Edgar Filing: Merriman Curhan Ford Group, Inc.

Unassociated Document

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

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

For the Transition Period from ____________ to ____________.

Commission file number: 1-15831

MERRIMAN CURHAN FORD GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

(415) 248-5600

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 9, 2010 was 14,066,542.

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, 2010 and 2009		3
Consolidated Statements of Financial Condition as of June 30, 2010 and December 31, 2009		4
Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2010 and 2009		5
Notes to Consolidated Financial Statements		6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		29
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		46
ITEM 4. Controls and Procedures		47

PART II OTHER INFORMATION
ITEM 1. Legal Proceedings		48
ITEM 1A. Risk Factors		49
ITEM 6. Exhibits		50
Signatures		51
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,			June 30,			June 30,			June 30,
	2010			2009			2010			2009

Revenue:
Commissions	$	4,136,074		$	2,636,964		$	7,442,727		$	5,681,015
Principal transactions		382,942			749,327			176,161			(93,210	)
Investment banking		1,515,637			1,067,450			7,562,310			2,283,867
Advisory and other		124,968			647,867			364,341			1,206,680

Total revenue		6,159,621			5,101,608			15,545,539			9,078,352

Operating expenses:
Compensation and benefits		5,042,126			3,514,595			10,598,377			7,164,060
Brokerage and clearing fees		333,081			253,769			770,171			551,798
Professional services		476,012			456,957			738,561			1,222,140
Occupancy and equipment		497,237			479,566			971,840			1,038,446
Communications and technology		544,403			650,626			1,086,476			1,328,383
Depreciation and amortization		100,363			115,749			202,854			262,991
Travel and entertainment		353,061			171,124			651,569			250,254
Legal services and litigation settlement expense		691,480			449,639			1,012,592			778,612
Cost of underwriting capital		230,000			-			960,576			-
Other		385,423			461,035			713,349			1,097,533

Total operating expenses		8,653,186			6,553,060			17,706,365			13,694,217

Operating loss		(2,493,565	)		(1,451,452	)		(2,160,826	)		(4,615,865	)

Other income		29,319			800,000			29,319			2,000,000
Interest income		3,132			2,679			6,467			9,166
Interest expense		(17,776	)		(28,459	)		(32,696	)		(43,823	)

Loss from continuing operations before income taxes		(2,478,890	)		(677,232	)		(2,157,736	)		(2,650,522	)

Income tax expense		(13,723	)		(1,984	)		(29,017	)		(5,200	)

Loss from continuing operations		(2,492,613	)		(679,216	)		(2,186,753	)		(2,655,722	)

Income from discontinued operations		60,617			116,476			95,104			169,095

Net loss	$	(2,431,996	)	$	(562,740	)	$	(2,091,649	)	$	(2,486,627	)
Preferred stock cash dividend		(147,900	)		-			(299,700	)		-

Net loss attributable to common shareholders	$	(2,579,896	)	$	(562,740	)	$	(2,391,349	)	$	(2,486,627	)

Basic net income (loss) per share:
Loss from continuing operations	$	(0.18	)	$	(0.05	)	$	(0.17	)	$	(0.21	)
Income from discontinued operations		-			0.01			0.01			0.01

Net loss	$	(0.18	)	$	(0.04	)	$	(0.16	)	$	(0.20	)

Net loss attributable to common shareholders	$	(0.19	)	$	(0.04	)	$	(0.18	)	$	(0.20	)

Diluted net income (loss) per share:
Loss from continuing operations	$	(0.18	)	$	(0.05	)	$	(0.17	)	$	(0.21	)
Income from discontinued operations		-			0.01			0.01			0.01

Net loss	$	(0.18	)	$	(0.04	)	$	(0.16	)	$	(0.20	)

Net loss attributable to common shareholders	$	(0.19	)	$	(0.04	)	$	(0.18	)	$	(0.20	)

Weighted average number of common shares:
Basic		13,631,208			12,510,805			13,197,487			12,549,477
Diluted		13,631,208			12,510,805			13,197,487			12,549,477

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,			December 31,
	2010			2009

ASSETS

Cash and cash equivalents	$	3,907,094		$	5,656,750
Securities owned:
Marketable, at fair value		3,409,272			4,728,940
Not readily marketable, at estimated fair value		1,175,017			272,463
Other		62,682			67,448
Restricted cash		1,072,086			1,072,086
Due from clearing broker		124,936			2,546,581
Accounts receivable, net		1,331,063			470,992
Prepaid expenses and other assets		1,343,752			801,946
Equipment and fixtures, net		318,257			506,535

