**SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
  **FORM
        10-Q**
 
  **ý**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934.****For
                  the quarterly period ended September 30, 2005****o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934.**
 
  **For
        the Transition Period
        from                  to                  .**
  **Commission
        file number: 1-15831**
  **MCF
        CORPORATION**
 (Exact
        Name of Registrant as Specified in its Charter)
  **Delaware**
              
              **11-2936371**(State
                  or Other Jurisdiction of
                Incorporation
                  or Organization)
              
              (I.R.S.
                  Employer
                Identification
                  No.)**600
                  California Street, 9th Floor**
                **San
                  Francisco, CA**
              
              **94108**(Address
                  of Principal Executive Offices)
              
              (Zip
                  Code)
 
  **(415)
        248-5600**
 (Registrant’s
        Telephone Number, Including Area Code)
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.  Yes  oNoý
  Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in
        Exchange Act Rule 12b-2).  Yes  ýNoo
  The
        number of shares of Registrant’s common stock outstanding as of November 9, 2005
        was 71,543,974.
  
  **Form
        10-Q**
 **For
        the Nine Months Ended September 30, 2005**
  PART
                  I FINANCIAL INFORMATIONITEM
                  1. Financial Statements (unaudited)Condensed
                  Consolidated Statements of Operations for the Three Months and
                  Nine Months
                  Ended September 30, 2005 and 2004Condensed
                  Consolidated Statements of Financial Condition as of September
                  30, 2005
                  and December 31, 2004Condensed
                  Consolidated Statements of Cash Flows For the Nine Months Ended
                  September
                  30, 2005 and 2004Notes
                  to Condensed Consolidated Financial StatementsITEM
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of OperationsITEM
                  3. Quantitative and Qualitative Disclosures About Market
                  RiskITEM
                  4. Controls and ProceduresPART
                  II OTHER INFORMATIONITEM
                  1. Legal ProceedingsITEM
                  2. Recent Sales of Unregistered SecuritiesITEM
                  6. Exhibits and Reports on Form 8-KSignaturesCertifications
  1
 Table
            of Contents
  **PART
        I. FINANCIAL INFORMATION**
 **Item
        1. Financial Statements (unaudited)**
  **MCF
        CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(unaudited)**
  **Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
                **2005**
              
              **September
                  30,**
                **2004**
              
              **September
                  30,**
                **2005**
              
              **September
                  30,**
                **2004**Revenue:Commissions
              
              $
              6,943,963
              
              $
              4,805,372
              
              $
              20,265,658
              
              $
              15,770,617Principal
                  transactions
              
              
              838,504
              
              
              155,602
              
              
              315,770
              
              
              1,264,122Investment
                  banking
              
              
              1,130,351
              
              
              1,340,750
              
              
              9,839,450
              
              
              9,478,007Other
              
              
              200,382
              
              
              1,623
              
              
              456,595
              
              
              23,595Total
                  revenue
              
              
              9,113,200
              
              
              6,303,347
              
              
              30,877,473
              
              
              26,536,341Operating
                  expenses:Compensation
                  and benefits
              
              
              6,761,813
              
              
              5,170,358
              
              
              23,130,359
              
              
              18,953,618Brokerage
                  and clearing fees
              
              
              688,320
              
              
              588,099
              
              
              1,775,597
              
              
              1,887,754Professional
                  services
              
              
              502,093
              
              
              346,151
              
              
              1,248,923
              
              
              979,198Occupancy
                  and equipment
              
              
              426,109
              
              
              219,511
              
              
              1,159,307
              
              
              596,383Communications
                  and technology
              
              
              496,285
              
              
              383,015
              
              
              1,362,638
              
              
              984,774Depreciation
                  and amortization
              
              
              132,606
              
              
              38,780
              
              
              367,718
              
              
              96,641Other
              
              
              1,611,465
              
              
              1,015,887
              
              
              3,532,117
              
              
              2,254,516Total
                  operating expenses
              
              
              10,618,691
              
              
              7,761,801
              
              
              32,576,659
              
              
              25,752,884Operating
                  income (loss)
              
              
              (1,505,491
              )
              
              (1,458,454
              )
              
              (1,699,186
              )
              
              783,457Interest
                  income
              
              
              115,316
              
              
              24,428
              
              
              305,407
              
              
              60,145Interest
                  expense
              
              
              (15,755
              )
              
              (20,451
              )
              
              (49,468
              )
              
              (97,648
              )Income
                  (loss) before income taxes
              
              
              (1,405,930
              )
              
              (1,454,477
              )
              
              (1,443,247
              )
              
              745,954Income
                  tax benefit (expense)
              
              
              (86,814
              )
              
              425,630
              
              
              (127,408
              )
              
              (37,715
              )Net
                  income (loss)
              
              $
              (1,492,744
              )
              $
              (1,028,847
              )
              $
              (1,570,655
              )
              $
              708,239Earnings
                  (loss) per share:Basic
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.02
              )
              $
              0.01Diluted
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.02
              )
              $
              0.01Weighted
                  average common shares outstanding:Basic
              
              
              66,905,944
              
              
              59,919,209
              
              
              66,226,377
              
              
              57,094,385Diluted
              
              
              66,905,944
              
              
              59,919,209
              
              
              66,226,377
              
              
              76,958,136
 
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  2
 Table
            of Contents
  **MCF
        CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**
 **(unaudited)**
  **September
                  30,**
                **2005**
              
              **December
                  31,**
                **2004**ASSETSCash
                  and cash equivalents
              
              $
              14,939,628
              
              $
              17,459,113Securities
                  owned:Marketable,
                  at fair value
              
              
              5,907,148
              
              
              2,342,225Not
                  readily marketable, at estimated fair value
              
              
              526,734
              
              
              259,340Restricted
                  cash
              
              
              627,866
              
              
              625,000Due
                  from clearing broker
              
              
              1,234,772
              
              
              787,862Accounts
                  receivable, net
              
              
              1,233,137
              
              
              1,579,393Equipment
                  and fixtures, net
              
              
              1,335,011
              
              
              1,032,797Intangible
                  assets, net
              
              
              404,766
              
              
              —Prepaid
                  expenses and other assets
              
              
              743,886
              
              
              922,094Total
                  assets
              
              $
              26,952,948
              
              $
              25,007,824LIABILITIES
                  AND STOCKHOLDERS’ EQUITYAccounts
                  payable
              
              $
              1,239,555
              
              $
              431,656Commissions
                  payable
              
              
              1,703,433
              
              
              2,840,239Accrued
                  liabilities
              
              
              3,175,090
              
              
              2,962,660Due
                  to clearing and other brokers
              
              
              128,053
              
              
              99,205Securities
                  sold, not yet purchased
              
              
              1,566,672
              
              
              —Capital
                  lease obligation
              
              
              401,365
              
              
              452,486Convertible
                  notes payable, net
              
              
              174,157
              
              
              166,404Notes
                  payable
              
              
              1,254,496
              
              
              1,321,324Total
                  liabilities
              
              
              9,642,821
              
              
              8,273,974Commitments
                  and contingenciesStockholders’
                  equity:Preferred
                  stock, Series A—$0.0001 par value; 2,000,000 shares authorized; 0 shares
                  issued and outstanding as of September 30, 2005 and December 31,
                  2004,
                  respectively; aggregate liquidation preference of $0
              
              
              —
              
              
              —Preferred
                  stock, Series B—$0.0001 par value; 12,500,000 shares authorized; 8,750,000
                  shares issued and 0 shares outstanding as of September 30, 2005
                  and
                  December 31, 2004; aggregate liquidation preference of $0
              
              
              —
              
              
              —Preferred
                  stock, Series C—$0.0001 par value; 14,200,000 shares authorized;
                  11,800,000 shares issued and 0 shares outstanding as of September
                  30, 2005
                  and December 31, 2004; aggregate liquidation preference of
                  $0
              
              
              —
              
              
              —Common
                  stock, $0.0001 par value; 300,000,000 sharesauthorized;
                  71,439,807
                  and 68,648,627 shares issued and outstanding as of September 30,
                  2005 and
                  December 31, 2004, respectively
              
              
              7,144
              
              
              6,865Additional
                  paid-in capital
              
              
              111,690,495
              
              
              108,558,892Deferred
                  compensation
              
              
              (3,629,785
              )
              
              (3,163,876
              )Note
                  receivable - Ascend
              
              
              (519,041
              )
              
              —Accumulated
                  deficit
              
              
              (90,238,686
              )
              
              (88,668,031
              )Total
                  stockholders’ equity
              
              
              17,310,127
              
              
              16,733,850Total
                  liabilities and stockholders’ equity
              
              $
              26,952,948
              
              $
              25,007,824
 
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3
 Table
            of Contents
  **MCF
        CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(unaudited)**
  **Nine Months Ended September
                  30,****2005**
              
              **2004**Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              (1,570,655
              )
              $
              708,239Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Depreciation
                  and amortization
              
              
              367,718
              
              
              96,641Restricted
                  stock, stock options and stock warrants granted or
                  modified
              
              
              1,468,064
              
              
              795,839Tax
                  benefits from employee stock options
              
              
              (10,424
              )
              
              —Amortization
                  of discounts on convertible notes payable
              
              
              7,752
              
              
              38,938Amortization
                  of debt issuance costs
              
              
              —
              
              
              23,340Unrealized
                  (gain) loss on securities
              
              
              (363,187
              )
              
              115,685Common
                  stock and stock warrants received for investment banking
                  services
              
              
              —
              
              
              (461,933
              )Other
              
              
              (17,132
              )
              
              22,652Changes
                  in operating assets and liabilities:Marketable
                  and non-marketable securities owned
              
              
              (1,902,458
              )
              
              (106,922
              )Restricted
                  cash
              
              
              (2,866
              )
              
              (275,000
              )Due
                  from clearing broker
              
              
              (446,910
              )
              
              (478,923
              )Accounts
                  receivable
              
              
              346,256
              
              
              (73,308
              )Prepaid
                  expenses and other assets
              
              
              196,781
              
              
              (513,818
              )Accounts
                  payable
              
              
              806,804
              
              
              276,308Commissions
                  payable
              
              
              (1,136,806
              )
              
              461,975Accrued
                  liabilities
              
              
              113,527
              
              
              311,346Due
                  to clearing and other brokers
              
              
              28,848
              
              
              (45,257
              )Net
                  cash provided by (used in) operating activities
              
              
              (2,114,688
              )
              
