income (loss). The tax provision (benefit) for the interim period is determined
using this estimated annual effective tax rate. For the three and six months
ended June 30, 2010, the Company recorded $14,000 and $29,000 of income tax
expense, respectively. This relates primarily to federal and state income tax
recorded during the quarter as a result of projected pre-tax profit after
utilization of federal and state NOL carryforward. For the three and six months
ended June 30, 2009, the Company recorded an immaterial income tax expense. The
minimal tax provision for the three and six months ended June 30, 2009 is the
result of the pre-tax loss of the period.





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





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





Other
Income





Other
income, shown in our Consolidated Statements of Operations, significantly
declined in the second quarter of 2010 versus the second quarter of 2009. The
cause of such significant decrease is due to the $800,000 income recognized in
the second quarter of 2009 related to the sale of our ICD assets. There were no
such significant transactions in 2010.




38


Off-Balance
Sheet Arrangements





We were
not a party to any off-balance sheet arrangements during the three months and
six months ended June 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 June 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.





Operating
                  
                  
                  Operating
                  
                  
                  CapitalCommitments
                  
                  
                  Leases
                  
                  
                  Leases
                  
                  
                  Total2010
                  
                  $
                  541,512
                  
                  
                  $
                  798,999
                  
                  
                  $
                  146,647
                  
                  
                  $
                  1,487,1582011
                  
                  
                  333,729
                  
                  
                  
                  1,529,327
                  
                  
                  
                  122,205
                  
                  
                  
                  1,985,2612012
                  
                  
                  74,580
                  
                  
                  
                  1,089,600
                  
                  
                  
                  -
                  
                  
                  
                  1,164,1802013
                  
                  
                  -
                  
                  
                  
                  630,000
                  
                  
                  
                  -
                  
                  
                  
                  630,0002014
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Thereafter
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  --Total
      commitments
                  
                  
                  949,821
                  
                  
                  
                  4,047,926
                  
                  
                  
                  268,852
                  
                  
                  
                  5,266,599-Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,639
                  )
                  
                  
                  (7,639
                  )-Net
      commitments
                  
                  $
                  949,821
                  
                  
                  $
                  4,047,926
                  
                  
                  $
                  261,213
                  
                  
                  $
                  5,258,960




Loss
from Discontinued Operations





Panel
Intelligence LLC





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





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





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





For the
three and six months ended June 30, 2010, income from discontinued operations
related to Panel was $33,340. For the three and six months ended June 30, 2009,
the Company incurred loss from discontinued operations of $0 and $94,894,
respectively.




39


Institutional
Cash Distributors





On
January 16, 2009, the Company entered into an agreement to sell the assets of
ICD, a division of MCF, for $2,000,000 to a group of investors who were also its
employees in order to raise capital. The assets sold included MCF’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 MCF. 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 June 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 six months ended June 30, 2010 and
2009:





ThreeMonthsEnded
                        
                        
                        SixMonthsEndedJune30,2010
                        
                        
                        June30,2009
                        
                        
                        June30,2010
                        
                        
                        June30,2009Total
      revenue
                        
                        $
                        2,046,381
                        
                        
                        $
                        7,330,670
                        
                        
                        $
                        9,167,983
                        
                        
                        $
                        13,404,547Operating
      expensesCompensation
      & benefits
                        
                        
                        1,511,221
                        
                        
                        
                        6,676,820
                        
                        
                        
                        7,870,502
                        
                        
                        
                        12,292,523Brokerage
      & clearing fees
                        
                        
                        6,092
                        
                        
                        
                        16,627
                        
                        
                        
                        27,219
                        
                        
                        
                        31,557Professional
      services
                        
                        
                        72,239
                        
                        
                        
                        13,199
                        
                        
                        
                        345,450
                        
                        
                        
                        31,793Occupancy
      & equipment
                        
                        
                        172,771
                        
                        
                        
                        6,926
                        
                        
                        