Total assets	$	12,744,159		$	16,123,741

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Accounts payable	$	256,880		$	346,220
Commissions and bonus payable		2,610,068			4,133,924
Accrued expenses		2,683,783			2,755,831
Due to clearing and other brokers		5,376			7,185
Securities sold, not yet purchased		132,491			161,461
Deferred revenue		40,000			304,334
Capital lease obligation		261,213			397,958

Total liabilities		5,989,811			8,106,913

Stockholders’ equity:
Convertible preferred stock, Series A–$0.0001 par value; 2,000,000 shares authorized; 2,000,000 shares issued and 0 shares outstanding as of June 30, 2010 and December 31, 2009; aggregate liquidation preference of $0		-			-
Convertible preferred stock, Series B–$0.0001 par value; 12,500,000 shares authorized; 8,750,000 shares issued and 0 shares outstanding as of June 30, 2010 and December 31, 2009; aggregate liquidation preference of $0		-			-
Convertible preferred stock, Series C–$0.0001 par value; 14,200,000 shares authorized; 11,800,000 shares issued and 0 shares outstanding as of June 30, 2010 and December 31, 2009; aggregate liquidation preference of $0		-			-
Convertible preferred stock, Series D–$0.0001 par value; 24,000,000 shares authorized, 23,720,916 and 23,720,916 shares issued and 22,697,662 and 23,720,916 shares outstanding as of June 30, 2010 and December 31, 2009, respectively; aggregate liquidation preference of $9,759,995 prior to conversion, and pari passu with common stock on conversion		2,269			2,372
Common stock, $0.0001 par value; 300,000,000 shares authorized; 14,256,119 and 12,988,073 shares issued and 14,054,542 and 12,786,496 shares outstanding as of June 30, 2010 and December 31, 2009, respectively		1,423			1,299
Additional paid-in capital		133,883,340			133,054,192
Treasury stock		(225,613	)		(225,613	)
Accumulated deficit		(126,907,071	)		(124,815,422	)

Total stockholders’ equity		6,754,348			8,016,828

Total liabilities and stockholders’ equity	$	12,744,159		$	16,123,741

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,			June 30,
	2010			2009

Cash flows from operating activities:
Net loss	$	(2,091,649	)	$	(2,486,627	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of Institutional Cash Distributors		-			(2,000,000	)
Depreciation and amortization		202,854			273,601
Stock-based compensation		834,780			259,779
Amortization of discount on convertible note		-			9,768
Loss (gain) on disposal of equipment and fixtures		(2,987	)		294,379
Provision for uncollectible accounts receivable		44,753			155,473
Securities received for services		(944,188	)		(168,913	)
Unrealized loss on securities owned		764,090			693,648
Changes in operating assets and liabilities:
Securities owned and sold, not yet purchased		573,006			(1,564,221	)
Restricted cash		-			3,331
Due from clearing broker		2,421,645			(279,424	)
Accounts receivable		(904,824	)		(406,191	)
Prepaid expenses and other assets		(541,806	)		468,929
Accounts payable		(89,341	)		(804,959	)
Commissions and bonus payable		(1,523,856	)		(5,280	)
Accrued expenses		(79,011	)		(1,383,720	)
Due to clearing and other brokers		(1,810	)		(20,132	)

Net cash used in operating activities		(1,338,344	)		(6,960,559	)

Cash flows from investing activities:
Purchase of equipment and fixtures , net		(11,587	)		-
Sale of Panel Intelligence		-			702,966
Sale of Institutional Cash Distributors		-			2,000,000

Net cash (used in) provided by investing activities		(11,587	)		2,702,966

Cash flows from financing activities:
Proceeds from the exercise of stock options		36,720			-
Proceeds from issuance of convertible notes payable		-			625,000
Proceeds from issuance of notes payable - short term		-			300,000
Proceeds from subordinated loan		18,000,000			-
Payments on subordinated loan		(18,000,000	)		-
Preferred stock dividend		(299,700	)		-
Debt service principal payments		(136,745	)		(381,901	)