              895,802Cash
                  flows from investing activities:Purchase
                  of equipment and fixtures
              
              
              (557,617
              )
              
              (44,831
              )Acquisition
                  of Catalyst
              
              
              (353,882
              )
              
              —Investment
                  in MCF Limited Partners I, LP
              
              
              —
              
              
              (11,000
              )Net
                  cash used in investing activities
              
              
              (911,499
              )
              
              (55,831
              )Cash
                  flows from financing activities:Proceeds
                  from the issuance of common stock
              
              
              —
              
              
              6,273,316Proceeds
                  from the exercise of stock options and warrants
              
              
              116,682
              
              
              798,911Proceeds
                  from the issuance of common stock for ESPP
              
              
              591,651
              
              
              313,103Debt
                  service payments
              
              
              (201,631
              )
              
              (94,407
              )Net
                  cash provided by financing activities
              
              
              506,702
              
              
              7,290,923Increase
                  (decrease) in cash and cash equivalents
              
              
              (2,519,485
              )
              
              8,130,894Cash
                  and cash equivalents at beginning of period
              
              
              17,459,113
              
              
              6,142,958Cash
                  and cash equivalents at end of period
              
              $
              14,939,628
              
              $
              14,273,852Supplementary
                  disclosure of cash flow information:Cash
                  paid during the period:Interest
              
              $
              66,410
              
              $
              65,298Income
                  taxes
              
              $
              68,161
              
              $
              192,728Non-cash
                  investing and financing activities:Preferred
                  stock dividends
              
              $
              —
              
              $
              92,758Issuance
                  of restricted stock
              
              $
              1,945,973
              
              $
              2,548,606Issuance
                  of stock options accounted for at intrinsic value
              
              $
              12,000
              
              $
              139,250Conversion
                  of notes payable to common stock
              
              $
              —
              
              $
              150,000Purchase
                  of equipment and fixtures on capital lease
              
              $
              —
              
              $
              340,959Acquisition
                  of Catalyst
              
              $
              74,940
              
              $
              —Issuance
                  of common stock to Ascend in return for note receivable
              
              $
              500,000
              
              $
              —Stock
                  warrants issued to common stock investors
              
              $
              —
              
              $
              1,212,399
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
 Table
            of Contents
  **MCF
        CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(unaudited)**
  **1.
        Significant Accounting Policies**
  *Basis
        of Presentation*
  The
        interim financial statements included herein for MCF Corporation, or the
        Company, have been prepared, without audit, pursuant to the rules and
        regulations of the Securities and Exchange Commission. In the opinion of
        management, the financial statements included in this report reflect all
        normal
        recurring adjustments that the Company considers necessary for the fair
        presentation of the results of operations for the interim periods covered
        and
        the financial position of the Company at the date of the interim statement
        of
        financial condition. Certain information and footnote disclosures normally
        included in annual financial statements prepared in accordance with accounting
        principles generally accepted in the United States have been condensed or
        omitted pursuant to such rules and regulations. However, the Company believes
        that the disclosures are adequate to understand the information presented.
        The
        operating results for interim periods are not necessarily indicative of the
        operating results for the entire year. These financial statements should
        be read
        in conjunction with the Company’s 2004 audited consolidated financial statements
        and notes thereto included in the Company’s Annual Report on Form 10-K for the
        year ended December 31, 2004.
  *Commission
        and Principal Transaction Revenue*
  Commission
        revenue includes revenue resulting from executing stock exchange-listed
        securities, over-the counter securities and other transactions as agent for
        the
        Company’s clients. Principal transactions consist of a portion of dealer spreads
        attributed to the Company’s securities trading activities as principal in
        NASDAQ-listed and other securities, and include transactions derived from
        activities as a market-maker. Additionally, principal transactions include
        gains
        and losses resulting from market price fluctuations that occur while holding
        positions in trading security inventory. Revenue generated from trading
        activities and related expenses are recorded on a trade
        date basis.
  *Investment
        Banking Revenue*
  Investment
        banking revenue consists of fees earned from private placements, mergers
        and
        acquisitions, management fees for underwritten offerings, financial
        restructurings and other advisory services provided to clients. Investment
        banking fees are recorded as revenue when the related service has been rendered,
        the client is contractually obligated to pay, and its collection is probable.
        Certain fees for services rendered are recognized as revenue over the service
        period. 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.
  *Stock-Based
        Compensation*
  The
        Company uses the intrinsic value-based method in accordance with Accounting
        Principles Board, or APB, Opinion No. 25, *Accounting for Stock Issued to Employees* ,
        to account for employee stock-based compensation. Accordingly, compensation
        cost
        is recorded on the date of grant to the extent the fair value of the underlying
        share of common stock exceeds the exercise price for a stock option or the
        purchase price for a share of common stock. Such compensation cost is amortized
        on a straight-line basis over the vesting period of the individual award.
        Pursuant to Statement of Financial Accounting Standards, or SFAS, No.
        123, *Accounting for Stock-Based Compensation* ,
        the Company discloses the pro forma effect of using the fair value method
        of
        accounting for employee stock-based compensation. Stock-based awards granted
        to
        nonemployees are accounted for pursuant to the fair value method in SFAS
        No. 123
        and Issue No. 96-18 of the Emerging Issues Task Force. The associated expense
        is
        measured and recognized by the Company over the period the services are
        performed by the nonemployee.
  5
 Table
            of Contents
 
 In
        December 2004, the FASB issued its final standard on accounting for
        share-based payments, SFAS 123R, *Share-Based Payment* ,
        which addresses the accounting for share-based payment transactions in which
        an
        enterprise receives employee services in exchange for equity instruments
        of the
        enterprise or liabilities that are based on the fair value of the enterprise’s
        equity instruments or that may be settled by the issuance of such equity
        instruments. The statement eliminates the ability to account for share-based
        compensation transactions using APB Opinion No. 25 and requires instead
        that such transactions be accounted for using a fair-value-based method.
        The
        effective date of SFAS 123R is the beginning of the first annual reporting
        period that begins after June 15, 2005. Early adoption of SFAS 123R
        is
        allowed.
  The
        Company has elected to continue to account for its stock-based compensation
        in
        accordance with the provisions of APB Opinion No. 25 as interpreted by FASB
        Interpretation No. 44, *Accounting for Certain Transactions Involving Stock
        Compensation* ,
        and will implement SFAS 123R effective January 1, 2006. The Company expects
        the
        adoption of SFAS123R will have a material impact on the Company’s financial
        position and results of operations.
 
 If
        the Company was to recognize compensation expense over the relevant service
        period under the fair value method with respect to stock options granted
        for the
        three months and nine months ended September 30, 2005 and all prior periods,
        net
        income (loss) would have changed, resulting in pro forma net income (loss)
        and
        pro forma net income (loss) per share as presented below:
  **Three Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  income (loss), as reported
              
              $
              (1,492,744
              )
              $
              (1,028,847
              )
              $
              (1,570,655
              )
              $
              708,239Add:
                  Stock-based employee compensation expense included in the reported
                  net
                  income (loss)
              
              
              18,203
              
              
              19,203
              
              
              56,609
              
              
              73,875Less:
                  Stock-based employee compensation expense determined under fair
                  value
                  method for all awards
              
              
              (438,065
              )
              
              (655,790
              )
              
              (1,128,276
              )
              
              (1,402,918
              )Pro
                  forma net income (loss)
              
              $
              (1,912,606
              )
              $
              (1,665,434
              )
              $
              (2,642,322
              )
              $
              (620,804
              )Net
                  income (loss) per share, as reported:Basic
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.02
              )
              $
              0.01Diluted
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.02
              )
              $
              0.01Net
                  income (loss) per share, pro forma:Basic
              
              $
              (0.03
              )
              $
              (0.03
              )
              $
              (0.04
              )
              $
              0.01Diluted
              
              $
              (0.03
              )
              $
              (0.03
              )
              $
              (0.04
              )
              $
              0.01
  The
        above pro forma disclosures are not necessarily representative of the effects
        on
        reported net income or loss for future years.
  *Reclassification*
  Certain
        prior year amounts have been reclassified to conform to current year
        consolidated financial statement presentation.
  6
 Table
            of Contents
 
 **2.
        Net Income (Loss) per Share**
  The
        following is a reconciliation of the basic and diluted net income (loss)
        available to common stockholders and the number of shares used in the basic
        and
        diluted net income (loss) per common share computations for the periods
        presented:
  **Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  income (loss)
              
              $
              (1,492,744
              )
              $
              (1,028,847
              )
              $
              (1,570,655
              )
              $
              708,239Preferred
                  stock dividends
              
              
              —
              
              
              (79,562
              )
              
              —
              
              
              (92,758
              )Net
                  income (loss) available to common stockholders - basic
              
              
              (1,492,744
              )
              
              (1,108,409
              )
              
              (1,570,655
              )
              
              615,481Interest
                  and dividends on dilutive common shares
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  income available to common stockholders - diluted
              
              $
              (1,492,744
              )
              $
              (1,108,409
              )
              $
              (1,570,655
              )
              $
              615,481Weighted-average
                  number of common shares - basic
              
              
              66,905,944
              
              
              59,919,209
              
              
              66,226,377
              
              
              57,094,385Exercise
                  or conversion of all potentially dilutive common shares
                  outstanding
              
