Edgar Filing: Merriman Curhan Ford Group, Inc.

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

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

For the Transition Period from to .

Commission file number: 1-15831

MERRIMAN CURHAN FORD GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

(415) 248-5600

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

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

Merriman Curhan Ford Group, Inc.

Index

		Page No.
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Statements of Operations For the Three Months and Six Months Ended June 30, 2009 and 2008		3
Consolidated Statements of Financial Condition as of June 30, 2009 and December 31, 2008		4
Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2009 and 2008		5
Notes to Consolidated Financial Statements		6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		32
ITEM 4. Controls and Procedures		33

PART II OTHER INFORMATION
ITEM 1. Legal Proceedings		34
ITEM 1A. Risk Factors		39
ITEM 6. Exhibits		40
Signatures		41
Certifications

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

MERRIMAN CURHAN FORD GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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

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

MERRIMAN CURHAN FORD GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(unaudited)

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

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

MERRIMAN CURHAN FORD GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(2,486,627	)	$	(12,163,818	)

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

Supplementary disclosure of cash flow information:
Cash paid during the period:
Interest	$	34,055		$	37,924
Income taxes	$	5,200		$	566,858
Supplementary non-cash information:
Stock received as part of sale of Panel		100,000			–
Conversion of note payable into common stock	$	–			200,000
Property acquired through capitalized leases	$	–			805,776

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

The interim financial statements included herein for Merriman Curhan Ford Group, Inc. (formerly MCF Corporation), or the Company, have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the financial statements included in this report reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of the results of operations for the interim periods covered and the financial position of the Company at the date of the interim statement of financial condition. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to understand the information presented. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with the Company’s 2008 audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K and on Form 10-K/A for the year ended December 31, 2008.

Under FASB Statement No. 165, “Subsequent Events”, the Company has evaluated all subsequent events through August 11, 2009, the date these consolidated financial statements were filed with the SEC.

Securities Owned

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

Fair Value of Financial Instruments

Substantially all of the Company's financial instruments are recorded at fair value or contract amounts that approximate fair value. Securities owned and securities sold, not yet purchased are stated at fair value, with any related changes in unrealized appreciation or depreciation reflected in Principal Transactions in the consolidated statements of operations. The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, securities owned, due from clearing broker, accounts receivable, assets held for sale, accounts payable, commissions and bonus payable, accrued expenses, due to clearing and other brokers, liabilities held for sale and note payable approximate their fair values due to their short term nature and, where applicable, market interest rates.

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

Fair Value Measurement—Definition and Hierarchy

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

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

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

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

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

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

For further information on financial assets and liabilities that are measured at fair value on a recurring and nonrecurring basis, and a description of valuation techniques, see Note 4, Fair Value of Assets & Liabilities.

Investment Banking Revenue

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

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

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

Commissions and Principal Transactions Revenue

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

1. Significant Accounting Policies - Continued

Share-Based Compensation Expense

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

To calculate option-based compensation, the Company uses the Black-Scholes option pricing model, which is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. No tax benefits were attributed to the share-based compensation expense because a valuation allowance was maintained for all net deferred tax assets.

Income Taxes

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

Use of Estimates

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

Segment Reporting

The Company has determined that it has only one operating and reportable segment, Merriman Curhan Ford & Co., for the purpose of making operating decisions and assessing performance, which comprised more than 90% of the Company’s consolidated total assets as of June 30, 2009 and consolidated total revenues for the three and six month period ended June 30, 2009. In the fourth quarter of 2008, Merriman Curhan Ford Group, Inc. decided to begin the process of liquidating the funds under management by MCF Asset Management, LLC, and is not considered an operating and reportable segment. In January 2009, the Company sold its primary research business, Panel Intelligence, LLC. and has presented its results of operations as discontinued operations.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