Net cash (used in) provided by financing activities		(399,725	)		543,099

Decrease in cash and cash equivalents		(1,749,656	)		(3,714,494	)

Cash and cash equivalents at beginning of year		5,656,750			6,358,128

Cash and cash equivalents, assets held for sale		-			222,892

Cash and cash equivalents at end of the period	$	3,907,094		$	2,866,526

Supplementary disclosure of cash flow information:
Cash paid during the year:
Interest	$	25,546		$	34,055
Income taxes	$	35,000		$	5,200

Noncash investing and financing activities:
Warrant issued for legal settlement	$	257,370		$	-
Stock received as part of Panel sale	$	-		$	100,000

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

The interim unaudited consolidated financial statements included herein for Merriman Curhan Ford Group, Inc. (formerly MCF Corporation), or the Company, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the consolidated financial statements included in this report reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of the consolidated results of operations for the interim periods covered and the consolidated financial position of the Company at the date of the interim statement of financial condition. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to understand the information presented. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These consolidated financial statements should be read in conjunction with the Company’s 2009 audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K and on Form 10-K/A for the year ended December 31, 2009.

Under Accounting Standards Codification Topic (“ASC”) 855, “Subsequent Events”, the Company has evaluated all subsequent events through the date these consolidated financial statements were issued.

Securities Owned and Securities Sold, Not Yet Purchased

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

Fair Value of Financial Instruments

Substantially all of our financial instruments are recorded at fair value or contract amounts that approximate fair value. Securities Owned and Securities Sold, Not Yet Purchased, are stated at fair value, with any related changes in unrealized appreciation or depreciation reflected in Principal Transactions in the consolidated statements of operations. Financial instruments carried at contract amounts include cash and cash equivalents and amounts due from and to brokers, dealers and clearing brokers.

Fair Value Measurement—Definition and Hierarchy

The Company follows the provisions of ASC 820, “Fair Value Measurement and Disclosures”, for our financial assets and liabilities. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. Assets and liabilities recorded at fair value in the consolidated statement of financial condition are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The Company’s financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

1. Significant Accounting Policies - continued

Fair Value Measurement—Definition and Hierarchy - continued

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

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

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

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

For further information on financial assets and liabilities that are measured at fair value on a recurring basis, and a description of valuation techniques, see Note 5, Fair Value of Assets and Liabilities.

Investment Banking Revenue

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

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

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

1. Significant Accounting Policies — continued

Commissions and Principal Transactions Revenue

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

Stock-based Compensation Expense

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

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

Income Taxes

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

1. Significant Accounting Policies — continued

Use of Estimates

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

Segment Reporting

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

New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements," which amends the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance also clarifies the existing disclosure requirements in ASC 820-10 regarding: i) the level of disaggregation of fair value measurements; and ii) the disclosures regarding inputs and valuation techniques. The guidance became effective for the Company with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the Company with the reporting period beginning January 1, 2011, with early adoption permitted. Effective April 1, 2010, the Company early adopted the guidance in ASC 820-10 related to the disclosure on the roll forward activities for Level 3 fair value measurements. Other than requiring additional disclosures, the adoption of this new guidance did not have an impact on our consolidated financial statements. (See Note 5 - Fair Value of Assets and Liabilities.)

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

2. Liquidity

We incurred substantial losses and negative cash flows from operations in 2009 and 2008. We had net losses of $5,462,000 and $30,274,000 in 2009 and 2008, respectively, and negative operating cash flows of $12,648,000 and $24,945,000 for the same respective years. For the six months ended June 30, 2010, we also incurred net losses of $2,092,000 and negative operating cash flows of $1,338,000. Furthermore, as of June 30, 2010, we had an accumulated deficit of $126,907,000. While we believe our current funds will be sufficient to enable us to meet our current expenditures, if anticipated operating results are not achieved, management has the intent and believes it has the ability to delay or reduce expenditures and/or to raise additional capital. We plan to raise additional permanent capital to ensure our operating flexibility and to reduce our cost of underwriting capital. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives.

3. Issuance of Notes and Warrants

Convertible Notes

On May 29, 2009, the Company sold and issued $525,000 in principal amount of Secured Convertible Promissory Notes (each a “Note,” and collectively, the “Notes”). On June 1, 2009, the Company issued an additional $100,000 of Notes. The investor group included eight individuals, comprised of certain officers and employees of the Company as well as an outside investor. The Notes were issued in a private placement exempt from registration requirements. There were no underwriters, underwriting discounts or commissions involved in the transactions. The Notes were converted into Series D Convertible Preferred Stock on September 8, 2009 (see Note 4). No Notes remain outstanding as of June 30, 2010.