              
              —
              
              
              —
              
              
              —
              
              
              19,863,751Weighted-average
                  number of common shares - diluted
              
              
              66,905,944
              
              
              59,919,209
              
              
              66,226,377
              
              
              76,958,136Basic
                  net income (loss) per common share
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.02
              )
              $
              0.01Diluted
                  net income (loss) per common share
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.02
              )
              $
              0.01
  Basic
        earnings per share is computed by dividing net income (loss), less dividends
        on
        preferred stock, by the weighted average number of common shares outstanding,
        excluding unvested restricted stock. Diluted earnings per share is calculated
        by
        dividing net income, less dividends on preferred stock plus interest and
        dividends on dilutive securities, by the weighted average number of common
        shares used in the basic earnings per share calculation plus the number of
        common shares that would be issued assuming exercise or conversion of all
        potentially dilutive common shares outstanding, including unvested restricted
        stock. Diluted loss per share is unchanged from basic loss per share for
        the
        three months ended September 30, 2005 and 2004 and the nine months ended
        September 30, 2005 because the addition of common shares that would be issued
        assuming exercise or conversion would be anti-dilutive.
  Shares
        used in the diluted net income per share computation in the above table include
        the dilutive impact of the Company’s stock options and warrants. The impact of
        the Company’s stock options and warrants on shares used for the diluted earnings
        per share computation is calculated based on the average share price of the
        Company’s common stock for each period using the treasury stock method. Under
        the treasury stock method, the tax-effected proceeds that would be
        hypothetically received from the exercise of all stock options and warrants
        with
        exercise prices below the average share price of the Company’s common stock are
        assumed to be used to repurchase shares of the Company’s common stock. The
        dilutive impact of the Company’s stock options and warrants was calculated using
        an average price of the Company’s common stock of $1.90 per share for the nine
        months ended September 30, 2004.  Because the Company reported a net
        loss
        during three months ended September 30, 2005 and 2004 and the nine months
        ended
        September 30, 2005, the Company excluded the impact of all stock options
        and
        warrants in the computation of dilutive earnings per share, as their effect
        would be anti-dilutive.
  7
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  The
        Company excludes all potentially dilutive securities from its diluted net
        income
        (loss) per share computation when their effect would be anti-dilutive. The
        following common stock equivalents were excluded from the earnings per share
        computation, as their inclusion would have been anti-dilutive:
  **Three Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Stock
                  options and warrants excluded due to the exercise price exceeding
                  the
                  average fair value of the Company’s common stock during the
                  period
              
              
              9,983,740
              
              
              6,573,013
              
              
              8,123,311
              
              
              5,778,264Weighted
                  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
              
              
              16,142,510
              
              
              18,848,525
              
              
              17,655,135
              
              
              —Weighted
                  average shares issuable upon conversion of the convertible notes
                  payable
              
              
              1,000,000
              
              
              2,500,000
              
              
              1,000,000
              
              
              2,532,058Weighted
                  average shares issuable upon conversion of the convertible preferred
                  stock
              
              
              —
              
              
              29,781
              
              
              —
              
              
              275,009Weighted
                  average shares contingently issuable
              
              
              1,470,974
              
              
              —
              
              
              846,876
              
              
              —Total
                  common stock equivalents excluded from diluted net income per
                  share
              
              
              28,597,224
              
              
              27,951,319
              
              
              27,625,322
              
              
              8,585,331
  **3.
        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 September 30, 2005,
        Merriman Curhan Ford & Co. had regulatory net capital, as defined, of
        $10,389,000 exceeded the amount required by $9,766,000. 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.
  **4.
        Acquisition of Catalyst Financial Planning and Investment Management,
        Inc.**
  On
        February 28, 2005, the Company acquired Catalyst Financial Planning &
        Investment Management, Inc., or Catalyst, a registered investment advisor
        with
        over $100 million in assets under management. This is the Company’s first
        acquisition of a registered investment advisor as the Company executes on
        its
        plan to build a fee-based, recurring revenue business. The Company plans
        to
        introduce new potential clients to Catalyst from the corporate and venture
        services group as well as the investment banking department.
  The
        purchase consideration for Catalyst consists of both cash and common stock
        that
        will be paid over a three year period. The Company paid to the sole shareholder
        of Catalyst, or Catalyst Shareholder, $330,433 as initial consideration at
        the
        closing. The Company has also agreed to issue to the Catalyst Shareholder
        up to
        925,325 shares of common stock over three years based upon the amount of
        revenue
        growth for Catalyst. The payment of these shares is subject to specified
        conditions. Such additional amounts will be recorded as compensation expense,
        if
        any, when such amounts become due which are contingent upon the continued
        employment of the Catalyst Shareholder. The Company acquired 100% of the
        voting
        stock in Catalyst. The results of operations for Catalyst are included in
        the
        Company’s consolidated financial statements beginning March 1,
        2005.
   8
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  **5.
        Ascend Services Ltd.**
  On
        May 4, 2005, MCF Corporation entered into a strategic alliance with Ascend
        Services Ltd., or Ascend. In conjunction with this alliance, Ascend has entered
        into a stock purchase agreement with the Company. Ascend has also engaged
        the
        Company as an investment advisor for its short-term high credit-quality fixed
        income portfolio. The Company issued 1,078,749 shares of its common stock
        and
        Ascend has issued an unsecured promissory note payable to the Company in
        the
        amount of $1.5 million. The shares will be held initially in escrow. Upon
        Ascend
        achieving specified milestones, the 1,078,749 shares of common stock will
        be
        released from escrow in three installments of 359,583 shares each and provided
        to Ascend. Upon satisfaction of the conditions specified in the escrow agreement
        and simultaneous with the release of the related stock certificates, the
        related
        amount of the promissory note shall become effective and start accruing
        interest. The promissory note accrues interest at 10% per annum and matures
        on
        February 28, 2006. The Company will record the promissory note as a reduction
        of
        stockholders’ equity until Ascend repays the note.
  On
        May 15, 2005, the Company released the first installment of 359,583 shares
        of
        common stock to Ascend while the related promissory note with a face value
        of
        $500,000 became effective. Interest income from the note amounted to $19,000
        during the nine months ended September 30, 2005.
  **6.
        Income Taxes**
  The
        income tax expense for the nine months ended September 30, 2005 represented
        state taxes while the income tax expense for 2004 reflected taxes calculated
        for
        federal and state tax purposes. The income tax expense for 2005 and 2004
        reflects the utilization of some of the Company’s net operating loss
        carryforwards.
  9
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   **ITEM 2.** **** **Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
  This
        Quarterly Report on Form 10-Q, including this Management’s Discussion and
        Analysis of Financial Condition and Results of Operations contains
        forward-looking statements regarding future events and our future results
        that
        are based on current expectations, estimates, forecasts, and projections
        about
        the industries in which we operate and the beliefs and assumptions of our
        management. Words such as
“may,”“will,”“should,”“expects,”“anticipates,”“targets,”“goals,”“projects,”“intends,”“plans,”“believes,”“seeks,”“estimates,”“predicts,”“potential”
        or “continue,” variations of such words, and similar expressions are intended to
        identify such forward-looking statements. In addition, any statements that
        refer
        to projections of our future financial performance, our anticipated growth
        and
        trends in our businesses, and other characterizations of future events or
        circumstances, are forward-looking statements. Readers are cautioned that
        these
        forward-looking statements are only predictions and are subject to risks,
        uncertainties, and assumptions that are difficult to predict. Therefore,
        actual
        results may differ materially and adversely from those expressed in any
        forward-looking statements. Readers are referred to risks and uncertainties
        identified under **“** Risk
        Factors” beginning on Page 18 and elsewhere herein. We undertake no obligation
        to revise or update publicly any forward-looking statements for any
        reason.
  **Company
        Overview**
  MCF
        Corporation is a financial services holding company that provides investment
        research, capital markets services, corporate and venture services, investment
        banking, asset management, and wealth management through its operating
        subsidiaries, Merriman Curhan Ford & Co., MCF Asset Management, LLC, and MCF
        Wealth Management, LLC. MCF Asset Management, LLC and MCF Wealth Management,
        LLC
        are two recently formed businesses that are predicated on fee-based, recurring
        revenue models.
  Merriman
        Curhan Ford & Co. is a securities broker-dealer and investment bank focused
        on fast-growing companies and growth-oriented institutional investors. It
        provides investment research, brokerage and trading services primarily to
        institutions, as well as advisory and investment banking services to corporate
        clients. Its mission is to become a leader in the researching, advising,
        financing and trading of fast growing companies. Merriman Curhan Ford & Co.
        is registered with the Securities and Exchange Commission as a broker-dealer
        and
        is a member of the National Association of Securities Dealers, Inc. and
        Securities Investors Protection Corporation.
  **Business
        Environment**
  The
        business environment during the third quarter 2005 was somewhat favorable
        due to
        a combination of factors including an expanding U.S. economy, continued low
        interest rates and low inflation. Favorable job reports and an active housing
        market provided ongoing support to economic activity. The unemployment rate
        dropped to its lowest level since August 2001. Oil prices, however, soared
        during the quarter raising concerns about the effect on overall economic
        activity. The Federal Reserve Board continued its measured pace of interest
        rate
        increases, raising the federal funds rate to 3.75%. The small-cap growth
        equity
        indices applicable to the companies that we serve were mostly flat during
        the
        third quarter and for the year-to-date.
  Our
        securities broker-dealer and investment banking activities are linked to
        the
        capital markets. In addition, our business activities are focused in the
        consumer growth, healthcare, specialty growth and technology sectors. By
        their
        nature, our business activities are highly competitive and are not only subject
        to general market conditions, volatile trading markets and fluctuations in
        the
        volume of market activity, but also to the conditions affecting the companies
        and markets in our areas of focus.
  Fluctuations
        in revenue also occur due to the overall level of market activity, which,
        among
        other things, affects the flow of investment dollars and the size, number
        and
        timing of investment banking transactions. In addition, a downturn in the
        level
        of market activity can lead to a decrease in brokerage commissions. Therefore,
        revenue in any particular period may vary significantly from year to
        year.