1. Significant Accounting Policies - Continued

New Accounting Pronouncements

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

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

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

2. Going Concern

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

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

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

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

Continue to reduce operating costs

Shed non-essential operations

Negotiate a settlement of pending litigations

Raise additional capital

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

2. Going Concern — continued

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

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

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

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

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

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

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

3. Issuance of Debt

On May 29, 2009, the Company sold and issued $525,000 in principal amount of Secured Convertible Promissory Notes (each a “Note,” and collectively, the “Notes”). On June 1, 2009, the Company issued an additional $100,000 of Notes. The investor group included eight individuals, comprised of certain officers and employees of the Company as well as an outside investor. The Notes were issued in a private placement exempt from registration requirements. There were no underwriters, underwriting discounts or commissions involved in the transactions. The Notes carry an interest rate of 11% per annum, payable in cash quarterly, and are due upon the earlier of two years from issuance or a change in control of the Company. As part of this transaction, the Company entered into a Security Agreement with the investors in the Notes by which the Company pledged all assets of the Company as security for the Notes. If the Company were to liquidate, the investors in the Notes would have to be repaid before any other obligations of the Company, which would reduce the amount of assets available for distribution to the Company’s Stockholders.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

The Notes are convertible into common stock of the Company at a price of $0.50 per share and come with warrants (the “Warrants”) to purchase additional shares of common stock of the Company at $0.50 per share for a number of shares of common stock equal to 75% of the principal amount of the Notes purchased, divided by $0.50. The Notes are convertible beginning six months after issuance while the Warrants are exercisable immediately.

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

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

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

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

4. Fair Value of Assets and Liabilities

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

Securities Owned

Corporate Equities

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

Stock Warrants

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

4. Fair Value of Assets and Liabilities — continued

Underwriters’ Purchase Options

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

Preferred Stock

Preferred stock represents preferred equity in publicly traded companies. The preferred stock owned by the Company is convertible at the Company’s discretion. For these securities, the Company uses the exchange-quoted price of the common stock to value the securities. They are classified within Level 1 of the fair value hierarchy.

Securities Sold, Not Yet Purchased

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

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

	Assets at Fair Value at June 30, 2009
	Level 1			Level 2			Level 3			Total
Assets:
Securities owned:
Corporate equities		$	3,834,751		$	—		$	25,033		$	3,859,784
Stock warrants			—			—			1,306,930			1,306,930
Preferred stock			456			—			—			456
Total securities owned		$	3,835,207		$	—		$	1,331,963		$	5,167,170

Liabilities:
Securities sold, not yet purchased		$	3,829		$	—		$	—		$	3,829
Total fair value liabilities		$	3,829		$	—		$	—		$	3,829

	Assets at Fair Value at December 31, 2008
	Level 1			Level 2			Level 3			Total
Assets:
Securities owned:
Corporate equities		$	3,353,784		$	650		$	695		$	3,355,129
Stock warrants			—			—			1,605,451			1,605,451
Underwriters’ purchase option			—			—			27,995			27,995
Preferred stock			63			—			—			63
Total securities owned		$	3,353,847		$	650		$	1,634,141		$	4,988,638

Liabilities:
Securities sold, not yet purchased		$	903,217		$	—		$	—		$	903,217
Total fair value liabilities		$	903,217		$	—		$	—		$	903,217

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

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

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

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

5. Share-Based Compensation Expense

Stock Options

As of June 30, 2009, there were 7,091,430 shares authorized for issuance under the Option Plans, and 612,858 shares authorized for issuance outside of the Option Plans. As of June 30, 2009, 488,318 shares were available for future option grants under the Option Plans. There were no shares available for future option grants outside of the Option Plans. Compensation expense for stock options during the three months and six months ended June 30, 2009 was $146,000 and $210,000, respectively. Compensation expense for stock options during the three months and six months ended June 30, 2008 was $402,000 and $784,000, respectively.