The Notes were issued with warrants to purchase additional shares of common stock of the Company at $0.50 per share for a number of shares of common stock equal to 75% of the principal amount of the Notes purchased, divided by $0.50. The warrants issued in connection with the Notes remain outstanding as of June 30, 2010 and are exercisable at any time.

Bridge Note

Ronald L. Chez is a member of the Company’s Board of Directors. Prior to Mr. Chez joining the Board, he received a secured promissory note (the “Chez Note”) in the principal amount of $500,000 from the Company in July 2009. The Chez Note was issued in a private placement to Mr. Chez as an accredited investor exempt from registration requirements. The Chez Note carried an interest rate of 9% per annum, payable on maturity. The Chez Note was issued with ten-year warrants to purchase 1,162,791 shares of the Company’s common stock at $0.65 per share. The principal and interest accrued under the Chez Note was converted into Series D Convertible Preferred Stock on September 8, 2009. As of June 30, 2010, no portion of the Chez Note remains outstanding. The warrants remain outstanding and may be exercised at the discretion of the holder. The Chez Note was personally guaranteed by Messrs. Merriman and Coleman.

As compensation for their personal guarantees, D. Jonathan Merriman, the Company’s Chief Executive Officer, and Peter V. Coleman, the Chief Financial Officer, each originally received ten-year warrants to purchase 581,395 shares of the Company’s common stock at $0.65 per share. Subsequent to issuance, Messrs. Merriman and Coleman each transferred ownership of 228,327 warrants to Mr. Chez and retained ownership of 290,698 warrants each. The balance of 62,370 warrants was transferred by each of Messrs. Merriman and Coleman to third parties in connection with investments in the Company’s Series D Preferred Convertible Stock strategic transaction of September 2009.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

3. Issuance of Notes and Warrants — continued

XL Settlement Warrants

On February 12, 2010, the Company settled its lawsuit with XL Specialty Insurance Company. As part of its settlement agreement dated September 8, 2009 with DGB Investment, Inc., Craig Leipold, Heritage Bank of Commerce, Modern Bank, Valley Community Bank, AEG Facilities and the Federal Deposit Insurance Company (“FDIC”) as receiver for Security Pacific Bank (the “Litigants”), the Company assigned certain rights of recovery to the Litigants. The settlement was for $5,750,000, of which the Company’s portion, pursuant to the settlement agreement, was $325,000 less expenses. As a result of the receipt of the proceeds as insurance recovery on the legal settlement, the Company was obligated to issue 373,563 warrants to purchase shares of the Company’s common stock at a price per share of $0.87. As of December 31, 2009, the Company had accrued for the $325,000 liability that was paid out as warrants during the first quarter of 2010.

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

4. Series D Convertible Preferred Stock

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

The Series D Convertible Preferred Stock was issued in a private placement exempt from registration requirements pursuant to Regulation D of the Securities Act of 1933. Each share of Series D Convertible Preferred Stock is convertible into one share of common stock of the Company. The Series D Convertible Preferred Stock carries a dividend rate of 6% per annum, payable in cash monthly. For the three and six months ended June 30, 2010, total Series D Convertible Preferred Stock dividends were $147,900 and $299,700, respectively. As of June 30, 2010, the Company has an outstanding cash dividends payable of $48,800 which are included in Accounts Payable in the Consolidated Statements of Financial Position.

The warrants issued in connection with the Series D Convertible Preferred Stock will expire five years from the date of the transaction. Holders of the Series D Convertible Preferred Stock may convert them into shares of the Company’s common stock at any time in amounts no less than $100,000 unless all of the shares held by the holder are for a lesser amount. The Series D Convertible Preferred Stock will automatically convert at the discretion of the Company upon 10-day notice given when the average closing price of the Company’s common stock over a 30-day period is at or above $3.00 per share and when the average trading volume for the immediately prior four-week period is 30,000 shares or more, provided that the shares have been effectively registered with the Securities and Exchange Commission or all of the Series D Convertible Preferred Stock may be sold under Rule 144 of the 1933 Exchange Act.