10
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  **Executive
        Overview**
  Revenue
        recognized in the third quarter 2005 was $9,113,000, an increase of 45% over
        the
        third quarter of 2004. Commission revenue grew by 45% over 2004 while investment
        banking revenue declined by 16% from the prior year. We incurred a net loss
        of
        $0.02 per diluted share for the three months ended September 30, 2005 and
        2004.
        Our profitability was negatively impacted by the decline in our investment
        banking revenue and increased costs associated with marketing, recruiting
        and
        other operating expenses. We continued to hire experienced professionals
        during
        the third quarter across our various departments, including sales and trading,
        research, investment banking and revenue support. During the first nine months
        of 2005, we have grown our head count by 28% and increased our marketing
        expenditures which we believe will help build our brand identity and ultimately
        lead to higher revenue in future periods, while remaining cash flow positive
        as
        measured by EBITDA. Additionally, we are continuing our business development
        activities related to our asset management and wealth management
        businesses.
  **Results
        of Operations**
  The
        following table sets forth a summary of financial highlights for the three
        months and nine months ended September 30, 2005 and 2004:
  **Three Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Revenue
              
              $
              9,113,200
              
              $
              6,303,347
              
              $
              30,877,473
              
              $
              26,536,341Operating
                  expenses
              
              
              10,618,691
              
              
              7,761,801
              
              
              32,576,659
              
              
              25,752,884Operating
                  income (loss)
              
              
              (1,505,491
              )
              
              (1,458,454
              )
              
              (1,699,186
              )
              
              783,457Net
                  income (loss)
              
              
              (1,492,744
              )
              
              (1,028,847
              )
              
              (1,570,655
              )
              
              708,239EBITDA
              
              $
              (1,056,349
              )
              $
              (1,109,558
              )
              $
              136,596
              
              $
              1,675,937Adjustments:Interest
                  income
              
              
              115,316
              
              
              24,428
              
              
              305,407
              
              
              60,145Interest
                  expense
              
              
              (15,755
              )
              
              (20,451
              )
              
              (49,468
              )
              
              (97,648
              )Income
                  tax expense
              
              
              (86,814
              )
              
              425,630
              
              
              (127,408
              )
              
              (37,715
              )Depreciation
                  and amortization
              
              
              (132,606
              )
              
              (38,780
              )
              
              (367,718
              )
              
              (96,641
              )Amortization
                  of stock-based compensation
              
              
              (316,536
              )
              
              (310,116
              )
              
              (1,468,064
              )
              
              (795,839
              )Net
                  income (loss)
              
              $
              (1,492,744
              )
              $
              (1,028,847
              )
              $
              (1,570,655
              )
              $
              708,239
  Our
        revenue during the third quarter 2005 increased $2,810,000 or 45%, from the
        corresponding period in 2004 reflecting the continued growth of our sales
        and
        trading activities, partially offset by lower investment banking revenue
        during
        the period. We incurred a net loss of $1,493,000 during the third quarter
        2005
        as compared to net loss of $1,029,000 during the third quarter 2004. Our
        earnings before interest, taxes, depreciation and amortization, or EBITDA,
        for
        the third quarter 2005 and 2004 were ($1,056,000) and ($1,110,000),
        respectively. The decline in profitability during the third quarter of 2005
        as
        compared to the third quarter of 2004 resulted from the drop in our investment
        banking revenue which produces higher operating margins compared to sales
        and
        trading revenue, and higher marketing, recruiting and other operating expenses.
        Our second annual Investor Summit conference was held during the third quarter
        which resulted in significant expense. We believe that the conference is
        critical to our development of investment banking mandates, as well as creating
        brand identity for our firm.
  EBITDA
        (earnings before interest, taxes, depreciation and amortization) is a key
        metric
        we use in evaluating our financial performance. EBITDA is considered a non-GAAP
        financial measure as defined by Regulation G promulgated by the SEC pursuant
        to
        the Securities Act of 1933, as amended. We consider EBITDA an important measure
        of our ability to generate cash flows to service debt, fund capital expenditures
        and fund other corporate investing and financing activities. EBITDA eliminates
        the non-cash effect of tangible and intangible asset depreciation and
        stock-based amortization. EBITDA should be considered in addition to, rather
        than as a substitute for, pre-tax income, net income and cash flows from
        operating activities.
 
 11
 Table
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  ***Commissions
        and Principal Transactions Revenue***
  Our
        broker-dealer activity includes the following:
  •
              Commissions
                  - Commissions include revenue resulting from executing stock trades
                  for
                  exchange-listed securities, over-the-counter securities and other
                  transactions as agent.•
              Principal
                  Transactions - Principal transactions consist of a portion of dealer
                  spreads attributed to our securities trading activities as principal
                  in
                  NASDAQ-listed and other securities, and include transactions derived
                  from
                  our activities as a market-maker. Additionally, principal transactions
                  include gains and losses resulting from market price fluctuations
                  that
                  occur while holding positions in our trading security
                  inventory.
  The
        following table sets forth our revenue and several operating metrics which
        we
        utilize in measuring and evaluating performance and the results of our sales
        and
        trading activity operations:
  **Three Months Ended September 30,**
                
                **Nine
                    Months Ended September 30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****Revenue:**Commissions
                
                $
                6,943,963
                
                $
                4,805,372
                
                $
                20,265,658
                
                $
                15,770,617Principal
                    transactions:Customer
                    principal transactions, proprietary trading and market
                    making
                
                
                1,037,478
                
                
                207,936
                
                
                271,230
                
                
                493,236Investment
                    portfolio
                
                
                (198,974
                )
                
                (52,334
                )
                
                44,540
                
                
                770,886Total
                    principal transactions revenue
                
                $
                838,504
                
                $
                155,602
                
                $
                315,770
                
                $
                1,264,122**Transaction
                    Volumes:**Number
                    of shares traded
                
                
                293,312,000
                
                
                149,110,000
                
                
                757,226,000
                
                
                592,880,000Number
                    of active clients
                
                
                426
                
                
                351
                
                
                559
                
                
                526
  Commission
        revenue increased by $2,139,000, or 45%, during the third quarter of 2005
        as
        compared to the third quarter of 2004. This growth is primarily attributable
        to
        the hiring of additional sales and research professionals that resulted in
        the
        increase in the number of active client accounts and the deeper penetration
        of
        these accounts during 2005 as compared to 2004. During the three months ended
        September 30, 2005, no single sales and trading customer accounted for more
        than
        10% of our revenue, while one sales and trading customer accounted for 13%
        of
        our revenue during the three months ended September 30, 2004.
  Principal
        transaction gains, including market making and proprietary trading for our
        own
        account, amounted to $839,000 during the three months ended September 30,
        2005,
        as compared to $156,000 during the three months ended September 30, 2004.
        During
        the third quarter of 2005, most of our principal transactions revenue was
        attributable to gains from our proprietary trading and market making activities
        which were partially offset by the decline in value of our investment portfolio
        which primarily consists of stock warrants and restricted common stock that
        we
        earn in connection with our investment banking activity.
  12
 Table
            of Contents
  ***Investment
        Banking Revenue***
  Our
        investment banking activity includes the following:
  **•**
              Capital
                  Raising - Capital raising includes private placements of equity
                  and debt
                  instruments and underwritten public offerings.•
              Financial
                  Advisory. Financial advisory includes advisory assignments with
                  respect to
                  mergers and acquisitions, divestures, restructurings and
                  spin-offs.
 
 The
        following table sets forth our revenue and transaction volumes from our
        investment banking activities during the three months and nine months ended
        September 30, 2005 and 2004:
  **Three Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****Revenue:**Capital
                  raising
              
              $
              784,911
              
              $
              472,030
              
              $
              9,288,885
              
              $
              7,635,827Financial
                  advisory
              
              
              345,440
              
              
              868,720
              
              
              550,565
              
              
              1,842,180Total
                  investment banking revenue
              
              $
              1,130,351
              
              $
              1,340,750
              
              $
              9,839,450
              
              $
              9,478,007**Transaction
                  Volumes:**Public
                  offerings:Capital
                  underwritten
              
              $
              42,100,000
              
              $
              20,097,000
              
              $
              183,325,000
              
              $
              245,279,000Number
                  of transactions
              
              
              2
              
              
              1
              
              
              5
              
              
              6Private
                  placements:Capital
                  raised
              
              $
              3,000,000
              
              $
              5,500,000
              
              $
              220,419,000
              
              $
              119,950,000Number
                  of transactions
              
              
              1
              
              
              1
              
              
              10
              
              
              10
 
 Investment
        banking revenue decreased by $210,000, or 16%, during the third quarter of
        2005
        as compared to the third quarter of 2004.  Our
        investment banking practice was unable to close a significant amount of mandated
        business during the third quarter 2005. This was due in part to a senior
        management transition in the investment banking department. This transition
        was
        completed at the beginning of the third quarter with the hiring of a new
        head of
        investment banking. We closed two equity underwritten transaction and one
        private placement transactions during the third quarter of 2005, compared
        to one
        underwritten and one private placement transactions during the third quarter
        2004. During the three months ended September 30, 2005, no single investment
        banking customer accounted for more than 10% of our revenue, while one
        investment banking customer accounted for 12% of our revenue for the three
        months ended September 30, 2004.
  ***Compensation
        and Benefits Expenses***
  Compensation
        and benefits expense represents the majority of our operating expenses and
        includes incentive compensation paid to sales and trading 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 commission revenue production but includes other qualitative factors
        as
        well. Salaries, payroll taxes and employee benefits are relatively fixed
        in
        nature.
  13
 Table
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  The
        following table sets forth the major components of our compensation and benefits
        for the three months and nine months ended September 30, 2005 and
        2004:
  **Three Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Incentive
                  compensation and discretionary bonuses
              
              $
              3,308,472
              
              $
              2,784,053
              
              $
              12,702,930
              
              $
              12,338,402Salaries
                  and wages
              
              
              2,522,864
              
              
              1,551,986
              
              
              6,810,614
              
              
              4,180,324Stock-based
                  compensation
              
              
              316,536
              
              
              300,267
              
              
              1,468,065
              
              
              785,988Payroll
                  taxes, benefits and other
              
              
              613,941
              
              
              534,052
              
              
              2,148,750
              
              
              1,648,904Total
                  compensation and benefits
              
              $
              6,761,813
              
              $
              5,170,358
              
              $
              23,130,359
              
              $
              18,953,618Total
                  compensation and benefits as a percentage of revenue
              
              
              74
              %
              
              82
              %
              
              75
              %
              
              71
              %Cash
                  compensation and benefits as a percentage of revenue
              
              
              71
              %
              
              77
              %
              
              70
              %
              
              68
              %
 
 The
        amount of compensation and benefits that we incur during a given period is
        largely dependent upon the level of revenue recognized during that period,
        since
        most of our employees are paid based on a percentage of the revenue attributed
        to their efforts. During the three months and nine months ended September
        30,
        2005, compensation and benefits expense increased by $1,591,000, or 31%,
        and
        $4,177,000, or 22%, as compared to the corresponding period in 2004,
        respectively.
 