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

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Share Based Compensation Expense (continued)

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

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

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

Non-Vested Stock

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

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

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

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Share-Based Compensation Expense (continued)

Fair Value and Assumptions Used to Calculate Fair Value

The weighted average fair value of each stock option granted for the three months and six months ended June 30, 2009 was $0.28 and $0.27, respectively. The weighted average fair value of each stock option granted for the three months and six months ended June 30, 2008 was $2.31 and $2.49, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes stock option pricing model, with the following assumptions for the six months ended June 30, 2009 and 2008:

	Six months Ended June 30,
	2009			2008
Expected volatility		110.65	%		70.42	%
Expected life (years)		2.95			6.43
Risk-free interest rate		1.35	%		3.11	%
Expected dividend yield		0	%		0	%

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

6. Income Taxes

At the end of each interim reporting period the Company calculates an effective tax rate based on the Company’s estimate of the tax provision (benefit) that will be provided for the full year, stated as a percentage of estimated annual pre-tax income (loss). The tax provision (benefit) for the interim period is determined using this estimated annual effective tax rate. For the three and six months ended June 30, 2009, the Company recorded immaterial income tax expense. For the same periods in 2008, the Company recorded a benefit of $1,398,000. The effective tax rate for the three and six months ended June 30, 2009 is zero because the Company is operating at a loss.

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

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

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

7. Discontinued Operations

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

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

In December 2008, we determined that the sale of Panel would reduce investments required to develop Panel’s business. Its sale would also generate capital necessary for our core business. The sale of Panel was completed in January 2009. We determined that the plan of sale criteria in FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” had been met. As a result, the revenue and expenses of Panel have been reclassified and included in discontinued operations in the consolidated statements of operations. Accordingly, the carrying value of the Panel assets was adjusted to their fair value less costs to sell. As a result, an impairment loss in the amount of $1,937,000 was recorded and is included in “Other expenses” for the year ended December 31, 2008. In January 2009, we sold Panel to Panel Intelligence, LLC (Newco) for $1,000,000 and shares of our common stock in the amount of $100,000.

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

	Three Months Ended					Six Months Ended
	June 30, 2009		June 30, 2008			June 30, 2009			June 30, 2008

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

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

8. Sale of a Component of an Entity

On January 16, 2009, the Company entered into an agreement to sell the assets of Institutional Cash Distributors (ICD), a division of Merriman Curhan Ford & Co., to a group of investors who are also its employees in order to raise capital. ICD is a broker of money market funds serving the short-term investing needs of corporate finance departments at companies throughout the United States and Europe. The assets being sold include the Company’s rights in trademark, copyright and other intellectual property used in the business, customer lists, marketing materials, and books and records. The Company determined that the discontinued operations criteria in FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” have not been met, as such the revenues and expenses of ICD are still presented as part of continuing operations. In accordance with SAB 104 , Revenue Recognition , the Company recognized $1.2 million in the first quarter 2009 and $800,000 in the second quarter 2009 as Other Income. As of June 30, 2009, all sales proceeds have been received.

9. Loss per Share

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

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

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding, excluding shares of non-vested stock. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding, including non-vested stock. Diluted loss per share is unchanged from basic loss per share for the three and six months ended June 30, 2009 and 2008 because the addition of common shares that would be issued assuming exercise or conversion would be anti-dilutive. Interest and dividends are also not considered since including them in the calculation of diluted earnings per share would be anti-dilutive.

Shares used in the diluted net loss per share computation include the dilutive impact of the Company’s stock options and warrants. The impact of the Company’s stock options and warrants on shares used for the diluted loss per share computation is calculated based on the average share price of the Company’s common stock for each period using the treasury stock method. Under the treasury stock method, the tax-effected proceeds that would be hypothetically received from the exercise of all stock options and warrants with exercise prices below the average share price of the Company’s common stock are assumed to be used to repurchase shares of the Company’s common stock. Because the Company reported a net loss during the three and six months ended June 30, 2009 and 2008, the Company excluded the impact of all stock options and warrants in the computation of diluted earnings per share, as their effect would be anti-dilutive.