The Company has accounted for this transaction as issuance of convertible preferred stock with detachable stock warrants. The total value of the Series D Convertible Preferred Stock strategic transaction was $10,200,000, which consists of $8,808,000 of cash proceeds and $1,392,000 of noncash proceeds from conversions of prior notes and legal services.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Fair Value of Assets and Liabilities

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

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

Corporate Equities

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

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

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

Certain securities are traded infrequently and therefore do not have observable prices based on actively traded markets. These securities are classified as Level 3 securities, if pricing inputs or adjustments are both significant to the fair value measurement and unobservable. The Company determines the fair value of infrequently trading securities using the observed closing price at measurement date, discounted for the put option value calculated through the Black-Scholes model or similar valuation techniques. Valuation inputs used in the Black-Scholes model include interest rate, stock volatility, expected term and market price of the underlying stock.

Stock Warrants

Also as partial compensation for investment banking services, the Company may receive stock warrants issued by the client. Stock warrants provide their holders with the right to purchase equity in a company. If the underlying stock of the warrants is freely tradable, the warrants are considered to be marketable. If the underlying stock is restricted, subject to a registration statement or to satisfying the requirements for a Rule 144 exemption, the warrants are considered to be non-marketable. Such positions are considered illiquid and do not have readily determinable fair values, and therefore require significant management judgment or estimation.

The fair value of the stock warrants is determined using the Black-Scholes model or similar valuation techniques. Valuation inputs used in the Black-Scholes model include interest rate, stock volatility, expected term and market price of the underlying stock. As these require significant management assumptions, they are classified as Level 3 securities.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Fair Value of Assets and Liabilities – continued

Underwriters’ Purchase Options

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

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

Preferred Stock

Preferred stock represents preferred equity in companies. The preferred stock owned by the Company is convertible at the Company’s discretion. For these securities, the Company uses the exchange-quoted price of the common stock equivalents to value the securities. They are classified within Level 2 or Level 3 of the fair value hierarchy depending on the availability of an observable stock price on actively traded markets.

Securities Sold, Not Yet Purchased

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Fair Value of Assets and Liabilities — continued

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Assets at Fair Value at June 30, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Corporate equities	$	2,783,228	$	-	$	42,791	$	2,826,019
Stock warrants		-		-		1,348,710		1,348,710
Underwriters' purchase option		-		-		408,941		408,941
Preferred stock		-		-		619		619

Total securities owned	$	2,783,228	$	-	$	1,801,061	$	4,584,289

Liabilities:
Securities sold, not yet purchased		132,491		-		-		132,491

Total fair value liabilities	$	132,491	$	-	$	-	$	132,491

	Assets at Fair Value at December 31, 2009
	Level 1		Level 2		Level 3		Total
Assets:
Corporate equities	$	3,403,757		-	$	21,731	$	3,425,488
Stock warrants		-		-		1,575,481		1,575,481
Underwriters' purchase option		-		-		-		-
Preferred stock		434		-		-		434

Total securities owned	$	3,404,191	$	-	$	1,597,212	$	5,001,403

Liabilities:
Securities sold, not yet purchased		161,461		-		-		161,461

Total fair value liabilities	$	161,461	$	-	$	-	$	161,461

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Fair Value of Assets and Liabilities — continued

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

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

Change in unrealized gains
(losses) relating to instruments still held
at June 30, 2010	$	(262,956	)	$	(133,427	)	$	(53,458	)	$	184		$	(449,657	)

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

(b) Principally reflects transfers from Level 1, due to reduced trading activity, and therefore price transparency, on the underlying instruments.

							Underwriters'
	Corporate			Stock			Purchase
	Equities			Warrants			Option			Total
Balance at December 31, 2008	$	695		$	1,605,451		$	27,995		$	1,634,141
Purchases, issuances, settlements and sales		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

Change in unrealized gains (losses) relating to instruments still held at June 30, 2009	$	(13,171	)	$	(170,004	)	$	-		$	(183,174	)

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Fair Value of Assets and Liabilities — continued

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

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

Change in unrealized gains
(losses) relating to instruments still held
at June 30, 2010	$	(114,219	)	$	54,434	$	41,091		$	149	$	(18,545	)