                        180,948
                        
                        
                        
                        24,435Communications
      & technology
                        
                        
                        61,438
                        
                        
                        
                        189,210
                        
                        
                        
                        213,867
                        
                        
                        
                        232,717Other
      expenses
                        
                        
                        195,343
                        
                        
                        
                        311,412
                        
                        
                        
                        468,234
                        
                        
                        
                        527,533Total
      expense
                        
                        
                        2,019,104
                        
                        
                        
                        7,214,194
                        
                        
                        
                        9,106,220
                        
                        
                        
                        13,140,558Income
      from operations
                        
                        $
                        27,277
                        
                        
                        $
                        116,476
                        
                        
                        $
                        61,763
                        
                        
                        $
                        263,989




40


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.




41


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.




42


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. This generally is the point at which all of the
following have occurred: (i) the issuer’s registration statement has become
effective with the SEC, or other offering documents are finalized, (ii) we have
made a firm commitment for the purchase of the shares or debt from the issuer,
and (iii) we have been informed of the exact number of shares or the principal
amount of debt that it has been allotted.





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





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





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





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.




43


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 more likely than not that our deferred tax assets as of June 30, 2010 and
2009 will be not realized based on the scheduling of deferred tax liabilities
and projected taxable income. The amount of the deferred tax assets actually
realized, however, could vary if there are differences in the timing or amount
of future reversals of existing deferred tax liabilities or changes in the
actual amounts of future taxable income. Should we determine that we will be
able to realize all or part of the deferred tax asset in the future, an
adjustment to the deferred tax asset will be recorded in the period such
determination is made.





Related
Party Transactions





Series
D Convertible Preferred Stock





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





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 Curhan Ford & Co., the
Company’s primary operating subsidiary, along with 11 other executives and
senior managers of MCF 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.





Temporary
Subordinated Loan





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





On April 23, 2010, the Company borrowed
$1,000,000 from DGB Investment, Inc. (“DGB”) and $6,000,000 from Ronald L. Chez
IRA. DGB is controlled by Douglas G. Bergeron. Both Mr. Bergeron and Mr. Chez
are members of the Company’s Board of Directors. The loan was in the form of a
temporary subordinated loan to supplement the Company’s net capital and enabled
it to underwrite an initial public offering, in accordance with Rule 15c3-1 of
the Securities Exchange Act of 1934. The Company incurred a total of $230,000 as
fees on the loans from DGB and Ronald L. Chez IRA. As of June 30, 2010, the loan
has been paid in full and no balance remains outstanding. As of June 30, 2010,
interest payable of $200,000 remains outstanding and is included in Accrued
Expenses in the Consolidated Statements of Financial Position.





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 will be compensated with warrants
to purchase 300,000 shares of the Company’s common stock at $0.65 per share, to
be issued pro-rata 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.




44


Subsequent
Events





Change
in Company Name and Reverse Stock Split





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. The Company also intends to change the name of its subsidiary
Merriman Curhan Ford & Co. to Merriman & Co. The change in name will
become effective upon the execution, acknowledgement and filing of the
certificate of amendment with the Delaware Secretary of State.





At the
stockholders’ annual meeting, 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 will become effective
the next business day after the filing of the amendment. Pursuant to the reverse
stock split, each seven shares of authorized and outstanding common stock will
be reclassified and combined into one share of new common stock. In addition,
upon the effectivity 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.





Joy
Ann Fell v. Merriman Curhan Ford & Co. (Settled)




In
November 2008, MCF received a demand letter from a former employee, Joy Ann
Fell. In January 2009, MCF received a claim filed by Ms. Fell in FINRA
arbitration. Ms. Fell worked in our investment banking department and was
terminated in October of 2008, as part of a reduction in force. Ms. Fell 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 MCF settled all legal claims. The
Company has appropriately accrued the legal settlement claim for this matter as
of June 30, 2010.




45


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.