 Cash
        compensation and benefits expense as a percentage of revenue increased to
        70%
        during the first nine months of 2005 as compared to 68% during the first
        nine
        months of 2004. This increase is due in part to higher salaries and wages
        resulting from increased headcount in anticipation of our revenue growth.
        We
        have grown our headcount at a measured pace during 2004 and 2005. Our headcount
        has increased from 109 at September 30, 2004 to 148 at September 30, 2005.
        The
        increase in stock-based compensation during 2005 reflects our decision to
        grant
        restricted stock to new and existing employees. During the three months ended
        September 30, 2005 and 2004, one sales professional accounted for 15% and
        20% of
        our revenue, respectively.
  ***Other
        Operating Expenses***
  Brokerage
        and clearing fees include trade processing expenses that we pay to our clearing
        broker and execution fees that we pay to floor brokers and electronic
        communication networks. Merriman Curhan Ford & Co. is a fully-disclosed
        broker-dealer, which has engaged a third party clearing broker to perform
        all of
        the clearance functions. The clearing broker-dealer processes and settles
        the
        customer transactions for Merriman Curhan Ford & Co. and maintains the
        detailed customer records. Additionally, security trades are executed by
        third-party broker-dealers and electronic trading systems. These expenses
        are
        almost entirely variable with commission revenue and the volume of brokerage
        transactions. Despite the increase in commission revenue during the nine
        months
        ended September 30, 2005 as compared to the corresponding period in 2004,
        brokerage and clearing fees decreased by $112,000, or 6%, from the first
        nine
        months of  2004. This reflected the cost savings that we achieved
        by
        negotiating lower fees with our new clearing broker during the fourth quarter
        2004.
  Professional
        services expense includes legal fees, accounting fees, expenses related to
        investment banking transactions and various consulting fees. Many of these
        expenses, such as legal and accounting fees, are to a large extent fixed
        in
        nature.  During the three months and nine months ended September 30,
        2005,
        professional services expense increased by $156,000, or 45%, and $270,000,
        or
        28%, as compared to the corresponding periods in 2004, respectively. This
        increase in professional services expense primarily reflected higher legal
        costs
        related to various corporate and investment banking activities.
  14
 Table
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  Occupancy
        and equipment includes rental costs for our office facilities and equipment,
        as
        well as equipment, software and leasehold improvement expenses. These expenses
        are largely fixed in nature and tend to increase as we hire additional
        employees. During the three months and nine months ended September 30, 2005,
        occupancy and equipment expense increased by $207,000, or 94%, and $563,000,
        or
        94%, as compared to the corresponding periods in 2004, respectively. The
        increase in occupancy and equipment expense resulted mostly from higher office
        rents. During 2004, we moved into larger office spaces in San Francisco,
        New
        York, Boston, Los Angeles and Portland to accommodate our growth in business
        and
        headcount.
  Communications
        and technology expense includes voice, data and Internet service fees, and
        data
        processing costs. Historically, these costs have increased as we hire additional
        employees. During the three months and nine months ended September 30, 2005,
        communications and technology expense increased by $113,000, or 30%, and
        $378,000, or 38%, as compared to the corresponding periods in 2004,
        respectively. The increase in communications and technology expense was due
        to
        higher telephone and data service fees incurred in our sales and trading
        operations. The higher telephone and data service charges are the result
        of
        increased headcount and the expansion of our offices, as well as higher costs
        to
        upgrade our information technology infrastructure.
  Depreciation
        and amortization expense primarily relate to the depreciation of our computer
        equipment and leasehold improvements. Depreciation and amortization is mostly
        fixed in nature. During the three months and nine months ended September
        30,
        2005, depreciation and amortization expense increased by $94,000, or 242%,
        and
        $271,000, or 281%, as compared to the corresponding periods in 2004,
        respectively. The increase in depreciation and amortization expense was due
        to
        increased capital expenditures, including leasehold improvements to our San
        Francisco and New York offices during 2004, to facilitate our growth and
        expansion.
  Other
        operating expense includes professional liability and property insurance,
        recruiting, investor conferences, travel and entertainment, printing and
        copying, business licenses and taxes, office supplies and other miscellaneous
        office expenses. During the three months and nine months ended September
        30,
        2005, other operating expense increased by $596,000, or 59%, and $1,278,000,
        or
        57%, as compared to the corresponding period in 2004, respectively. The increase
        in other operating expense was attributed to higher costs associated with
        our
        annual investor conference, recruiting costs, higher travel expenses, and
        various business taxes.
  ***Income
        Tax Expense***
  The
        income tax expense for the nine months ended September 30, 2005 represented
        state taxes while the income tax expense for 2004 reflected taxes calculated
        for
        Federal and state tax purposes. The income tax expense for 2005 and 2004
        reflects the utilization of some of the Company’s net operating loss
        carryforwards.
  **Off-Balance
        Sheet Arrangements**
  We
        were not a party to any off-balance sheet arrangements during the nine months
        ended September 30, 2005. In particular, we do not have any interest in
        so-called limited purpose entities, which include special purpose entities
        and
        structured finance entities.
 