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

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

							Underwriters'
	Corporate			Stock			Purchase
	Equities			Warrants			Options		Total
Balance at March 31, 2009	$	27,966		$	1,477,769		$	-	$	1,505,735
Purchases, issuances and settlements and sales		-			(264,027	)		-		(264,027	)
Net transfers in / (out)		(12,794	)		-			-		(12,794	)
Gains / (losses)										-
Realized		-			(79,093	)		-		(79,093	)
Unrealized		9,861			172,281			-		182,142
Balance at June 30, 2009	$	25,033		$	1,306,930		$	-	$	1,331,963

Change in unrealized gains (losses) relating to instruments still held at June 30, 2009	$	9,861		$	82,772		$	-	$	92,633

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

5. Fair Value of Assets and Liabilities — continued

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

Transfers within the Fair Value Hierarchy

We assess our financial instruments on a quarterly basis to determine the appropriate classification within the fair value hierarchy, as defined by ASC Topic 820. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial instruments among the levels occur at the end of the reporting period. There were no significant transfers between our Level 1 and Level 2 classified instruments during the three and six months ended June 30, 2010.

6. Stock-Based Compensation Expense

Stock Options

As of June 30, 2010, there were 15,091,430 shares authorized for issuance under the Option Plans, and 612,858 shares authorized for issuance outside of the Option Plans. As of June 30, 2010, 3,383,452 shares were available for future option grants under the Option Plans. There were no shares available for future option grants outside of the Option Plans. Compensation expense for stock options during the three and six months ended June 30, 2010 was $544,000 and $997,000, respectively. Of the total stock compensation expense for the six months ended June 30, 2010, $184,000 was incurred due to acceleration of vesting terms of stock options of two employees upon their termination. Compensation expense for stock options during the three months and six months ended June 30, 2009 was $146,000 and $210,000, respectively.

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

				Weighted-
				Average
				Exercise
	Shares			Price

Outstanding at December 31, 2009		9,550,117		$	1.24
Granted		732,850			0.84
Exercised		(108,000	)		(0.34	)
Cancelled		(451,612	)		(4.01	)

Outstanding at June 30, 2010		9,723,355		$	1.09

Exercisable at June 30, 2010		1,895,753		$	1.40

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

6. Stock-based Compensation Expense — continued

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

		Options Outstanding at June 30, 2010								Vested Options at June 30, 2010
				Weighted-
				Average		Weighted-						Weighted-
				Remaining		Average		Aggregate				Average		Aggregate
Range of				Contractual		Exercise		Intrinsic				Exercise		Intrinsic
Exercise Price		Number		Life (Years)		Price		Value		Number		Price		Value

$	0.0000 - $0.4999		3,406,385		8.75	$	0.43	$	421,710		1,437,108	$	0.42	$	190,129
$	0.5000 - $0.9999		1,422,270		9.36		0.84		-		43,902		0.54		413
$	1.0000 - $1.4999		4,169,339		9.36		1.20		-		4,458		1.42		-
$	1.5000 - $1.9999		172,788		7.45		1.63		-		42,788		1.82		-
$	2.0000 - $4.9999		407,260		5.11		3.57		-		230,306		3.32		-
$	5.0000 - $9.9999		88,808		5.87		6.62		-		80,686		6.74		-
$	10.0000 - $19.9999		56,505		3.27		11.17		-		56,505		11.17		-

			9,723,355		8.87	$	1.09	$	421,710		1,895,753	$	1.40	$	190,542

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

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

	Six Months Ended June 30,
	2010			2009

Expected Volatility		135.77	%		110.65	%
Average expected term (years)		2.66			2.95
Risk-free interest rate		1.42	%		1.35	%
Dividend yield		-			-

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

6. Stock-based Compensation Expense — continued

Restricted Stock

At the date of grant, the recipients of restricted stock have most of the rights of a stockholder other than voting rights, subject to certain restrictions on transferability and a risk of forfeiture. The fair value of restricted stock is equal to the market value of the shares on the date of grant. The Company recognizes the compensation expense for restricted stock on a straight-line basis over the requisite service period. Compensation expense for restricted stock during the three months and six months ended June 30, 2010 was $27,000 and ($244,000), respectively. We had a negative stock compensation expense for the six months ended June 30, 2010 due to cancellation of restricted stock that had been granted to an employee who was terminated during the three months ended March 31, 2010. Compensation expense for restricted stock during the three and six months ended June 30, 2009 was $24,000 and $49,000, respectively.