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

9. Loss per Share (continued)

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Stock options and warrants excluded due to the exercise price exceeding the average fair value of the Company's common stock during the period		4,177,082		4,198,770		2,803,375		2,226,464

Weighted average non-vested stock, stock options and stock warrants, calculated using the treasury stock method, that were excluded due to the Company reporting a net loss during the period		43,974		348,754		45,263		740,477

Weighted average shares issuable for the period prior to the conversion of the convertible notes payable		0		45,526		0		94,192

Total common stock equivalents excluded from diluted net (loss) income per share		4,221,056		4,593,050		2,848,638		3,061,133

10. Regulatory Requirements

Merriman Curhan Ford & Co. is a broker-dealer subject to Rule 15c3-1 of the Securities and Exchange Commission, which specifies uniform minimum net capital requirements, as defined, for their registrants. As of June 30, 2009, Merriman Curhan Ford & Co. had regulatory net capital, as defined, of $1,620,000, which exceeded the amount required by $1,364,000. Merriman Curhan Ford & Co. is exempt from Rules 15c3-3 and 17a-13 under the Securities Exchange Act of 1934 because it does not carry customer accounts, nor does it hold customer securities or cash.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

11. Contingencies

A number of lawsuits have been filed against the Company’s wholly owned subsidiary, Merriman Curhan Ford & Co. (“MCF”) (including at least one which also names the parent company as the defendant) in connection with the actions of William Del Biaggio III (“Del Biaggio”), a former customer of MCF and David Scott Cacchione (“Cacchione”), a former retail broker of MCF. The total amount of damages sought under such lawsuits is approximately $47.5 million. In addition, there is at least one additional threatened claim against MCF relating to the actions of Del Biaggio and Cacchione, in the approximate amount of $10 million.

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

The Company and MCF deny any liability and are vigorously contesting these lawsuits and the arbitration. At this point, the Company cannot estimate the amount of damages if they are resolved unfavorably and accordingly, we have not provided an accrual for these lawsuits and arbitration. If the Company or MCF were to be found liable in these lawsuits and the arbitration and the plaintiffs were to be awarded the damages they seek, it would have a severe impact on the Company's financial condition and the Company would likely not be able to continue in business. Even if the Company and MCF ultimately prevail in all of these lawsuits, they will almost certainly incur significant legal fees which could also have a severe impact on the Company's financial condition.

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

12. Subsequent events

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

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

This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “may,” “will,” “should,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “predicts,” “potential” or “continue,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified under “Risk Factors” beginning on Page 38 and elsewhere herein. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Numbers expressed herein may be rounded to thousands of dollars.

Overview

We are a financial services holding company that provides investment research, capital markets services, corporate and venture services, and investment banking through our operating subsidiary, Merriman Curhan Ford & Co.

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

In January 2009, we entered into an agreement to sell the assets of Institutional Cash Distributors (ICD), a division of Merriman Curhan Ford & Co., to a group of investors who are also its employees in order to raise capital. ICD is a broker of money market funds serving the short-term investing needs of corporate finance departments at companies throughout the United States and Europe. We expect the sale to be completed in the third quarter 2009 when we will no longer include the results of its operations and its financial condition in our financial statements.

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

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

Going Concern

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

Continue to reduce operating costs

Shed non-essential operations

Negotiate a settlement of pending litigations

Raise additional capital

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

Executive Summary

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

Business Environment

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

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

Fluctuations in revenue also occur due to the overall level of market activity, which, among other things, affects the flow of investment dollars and the size, number and timing of investment banking transactions. In addition, a downturn in the level of market activity can lead to a decrease in brokerage commissions. Therefore, revenue in any particular period may vary significantly from year to year.

Our securities broker-dealer and investment banking activities are linked to the capital markets. In addition, our business activities are focused in the CleanTech, Consumer/Internet/Media, Health Care, Resources and Technology sectors By their nature, our business activities are highly competitive and are not only subject to general market conditions, volatile trading markets and fluctuations in the volume of market activity, but also to the conditions affecting the companies and markets in our areas of focus.

Issuance of Debt

On May, 2009, the Company sold and issued $525,000 in principal amount of Secured Convertible Promissory Notes (each a “Note,” and collectively, the “Notes”). On June 1, 2009, the Company issued an additional $100,000 of the Notes. The investor group included eight individuals, comprised of certain officers and employees of the Company as well as an outside investor. The Notes were issued in a private placement exempt from registration requirements. There were no underwriters, underwriting discounts or commissions involved in the transactions. The Notes carry an interest rate of 11% per annum, payable in cash quarterly, and are due upon the earlier of two years from issuance or a change in control of the Company. The Notes are convertible into common stock of the Company at a price of $0.50 per share and come with warrants (the “Warrants”) to purchase additional shares of common stock of the Company at $0.50 per share for a number of shares of common stock equal to 75% of the principal amount of the Notes purchased, divided by $0.50. The Notes are convertible beginning six months after issuance and the Warrants are exercisable immediately.