 
 **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.
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  *Valuation
        of Securities Owned*
  Securities
        owned that are not readily marketable are carried at fair value, with the
        accompanying gains and losses reflected in our results of operations. The
        fair
        value of securities, for which a quoted market or dealer price is not available,
        is based on management’s estimates. Among the factors considered by management
        in determining the fair value of securities are the cost of the securities,
        terms and liquidity, developments since the acquisition of the securities,
        the
        sales price of recently issued securities, the financial condition and operating
        results of the issuer, earnings trends and consistency of operating cash
        flows,
        the long-term business potential of the issuer, the quoted market price of
        securities with similar quality and yield that are publicly traded, and other
        factors generally pertinent to the valuation of securities. The fair value
        of
        these securities is subject to a high degree of volatility and may be
        susceptible to significant fluctuation in the near term. Where available,
        we use
        prices from independent sources such as listed market prices or dealer
        quotations.
  *Revenue
        Recognition*
  We
        recognize brokerage revenue once the trade is consummated and the earnings
        process is complete. Investment banking revenue consists of fees earned from
        private placements, mergers and acquisitions, management fees for underwritten
        offerings, financial restructurings and other advisory services provided
        to
        clients. Investment banking fees are recorded as revenue when the related
        service has been rendered, the client is contractually obligated to pay,
        and its
        collection is probable. Certain fees received in advance of services rendered
        are deferred and recognized as revenue over the service period.
        Transaction-related expenses to date have been expensed as incurred. As
        co-manager for registered equity underwriting transactions, we must estimate
        the
        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 we will recognize 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.
  *Stock-Based
        Compensation*
  As
        part of our compensation of employees, we may use stock-based compensation,
        including stock options, restricted stock and other stock-based awards.
        Compensation related to restricted stock and other stock-based awards is
        amortized over the vesting period of the award, which is generally three
        to four
        years, and is included in our results of operations as compensation expense.
        Accounting principles generally accepted in the United States allow alternative
        methods of accounting for stock options, including an “intrinsic value” method
        and a “fair value” method. The intrinsic value method is intended to reflect the
        impact of stock options on stockholders based on the appreciation in the
        stock
        option over time, generally driven by financial performance. The fair value
        method requires an estimate of the value of stock options to be recognized
        as
        compensation expense over the vesting period of the awards. Currently, we
        use
        the intrinsic value method and do not recognize the impact of these awards
        as
        compensation expense. Accordingly, we provide disclosure of the impact of
        the
        estimated fair value of the stock options on our compensation and reported
        income in the notes to the consolidated financial statements. In determining
        the
        estimated fair value of stock options, we use the Black-Scholes option-pricing
        model, which requires judgment regarding certain assumptions, including the
        expected life of the options granted, dividend yields and stock
        volatility.
  *Deferred
        Tax Valuation Allowance*
  We
        account for income taxes in accordance with the provision of SFAS No.
        109, *Accounting for Income Taxes* ,
        which requires the recognition of deferred tax assets and liabilities at
        tax
        rates expected to be in effect when these balances reverse. Future tax benefits
        attributable to temporary differences are recognized to the extent that the
        realization of such benefits is more likely than not. We have concluded that
        it
        is more likely than not that our deferred tax assets as of September 30,
        2005
        and 2004 will not be realized based on the scheduling of deferred tax
        liabilities and projected taxable income. The amount of the deferred tax
        assets
        actually realized, however, could vary if there are differences in the timing
        or
        amount of future reversals of existing deferred tax liabilities or changes
        in
        the actual amounts of future taxable income. Should we determine that we
        will be
        able to realize all or part of the deferred tax asset in the future, an
        adjustment to the deferred tax asset will be recorded in the period such
        determination is made.
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  **Liquidity
        and Capital Resources**
  Historically,
        we have satisfied our liquidity and regulatory capital needs through the
        issuance of equity and debt securities. As of September 30, 2005, our short-term
        and long-term debt amounted to $1,830,000, while our stockholders’ equity was
        $17,310,000. Our principal assets consist of cash and cash equivalents,
        marketable securities held for trading purposes, restricted cash, receivables
        and equipment and fixtures. As of September 30, 2005, liquid assets consisted
        primarily of cash and cash equivalents of $14,940,000 and marketable securities
        of $5,907,000, for a total of $20,847,000. 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 September 30, 2005, Merriman Curhan Ford & Co. had
        regulatory net capital, as defined, of $10,389,000 **,** which exceeded the amount required by $9,766,000.
  During
        the nine months ended September 30, 2005, our earnings before interest, taxes,
        depreciation and amortization, or EBITDA, were $137,000. We consider EBITDA
        an
        important measure of our ability to generate cash flows to service debt,
        fund
        capital expenditures and fund other corporate investing and financing
        activities. EBITDA eliminates the non-cash effect of tangible and intangible
        asset depreciation and stock-based amortization. We have provided a
        reconciliation of EBITDA to net income (loss) for the three months and nine
        months ended September 30, 2005 on page 11. EBITDA should be considered in
        addition to, rather than as a substitute for, pre-tax income, net income
        and
        cash flows from operating activities. Cash flow used in our operating activities
        during the first nine months of 2005 was $2,115,000 and includes the increase
        in
        operating assets, such as marketable securities and due from clearing broker,
        by
        $1,809,000 and the reduction of operating liabilities, such as commissions
        payable and accrued liabilities, by $188,000.
  Cash
        used in investing activities during the nine months ended 2005 was $911,000,
        reflecting the acquisition of Catalyst and the purchase of equipment and
        fixtures. Cash provided by financing activities was $507,000 during the first
        nine months of 2005 due primarily to the proceeds from the issuance of common
        stock for the Employee Stock Purchase Plan and exercises of stock options
        and
        stock warrants.
  We
        believe that our existing cash balances and investments will be sufficient
        to
        meet our liquidity and capital spending requirements, both for the next twelve
        months as well as for the long-term. However, we may require additional capital
        investment to fund our working capital if we incur future operating losses.
        We
        cannot be certain that additional debt or equity financing will be available
        when required or, if available, that we can secure it on terms satisfactory
        to
        us.
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  **Risk
        Factors**
  Investing
        in our securities involves a high degree of risk. In addition to the other
        information contained in this quarterly report, including reports we incorporate
        by reference, you should consider the following factors before investing
        in our
        securities.
  *It
        is difficult to evaluate our business and prospects because we have a limited
        operating history.*
  We
        began actively engaging in providing securities brokerage and investment
        banking
        services in January 2002. This was an entirely new business for us, and was
        a
        complete break with our previous business, the bandwidth brokerage business.
        Accordingly, we have a limited operating history on which to base an evaluation
        of our business and prospects. Our prospects must be considered in light
        of the
        risks, expenses and difficulties frequently encountered by fast growing
        companies in their early stage of development. We cannot assure you that
        we will
        be successful in addressing these risks and our failure to do so could have
        a
        material adverse effect on our business and results of operations.
  *We
        may not be able to maintain a positive cash flow and
        profitability.*
  Our
        ability to maintain a positive cash flow and profitability depends on our
        ability to generate and maintain greater revenue while incurring reasonable
        expenses. This, in turn, depends, among other things, on the development
        of our
        securities brokerage and investment banking business, and we may be unable
        to
        maintain profitability if we fail to do any of the following:
  •  establish, maintain and increase our client base;
  •  manage the quality of our services;
  •  compete effectively with existing and potential competitors;
  •  further develop our business activities;
  •  manage expanding operations; and
  •  attract and retain qualified personnel.
  We
        cannot be certain that we will be able to sustain or increase a positive
        cash
        flow and profitability on a quarterly or annual basis in the future. Our
        inability to maintain profitability or positive cash flow could result in
        disappointing financial results, impede implementation of our growth strategy
        or
        cause the market price of our common stock to decrease. Accordingly, we cannot
        assure you that we will be able to generate the cash flow and profits necessary
        to sustain our business expectations, which makes our ability to successfully
        implement our business plan uncertain.
  Because
        we are a developing company, the factors upon which we are able to base our
        estimates as to the gross revenue and the number of participating clients
        that
        will be required for us to maintain a positive cash flow and any additional
        financing that may be needed for this purpose are unpredictable. For these
        and
        other reasons, we cannot assure you that we will not require higher gross
        revenue, and an increased number of clients, securities brokerage and investment
        banking transactions, and/or more time in order for us to complete the
        development of our business that we believe we need to be able to cover our
        operating expenses, or obtain the funds necessary to finance this development.
        It is more likely than not that our estimates will prove to be inaccurate
        because actual events more often than not differ from anticipated events.
        Furthermore, in the event that financing is needed in addition to the amount
        that is required for this development, we cannot assure you that such financing
        will be available on acceptable terms, if at all.
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  *The
        markets for securities brokerage and investment banking services are highly
        competitive. If we are not able to compete successfully against current and
        future competitors, our business and results of operations will be adversely
        affected.*
  We
        are engaged in the highly competitive financial services and investment
        industries. We compete with large Wall Street securities firms, securities
        subsidiaries of major commercial bank holding companies, U.S. subsidiaries
        of
        large foreign institutions, major regional firms, smaller niche players,
        and
        those offering competitive services via the Internet. Many competitors have
        greater personnel and financial resources than we do. Larger competitors
        are
        able to advertise their products and services on a national or regional basis
        and may have a greater number and variety of distribution outlets for their
        products, including retail distribution. Discount and Internet brokerage
        firms
        market their services through aggressive pricing and promotional efforts.
        In
        addition, some competitors have much more extensive investment banking
        activities than we do and therefore, may possess a relative advantage with
        regard to access to deal flow and capital.
  Increased
        pressure created by any current or future competitors, or by our competitors
        collectively, could materially and adversely affect our business and results
        of
        operations. Increased competition may result in reduced revenue and loss
        of
        market share. Further, as a strategic response to changes in the competitive
        environment, we may from time to time make certain pricing, service or marketing
        decisions or acquisitions that also could materially and adversely affect
        our
        business and results of operations. We cannot assure you that we will be
        able to
        compete successfully against current and future competitors. In addition,
        new
        technologies and the expansion of existing technologies may increase the
        competitive pressures on us.
  *We
        may experience reduced revenue due to declining market volume, securities
        prices
        and liquidity, which can also cause counterparties to fail to
        perform.*
  Our
        revenue may decrease in the event of a decline in the market volume of
        securities transactions, prices or liquidity. Declines in the volume of
        securities transactions and in market liquidity generally result in lower
        revenue from trading activities and commissions. Lower price levels of
        securities may also result in a reduction in our revenue from corporate finance
        fees, as well as losses from declines in the market value of securities held
        by
        us in trading. Sudden sharp declines in market values of securities can result
        in illiquid markets and the failure of counterparties to perform their
        obligations, as well as increases in claims and litigation, including
        arbitration claims from customers. In such markets, we may incur reduced
        revenue
        or losses in our principal trading, market-making, investment banking, and
        advisory services activities.
  *We
        may experience significant losses if the value of our marketable security
        positions deteriorates.*
  We
        conduct securities trading, market-making and investment activities for our
        own
        account, which subjects our capital to significant risks. These risks include
        market, credit, counterparty and liquidity risks, which could result in losses
        for us. These activities often involve the purchase, sale or short sale of
        securities as principal in markets that may be characterized as relatively
        illiquid or that may be particularly susceptible to rapid fluctuations in
        liquidity and price. Trading losses resulting from such trading could have
        a
        material adverse effect on our business and results of operations.
  *We
        may experience significant fluctuations in our quarterly operating results
        due
        to the nature of our business and therefore may fail to meet profitability
        expectations.*
  Our
        revenue and operating results may fluctuate from quarter to quarter and from
        year to year due to a combination of factors, including:
  •  the level of institutional brokerage transactions and the level of commissions
        we receive from those transactions;
  •  the valuations of our principal investments;
  •  the number of capital markets transactions completed by our clients, and
        the
        level of fees we receive from those transactions; and
  •  variations in expenditures for personnel, consulting and legal expenses,
        and
        expenses of establishing new business units, including marketing and technology
        expenses.
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  We
        record revenue from a capital markets advisory transaction only when we have
        rendered the services, the client is contractually obligated to pay and
        collection is probable; generally, most of the fee is earned only upon the
        closing of a transaction. Accordingly, the timing of our recognition of revenue
        from a significant transaction can materially affect our quarterly operating
        results.
  *We
        have registered one of our subsidiaries as a securities broker-dealer and,
        as
        such, are subject to substantial regulations. If we fail to comply with these
        regulations, our business will be adversely affected.*
  Because
        we have registered Merriman Curhan Ford & Co. with the Securities and
        Exchange Commission, or SEC, and the National Association of Securities Dealers,
        Inc., or NASD, as a securities broker-dealer, we are subject to extensive
        regulation under federal and state laws, as well as self-regulatory
        organizations. The principal purpose of regulation and discipline of
        broker-dealers is the protection of customers and the securities markets
        rather
        than protection of creditors and stockholders of broker-dealers. The Securities
        and Exchange Commission is the federal agency charged with administration
        of the
        federal securities laws. Much of the regulation of broker-dealers, however,
        has
        been delegated to self-regulatory organizations, such as the NASD and national
        securities exchanges. The NASD is our primary self-regulatory organization.
        These self-regulatory organizations adopt rules, which are subject to SEC
        approval, that govern the industry and conduct periodic examinations of member
        broker-dealers. Broker-dealers are also subject to regulation by state
        securities commissions in the states in which they are registered. The
        regulations to which broker-dealers are subject cover all aspects of the
        securities business, including net capital requirements, sales methods, trading
        practices among broker-dealers, capital structure of securities firms, record
        keeping and the conduct of directors, officers and employees. The SEC and
        the
        self-regulatory bodies may conduct administrative proceedings, which can
        result
        in censure, fine, suspension or expulsion of a broker-dealer, its officers
        or
        employees. If we fail to comply with these rules and regulations, our business
        may be materially and adversely affected.
  The
        regulatory environment in which we operate is also subject to change. Our
        business may be adversely affected as a result of new or revised legislation
        or
        regulations imposed by the SEC, other United States or foreign governmental
        regulatory authorities or the NASD. We also may be adversely affected by
        changes
        in the interpretation or enforcement of existing laws and rules by these
        governmental authorities and the NASD.
  *Our
        business may suffer if we lose the services of our executive officers or
        operating personnel.*
  We
        depend on the continued services and performance of D. Jonathan Merriman,
        our
        Chairman and Chief Executive Officer, for our future success. We currently
        have
        an employment agreement with Mr. Merriman, which ends on January 1,
        2007,
        but can be terminated by either party on 60 days’ notice. The agreement contains
        provisions that obligate us to make certain payments to Mr. Merriman
        and
        substantially reduce vesting periods of options granted to him if we should
        terminate him without cause or certain events resulting in a change of control
        of our Board were to occur.
  In
        addition to Mr. Merriman, we are currently managed by a small number
        of key
        management and operating personnel. We do not maintain “key man” insurance on
        any employee. Our future success depends, in part, on the continued service
        of
        our key executive, management and technical personnel, and our ability to
        attract highly skilled employees. Our business could be harmed if any key
        officer or employee were unable or unwilling to continue in his or her current
        position. From time to time we have experienced, and we expect to continue
        to
        experience, difficulty in hiring and retaining highly skilled employees.
        Competition for employees in our industry is significant. If we are unable
        to
        retain our key employees or attract, integrate or retain other highly qualified
        employees in the future, such failure may have a material adverse effect
        on our
        business and results of operations.
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  *Our
        business is dependent on the services of skilled professionals, and may suffer
        if we can not recruit or retain such skilled professionals.*
  During
        the nine months ended September 30, 2005, one sales professional accounted
        for
        13% of our revenue. We have a number of revenue producers employed by our
        securities brokerage and investment banking subsidiary. We do not have
        employment contracts with these employees. The loss of one or more of these
        employees could adversely affect our business and results of
        operations.
  *Our
        compensation structure may negatively impact our financial condition if we
        are
        not able to effectively manage our expenses and cash flows.*
  We
        are able to recruit and retain investment banking, research and sales and
        trading professionals, in part because our business model provides that we
        pay
        our revenue producing employees a percentage of their earned revenue.
        Compensation and benefits is our largest expenditure and this variable
        compensation component represents a significant proportion of this expense.
        Compensation for our employees is derived as a percentage of our revenue
        regardless of the profitability of the Company. Therefore, we may continue
        to
        pay individual revenue producers a significant amount of cash compensation
        as
        the overall business experiences negative cash flows and/or net losses. We
        may
        not be able to recruit or retain revenue producing employees if we modify
        or
        eliminate the variable compensation component from our business
        model.
  *We
        may be dependent on a limited number of customers for a significant portion
        of
        our revenue.*
  During
        the nine months ended September 30, 2005, no single customer accounted for
        more
        than 10% of our revenue. However, we have been dependent on one customer,
        or on
        a small number of customers, for a large percentage of our revenue at some
        times
        in the past and we cannot assure you that we will not become so dependent
        again
        in the future. If we do become dependent on a single customer or small group
        of
        customers, the loss of one or more large customers could materially adversely
        affect our business and results of operations.
  *We
        may suffer losses through our investments in securities purchased in secondary
        market transactions or private placements.*
  Occasionally,
        our company, its officers and/or employees may make principal investments
        in
        securities through secondary market transactions or through direct investment
        in
        companies through private placements. In many cases, employees and officers
        with
        investment discretion on behalf of our company decide whether to invest in
        our
        company’s account or their personal account. It is possible that gains from
        investing will accrue to these individuals because investments were made
        in
        their personal accounts, and our company will not realize gains because it
        did
        not make an investment. Conversely, it is possible that losses from investing
        will accrue to our company, while these individuals do not experience losses
        in
        their personal accounts because the individuals did not make investments
        in
        their personal accounts.
  *We
        may be unable to successfully integrate acquired businesses into our existing
        business and operations.*
  On
        February 28, 2005, the Company acquired Catalyst Financial Planning &
        Investment Management, Inc., a registered investment advisor with over $100
        million in assets under management. We may experience difficulty integrating
        the
        operations of Catalyst into our existing business and operations including
        our
        accounting, finance, compensation, information technology and management
        systems. We may not be able to retain the services of Catalyst employees.
        These
        factors could result in higher than anticipated costs associated with the
        Catalyst acquisition. Additionally, they may cause revenue from the Catalyst
        acquisition to be lower than forecast. If costs are higher or revenue lower
        than
        we expect, our business and results of operations could be materially adversely
        affected. Although we have no specific plans to do so at this time, we may
        buy
        one or more other businesses in the future. If we are unable to successfully
        integrate such businesses into our existing business and operations in the
        future, our business and results of operations could be materially adversely
        affected
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  *We
        may be unable to effectively manage rapid growth that we may experience,
        which
        could place a continuous strain on our resources and, accordingly, adversely
        affect our business.*
  We
        plan to expand our operations. Our growth, if it occurs, will impose significant
        demands on our management, financial, technical and other resources. We must
        adapt to changing business conditions and improve existing systems or implement
        new systems for our financial and management controls, reporting systems
        and
        procedures and expand, train and manage a growing employee base in order
        to
        manage our future growth. We may not be able to implement improvements to
        our
        internal reporting systems in an efficient and timely manner and may discover
        deficiencies in existing systems and controls. We believe that future growth
        will require implementation of new and enhanced communications and information
        systems and training of our personnel to operate such systems. Furthermore,
        we
        may acquire existing companies or enter into strategic alliances with third
        parties, in order to achieve rapid growth. For us to succeed, we must make
        our
        existing business and systems work effectively with those of any strategic
        partners without undue expense, management distraction or other disruptions
        to
        our business. We may be unable to implement our business plan if we fail
        to
        manage any of the above growth challenges successfully. Our financial results
        may suffer and we could be materially and adversely affected if that
        occurs.
  *Our
        business and operations would suffer in the event of system
        failures.*
  Our
        success, in particular our ability to successfully facilitate securities
        brokerage transactions and provide high-quality customer service, largely
        depends on the efficient and uninterrupted operation of our computer and
        communications systems. Our systems and operations are vulnerable to damage
        or
        interruption from fire, flood, power loss, telecommunication failures,
        break-ins, earthquake and similar events. Despite the implementation of network
        security measures, redundant network systems and a disaster recovery plan,
        our
        servers are vulnerable to computer viruses, physical or electronic break-ins
        and
        similar disruptions, which could lead to interruptions, delays, loss of data
        or
        the inability to accept and fulfill customer orders. Additionally, computer
        viruses may cause our systems to incur delays or other service interruptions,
        which may cause us to incur additional operating expenses to correct problems
        we
        may experience. Any of the foregoing problems could materially adversely
        affect
        our business or future results of operations.
  *We
        are highly dependent on proprietary and third-party systems; therefore, system
        failures could significantly disrupt our business.*
  Our
        business is highly dependent on communications and information systems,
        including systems provided by our clearing brokers. Any failure or interruption
        of our systems, the systems of our clearing broker or third party trading
        systems could cause delays or other problems in our securities trading
        activities, which could have a material adverse effect on our operating
        results.
  In
        addition, our clearing brokers provide our principal disaster recovery system.
        We cannot assure you that we or our clearing brokers will not suffer any
        systems
        failure or interruption, including one caused by an earthquake, fire, other
        natural disaster, power or telecommunications failure, act of God, act of
        war or
        otherwise, or that our or our clearing brokers’ back-up procedures and
        capabilities in the event of any such failure or interruption will be
        adequate.
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  *Our
        common stock price may be volatile, which could adversely affect the value
        of
        your shares.*
  The
        market price of our common stock has in the past been, and may in the future
        continue to be, volatile. A variety of events may cause the market price
        of our
        common stock to fluctuate significantly, including:
  •  variations in quarterly operating results;
  •  our announcements of significant contracts, milestones,
        acquisitions;
  •  our relationships with other companies;
  •  our ability to obtain needed capital commitments;
  •  additions or departures of key personnel;
  •  sales of common stock, conversion of securities convertible into common stock,
        exercise of options and warrants to purchase common stock or termination
        of
        stock transfer restrictions;
  •  general economic conditions, including conditions in the securities brokerage
        and investment banking markets;
  •  changes in financial estimates by securities analysts; and
  •  fluctuation in stock market price and volume.
  Many
        of these factors are beyond our control. Any one of the factors noted herein
        could have an adverse effect on the value of our common stock.
  In
        addition, the stock market in recent years has experienced significant price
        and
        volume fluctuations that have particularly affected the market prices of
        equity
        securities of many companies and that often have been unrelated to the operating
        performance of such companies. These market fluctuations have adversely impacted
        the price of our common stock in the past and may do so in the
        future.
  *Our
        risk management policies and procedures may leave us exposed to unidentified
        or
        unanticipated risk*
 