46


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 June
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 June 30, 2010, that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.




47


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 Curhan Ford & Co. (“MCF”), including at least one which
also names the parent company as the defendant, in connection with the actions
of William Del Biaggio III (“Del Biaggio”), a former customer of MCF and David
Scott Cacchione (“Cacchione”), a former retail broker of MCF. The Company
selected the claims it judged to be the most threatening and settled all of them
simultaneously with its strategic transaction of $10.2 million that closed on
September 8, 2009. There are also claims remaining in lawsuits and arbitrations
filed against MCF disclosed previously. Cases in which there were material
developments since the beginning of the second quarter 2010 are disclosed
below.





United
American Bank v. Merriman Curhan Ford & Co. (Dismissed)





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





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




In July
2008, MCF was served with a complaint filed in the Santa Clara County Superior
Court by The Private Bank of the Peninsula. Plaintiff alleges, among other
things, fraud based on Cacchione having induced plaintiff into making loans to
Del Biaggio. Plaintiff in this lawsuit alleges damages of $916,667. On June 18,
2010, plaintiff and MCF settled all legal claims. The Company has reserved
appropriately, as of June 30, 2010, for this matter.




Peter
Marcil v. Merriman Curhan Ford & Co. (Settled)




In
January 2009, our broker-dealer subsidiary, MCF, was served with a claim in
FINRA Arbitration by Peter Marcil. Mr. Marcil is a former at-will employee of
MCF and worked in the investment banking department. Mr. Marcil resigned from
MCF in March of 2007. Mr. Marcil alleged breach of an implied employment
contract, wrongful termination, and intentional infliction of emotional
distress. 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 MCF settled all legal claims. The Company has reserved
appropriately, as of June 30, 2010, for this matter.





Joy
Ann Fell v. Merriman Curhan Ford & Co. (Settled)




In
November 2008, MCF received a demand letter from a former employee, Joy Ann
Fell. In January 2009, MCF received a claim filed by Ms. Fell in FINRA
arbitration. Ms. Fell worked in our investment banking department and was
terminated in October of 2008, as part of a reduction in force. Ms. Fell 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 MCF settled all legal claims. The
Company has reserved appropriately, as of June 30, 2010, for this
matter.





Spare Backup Inc. v. Merriman Curhan
Ford & Co.




In April
2008, MCF entered into an engagement to provide investment banking services to
Spare Backup, Inc. (“Spare Backup”). MCF was able to close a round of bridge
financing in June 2008. MCF was successful in raising $1,300,000 in capital for
Spare Backup. As a result of closing the financing transaction, MCF was entitled
to reimbursement of its expenses, a convertible note with principal valued at
$161,100 and 370,370 shares of Spare Backup common stock. As of November 2008,
these transaction fees had not been paid to MCF. We hired counsel to seek
payment of the fees and to proceed to arbitration, as is specified in the
engagement letter. In January 2009, MCF filed a petition to compel arbitration
in the San Francisco County Superior Court. In response to the petition to
compel arbitration, Spare Backup filed a complaint in the Riverside County
Superior Court, Indio Branch, for fraud and declaratory relief alleging that MCF
fraudulently induced it to execute the investment banking engagement letter. The
petition for arbitration was granted in May of 2009 and the Indio action was
stayed for all purposes pending the outcome of arbitration. The arbitration date
has been rescheduled for September 10, 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.




48


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.




49


ITEM 6. Exhibits





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





31.1
              
              Certification
      of Principal Executive Officer Pursuant To Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
              
              Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




50


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
      CURHAN FORD GROUP, INC.August
      12, 2010
                    By:
                    /s/ D. JONATHAN
    MERRIMAND.
      Jonathan Merriman,Chief
      Executive Officer(Principal
      Executive Officer)August
      12, 2010
                    By:
                    /s/ PETER V. COLEMANPeter
      V. ColemanChief
      Financial Officer(Principal
      Financial Officer)




51