Results of Operations

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

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

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

	Three Months Ended					Six Months Ended
	June 30, 2009			June 30, 2008		June 30, 2009			June 30, 2008
Depreciation and amortization	$	115,749			162,946	$	273,601		$	306,171
Amortization of intangible assets		—			116,535		—			233,070
Stock-based compensation		170,163			653,281		259,779			1,316,606
Amortization of discounts on debt		9,768			—		9,768			2,584
Impairment of goodwill		—			2,601,516		—			2,208,735
Impairment of intangible assets		—			—		—			392,781
Loss on disposal of equipment and fixtures		—			—		294,379			—
Provision for uncollectible accounts receivable		155,473			113,758		155,473			280,543
Securities received for services		—			—		(168,913	)		(1,545,788	)
Unrealized (gain) loss on securities owned		(318,129	)		—		693,648			381,431
Total	$	133,024			3,648,036	$	1,517,735		$	3,576,133

Investment Banking Revenue

Our investment banking activity includes the following:

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

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

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

	Three Months Ended				Six Months Ended

	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Revenue:
Capital raising	$	571,250	$	4,252,495	$	924,133	$	7,482,685
Financial advisory and other		496,200		194,500		1,359,734		340,721
Total investment banking revenue	$	1,067,450	$	4,446,995	$	2,283,867	$	7,823,406

Transaction Volumes:
Public offerings:
Capital underwritten participations	$	34,375,000	$	182,780,000	$	34,375,000	$	182,780,000
Number of transactions		1		3		1		3
Private placements:
Capital raised	$	6,000,000	$	74,700,000	$	7,753,000	$	238,900,000
Number of transactions		1		4		2		9
Financial advisory:
Transaction amounts	$	23,300,000	$	45,000,000	$	52,900,000	$	87,300,000
Number of transactions		2		1		5		3

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

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

Commissions and Principal Transactions Revenue

Our broker-dealer activity includes the following:

Commissions - Commissions include revenue resulting from executing stock trades in exchange-listed securities, over-the-counter securities and other transactions as agent.

Principal Transactions - Principal transactions consist of a portion of dealer spreads attributed to our securities trading activities as principal in NASDAQ-listed and other securities, and include transactions derived from our activities as a market-maker. Additionally, principal transactions include gains and losses resulting from market price fluctuations that occur while holding positions in our trading security inventory.

The following table sets forth our revenue and several operating metrics which we utilize in measuring and evaluating performance and the results of our trading activity operations:

	Three Months Ended				Six Months Ended

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

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

Principal transactions declined by 47% during the second quarter 2009 versus our substantial gains experienced in the second quarter 2008 but improved from a loss of $843,000 in the first quarter 2009. The improvement included increased profitability in our market making activities, as well as realized and unrealized gains in our investment portfolio. As of June 30, 2009, we made markets in 151 stocks, compared to 1,361 stocks as of June 30, 2008. Principal transactions revenue consists of four different activities - customer principal trades, market making, trading for our proprietary account, and realized and unrealized gains and losses in our investment portfolio. As a broker-dealer, we account for all of our marketable security positions on a trading basis and as a result, all security positions are marked to fair market value each day. Returns from market making and proprietary trading activities tend to be more volatile than acting as agent or principal for customers.

During the second quarter of 2009 proprietary trading contributed $423,000 in realized and unrealized trading gains versus a loss of $436,000 in the same period in 2008.

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

Compensation and Benefits Expenses

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

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

Three Months Ended

Six Months Ended

June 30,

2009

June 30,

2008

June 30,

2009

June 30,

2008

Incentive compensation and discretionary bonuses