 Our
        risk management strategies and techniques may not be fully effective in
        mitigating our risk exposure in all market environments or against all types
        of
        risk.
 
 We
        are exposed to the risk that third parties that owe us money, securities
        or
        other assets will not perform their obligations. These parties may default
        on
        their obligations to us due to bankruptcy, lack of liquidity, operational
        failure, breach of contract or other reasons. We are also subject to the
        risk
        that our rights against third parties may not be enforceable in all
        circumstances. As a clearing member firm, we finance our customer positions
        and
        could be held responsible for the defaults or misconduct of our customers.
        Although we regularly review credit exposures to specific clients and
        counterparties and to specific industries and regions that we believe may
        present credit concerns, default risk may arise from events or circumstances
        that are difficult to detect or foresee. In addition, concerns about, or
        a
        default by, one institution could lead to significant liquidity problems,
        losses
        or defaults by other institutions, which in turn could adversely affect us.
        If
        any of the variety of instruments, processes and strategies we utilize to
        manage
        our exposure to various types of risk are not effective, we may incur
        losses.
 
 *We
        could be sued in a securities class action lawsuit.*
  In
        the past, following periods of volatility in the market price of a company’s
        securities, securities class action litigation often has been instituted
        against
        that company. Such litigation is expensive and diverts management’s attention
        and resources. We can not assure you that we will not be subject to such
        litigation. If we are subject to such litigation, even if we ultimately prevail,
        our business and financial condition may be adversely affected.
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  *Your
        ability to sell your shares may be restricted because there is a limited
        trading
        market for our common stock.*
  Although
        our common stock is currently traded on the American Stock Exchange, an active
        trading market in our stock has been limited. Accordingly, you may not be
        able
        to sell your shares when you want or at the price you want.
 
 *Anti-takeover
        provisions of the Delaware General Corporation Law could discourage a merger
        or
        other type of corporate reorganization or a change in control even
        if it
        could be favorable to the interests of our stockholders.*
  The
        Delaware General Corporation Law contains provisions that may enable our
        management to retain control and resist our takeover. These provisions generally
        prevent us from engaging in a broad range of business combinations with an
        owner
        of 15% or more of our outstanding voting stock for a period of three years
        from
        the date that such person acquires his or her stock. Accordingly, these
        provisions could discourage or make more difficult a change in control or
        a
        merger or other type of corporate reorganization even if it could be favorable
        to the interests of our stockholders.
  *Because
        our Board of Directors can issue common stock without stockholder approval,
        you
        could experience substantial dilution.*
  Our
        Board of Directors has the authority to issue up to 300,000,000 shares of
        common
        stock and to issue options and warrants to purchase shares of our common
        stock
        without stockholder approval in certain circumstances. Future issuance of
        additional shares of our common stock could be at values substantially below
        the
        price at which you may purchase our stock and, therefore, could represent
        substantial dilution. In addition, our Board of Directors could issue large
        blocks of our common stock to fend off unwanted tender offers or hostile
        takeovers without further stockholder approval.
  *Our
        ability to issue additional preferred stock may adversely affect your rights
        as
        a common stockholder and could be used as an anti take-over
        device.*
  Our
        Articles of Incorporation authorize our Board of Directors to issue up to
        an
        additional 37,293,000 shares of preferred stock, without approval from our
        stockholders. If you hold our common stock, this means that our Board of
        Directors has the right, without your approval as a common stockholder, to
        fix
        the relative rights and preferences of the preferred stock. This would affect
        your rights as a common stockholder regarding, among other things, dividends
        and
        liquidation. We could also use the preferred stock to deter or delay a change
        in
        control of our Company that may be opposed by our management even if the
        transaction might be favorable to you as a common stockholder.
  *Our
        officers and directors exercise significant control over our affairs, which
        could result in their taking actions of which other stockholders do not
        approve.*
  Our
        executive officers and directors, and entities affiliated with them, currently
        control approximately 23% of our outstanding common stock including exercise
        of
        their options and warrants. These stockholders, if they act together, will
        be
        able to exercise substantial influence over all matters requiring approval
        by
        our stockholders, including the election of directors and approval of
        significant corporate transactions. This concentration of ownership may also
        have the effect of delaying or preventing a change in control of us and might
        affect the market price of our common stock.
  *Any
        exercise of outstanding stock options and warrants will dilute then-existing
        stockholders’ percentage of ownership of our common stock.*
  We
        have a significant number of outstanding stock options and warrants. During
        the
        nine months ended September 30, 2005, shares issuable upon the exercise of
        these
        options and warrants, at prices ranging currently from approximately $0.18
        to
        $1.32 per share, represent approximately 16% **** of
        our total outstanding stock on a fully diluted basis using the treasury stock
        method.
  The
        exercise of the outstanding options and warrants would dilute the then-existing
        stockholders’ percentage ownership of our common stock. Any sales resulting from
        the exercise of options and warrants in the public market could adversely
        affect
        prevailing market prices for our common stock. Moreover, our ability to obtain
        additional equity capital could be adversely affected since the holders of
        outstanding options and warrants may exercise them at a time when we would
        also
        wish to enter the market to obtain capital on terms more favorable than those
        provided by such options and warrants. We lack control over the timing of
        any
        exercise or the number of shares issued or sold if exercises occur.
 