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

				Weighted-
	Restricted			Average			Aggregate
	Stock			Grant Date			Intrinsic
	Outstanding			Fair Value			Value

Balance as of December 31, 2009		38,366		$	9.84
Granted		168,935			0.80
Vested		(97,015	)		(0.90	)
Cancelled		(32,143	)		(11.55	)

Balance as of June 30, 2010		78,143		$	1.05		$	42,979

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

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

Warrants Issued as Compensation

Starting September 2009, the Company has been issuing five-year warrants to purchase shares of the Company’s common stock at $0.65 to the Chairman of the Strategic Advisory Committee, a committee of the Board of Directors, as compensation for serving in that capacity. For the three months and six months ended June 30, 2010, the Company issued 75,000 and 150,000 warrants, respectively. For the three months and six months ended June 30, 2010, the Company recorded stock compensation expense of $37,000 and $82,000, respectively, based on the calculated fair value of the warrants using the Black-Scholes option valuation model. As of June 30, 2010, a total of 243,333 warrants have been issued and remain outstanding.

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

7. Income Taxes

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

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

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

8. Compliance with Listing Requirements

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

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

9. Discontinued Operations

Panel Intelligence LLC

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

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

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

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

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

9. Discontinued Operations - continued

Institutional Cash Distributors

On January 16, 2009, the Company entered into an agreement to sell the assets of ICD, a division of MCF, for $2,000,000 to a group of investors who were also its employees in order to raise capital. The assets sold included MCF’s rights in trademark, copyright, and other intellectual property used in the business, customer lists, marketing materials, and books and records, which did not have any carrying values. In accordance with SEC Staff Accounting Bulletin (SAB) 104, “Revenue Recognition”, the Company recognized $2,000,000 as Other Income in the Consolidated Statement of Operations during the six months ended June 30, 2009. In the second quarter of 2010, ICD, LLC, formed by the new group of investors, started supporting its operations fully and as such, did not require significant assistance from MCF. The Company terminated all employees supporting ICD business, and will not have significant involvement going forward. The Company determined that the criteria for discontinued operations under guidance ASC Topic 205, “Discontinued Operations”, have been met as of June 30, 2010. As a result, the revenue and expenses of ICD have been included in discontinued operations in the Consolidated Statements of Operations.

As of December 31, 2009 and June 30, 2010, there were no assets or liabilities held for sale by the Company that related to ICD that were included in the Company’s consolidated statements of financial condition.

The following revenue and expenses related to ICD have been reclassified as discontinued operations for the three and six months ended June 30, 2010 and 2009:

	Three Months Ended				Six Months Ended
	June 30, 2010		June 30, 2009		June 30, 2010		June 30, 2009

Total revenue	$	2,046,381	$	7,330,670	$	9,167,983	$	13,404,547

Operating expenses
Compensation & benefits		1,511,221		6,676,820		7,870,502		12,292,523
Brokerage & clearing fees		6,092		16,627		27,219		31,557
Professional services		72,239		13,199		345,450		31,793
Occupancy & equipment		172,771		6,926		180,948		24,435
Communications & technology		61,438		189,210		213,867		232,717
Other expenses		195,343		311,412		468,234		527,533
Total expense		2,019,104		7,214,194		9,106,220		13,140,558

Income from operations	$	27,277	$	116,476	$	61,763	$	263,989

MERRIMAN CURHAN FORD GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

10. Loss per Share

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009

Loss from continuing operations	$	(2,492,613	)	$	(679,216	)	$	(2,186,753	)	$	(2,655,722	)

Income from discontinued operations		60,617			116,476			95,104			169,095

Net loss	$	(2,431,996	)	$	(562,740	)	$	(2,091,649	)	$	(2,486,627	)
Convertible preferred stock, series D dividends		147,900			-			299,700			-
Net loss attributable to common shareholders - basic and diluted	$	(2,579,896	)	$	(562,740	)	$	(2,391,349	)	$	(2,486,627	)

Weighted-average number of common shares -basic		13,631,208			12,510,805			13,197,487			12,549,477
Assumed exercise or conversion of all potentially dilutive common shares outstanding		-			-			-			-
Weighted-average number of common shares -diluted		13,631,208			12,510,805			13,197,487			12,549,477

Basic net loss per share:
Loss from continuing operations	$	(0.18	)	$	(0.05	)	$