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  **Item  3.** **** **Quantitative and Qualitative Disclosures About Market Risk**
  The
        following discussion about market risk disclosures involves forward-looking
        statements. Actual results could differ materially from those projected in
        the
        forward-looking statements. We may be exposed to market risks related to
        changes
        in equity prices, interest rates and foreign currency exchange rates. We
        do not
        use derivative financial instruments for speculative, trading or any other
        purpose.
  *Equity
        Price Risk*
  The
        potential for changes in the market value of our trading positions is referred
        to as “market risk.” Our trading positions result from proprietary trading
        activities. Equity price risks result from exposures to changes in prices
        and
        volatilities of individual equities and equity indices. We seek to manage
        this
        risk exposure through diversification and limiting the size of individual
        positions within the portfolio. The effect on earnings and cash flows of
        an
        immediate 10% increase or decrease in equity prices generally is not
        ascertainable and could be positive or negative, depending on the positions
        we
        hold at the time. We do not establish hedges in related securities or
        derivatives.
  *Interest
        Rate Risk*
  Our
        exposure to market risk resulting from changes in interest rates relates
        primarily to our investment portfolio and long term debt obligations. Our
        interest income and cash flows may be impacted by changes in the general
        level
        of U.S. interest rates. We do not hedge this exposure because we believe
        that we
        are not subject to any material market risk exposure due to the short-term
        nature of our investments. We would not expect an immediate 10% increase
        or
        decrease in current interest rates to have a material effect on the fair
        market
        value of our investment portfolio.
  Our
        long term debt obligations bear interest at a fixed rate. Accordingly, an
        immediate 10% increase or decrease in current interest rates would not have
        an
        impact on our interest expense or cash flows. The fair market value of our
        long
        term fixed interest rate debt is subject to interest rate risk. Generally,
        the
        fair market value of fixed interest rate debt will increase as interest rates
        fall and decrease as interest rates rise. We would not expect an immediate
        10%
        increase or decrease in current interest rates to have a material impact
        on the
        fair market value of our long term debt obligations.
  *Foreign
        Currency Risk*
  We
        do not have any foreign currency denominated assets or liabilities or purchase
        commitments and have not entered into any foreign currency contracts.
        Accordingly, we are not exposed to fluctuations in foreign currency exchange
        rates.
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 **Item  4.** **** **Controls and Procedures**
  **Evaluation
        of Disclosure Controls and Procedures** -
        We have established disclosure controls and procedures to ensure that material
        information relating to the Company, including its consolidated subsidiaries,
        is
        made known to the officers who certify the Company’s financial reports and to
        other members of senior management and the Board of Directors.
  Based
        on their evaluation of the Company’s disclosure controls and procedures (as
        defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
        Act
        of 1934), the Principal Executive Officer and Principal Financial Officer
        of the
        Company have concluded that the disclosure controls and procedures are effective
        as of September 30, 2005.
  **Changes
        in internal controls -** There was no change in the Company’s internal control over financial reporting
        (as defined in Rules 13a-15(d) and 15d-15(d) of the Exchange Act) that occurred
        during the three months ended September 30, 2005, that materially affected,
        or
        is reasonably likely to materially affect, the Company’s internal control over
        financial reporting.
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 **PART
        II. OTHER INFORMATION**
 
 **Item  1.** **** **Legal Proceedings**
  **Merriman
        Curhan Ford & Co. v. The Seidler Companies, Inc. — NASD
        Arbitration**
  During
        2004, our broker-dealer subsidiary hired a research analyst. Prior to employment
        with Merriman Curhan Ford & Co. the analyst was employed by The Seidler
        Companies, Inc., or Seidler, in a similar capacity. The analyst was employed
        under an employment contract that included terms which general counsel and
        outside counsel believe unlawfully restrict the analyst’s employment
        activities.
  In
        March 2004, we acted as a co-agents for a small private placement for a client.
        The client was introduced to one of our investment banking managing directors.
        At the time of introduction, Seidler had been trying to win the investment
        banking business, but had failed to obtain a signed engagement letter with
        the
        client. We subsequently received a signed engagement letter from the client
        that
        named Merriman Curhan Ford & Co. as co-placement agent. The investment
        banking transaction was completed.
  Thereafter,
        in March 2004 we received a cease and desist letter from attorneys representing
        Seidler. Seidler claims that our analyst used proprietary information in
        violation of his employment agreement when introducing Merriman Curhan Ford
        & Co. to the client. Seidler further claims that we used unfair business
        tactics to win the business. In response to the claims, Merriman Curhan Ford
        & Co. and our analyst filed a claim in arbitration with the NASD in June
        2004.
  In
        September 2005, this matter was settled. We received a release of all claims
        from Seidler in exchange for a payment in the amount of $25,000.
  **Westerman
        v. Western Capital Financial Group - NASD Arbitration**
  In
        May 2005, our broker-dealer subsidiary Merriman Curhan Ford & Co. was served
        with a claim in NASD Arbitration by Ms. Westerman.  The claim names
        Western
        Capital Financial Group as one of several defendants.  Western Capital
        Financial Group is the predecessor name of Merriman Curhan Ford & Co., the
        California corporation.  The Western Capital Financial Group name
        was
        effective from June 26, 1986 to July 14, 1998.
  This
        claim arises from Ms. Westerman’s purchase of a variable annuity product in
        January 1990 from a predecessor of our broker-dealer subsidiary. 
        MCF
        Corporation acquired Merriman Curhan Ford & Co. in December 2001.  The
        Claimant alleges that a registered representative improperly recommended
        that
        she move her investment to different products on two occasions.
  Claimant
        alleges a theory of predecessor liability against Merriman Curhan Ford &
        Co.  Claimant prays for monetary damages in excess of $300,000 against
        the
        eleven named respondents.  We do not believe that Ms. Westerman’s claims
        against Merriman Curhan Ford & Co. are meritorious.  We are in the
        early pleading stages of the matter and a hearing date has not been
        assigned.  This matter was to be heard in New Orleans. Because of
        the
        flooding disaster, this matter will be delayed indefinitely. Based upon the
        facts as we know them to date, we do not believe that the outcome will have
        a
        material effect on the Company.
 
 **In
        re Odimo Incorporated Securities Litigation** *.*
 
 Merriman
        Curhan Ford & Co. is a defendant in an alleged class action suit brought in
        connection with a registered offering involving Odimo Incorporated in which
        we
        served as co-manager for the company. The complaint, filed in the 17 th Judical Circuit Court for Broward County in Florida on September 30,
        2005,
        alleges violations of federal securities laws against Odimo and certain of
        its
        officers as well as the company’s underwriters, including us, based on alleged
        misstatements and omissions in the registration statement. We believe we
        have
        meritorious defenses to the actions and intend to vigorously defend against
        such
        claims as they apply to our firm. Based upon the facts as we know them to date, we do not believe that the
        outcome
        will have a material effect on the Company.
  Additionally,
        from time to time, we are involved in ordinary routine litigation incidental
        to
        our business.
 
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  **Item
        2.    Recent Sales of Unregistered
        Securities**
  On
        May 4, 2005, MCF Corporation entered into a strategic alliance with Ascend
        Services Ltd., or Ascend.  In conjunction with this alliance, Ascend
        has
        entered into a stock purchase agreement with the Company.  Ascend
        has also
        engaged the Company as an investment advisor for its short-term high
        credit-quality portfolio.  The Company issued 1,078,749 shares of
        its
        common stock and Ascend has issued an unsecured promissory note payable to
        the
        Company in the amount of $1.5 million.  The shares will be held initially
        in escrow.  Upon Ascend achieving specified milestones, the 1,078,749
        shares of common stock will be released from escrow in three installments
        of
        359,583 shares and provided to Ascend.  Upon satisfaction of the conditions
        specified in the escrow agreement and simultaneous with the release of the
        related stock certificates, the related amount of the promissory note shall
        become effective and start accruing interest.  The promissory note
        accrues
        interest at 10% per annum and matures on February 28, 2006.  The securities
        described in this paragraph: (i) were issued to a private investor without
        the
        involvement of underwriters; (ii) were issued in reliance on the exemption
        from
        registration requirements contained in Section 4(2) of the Securities Act
        of
        1933; and (iii) carried certain registration rights.
  
 **Item  6.** **** **Exhibits and Reports on Form 8-K**
  (a)
              
              Exhibits31.1
                  Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
                  under
                  the Securities Exchange Act of 1934 as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.
                
                31.2
                  Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
                  under
                  the Securities Exchange Act of 1934 as Adopted 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.(b)
              
              Reports
                  on Form 8-KCurrent
                  Report on Form 8-K dated August 9, 2005, reporting the announcement
                  of
                  earnings for the second quarter of
                  2005.
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 **SIGNATURES**
  Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
  MCF
                  CORPORATIONNovember
                  9, 2005
              By:
              /s/    D.
                  JONATHAN MERRIMAND.
                  Jonathan Merriman,Chairman
                  of the Board and Chief Executive Officer(Principal
                  Executive Officer)November
                  9, 2005
              By:
              /s/    JOHN
                  D. HIESTANDJohn
                  D. HiestandChief
                  Financial Officer(Principal
                  Financial Officer)
  29