10-K 1 halo_10k123110.htm 10-K halo_10k123110.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
 
FORM 10-K
_______________
 
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
HALO COMPANIES, INC.
 (Exact name of registrant as specified in its charter)
 
Delaware
 
000-15862
 
13-3018466
(State or other jurisdiction of
incorporation or organization)
 
(Commission File No.)
 
(IRS Employee Identification No.)

One Allen Center, Suite 500
700 Central Expressway South
Allen, Texas 75013
(Address of Principal Executive Offices)
  _______________
 
214-644-0065
(Issuer Telephone number)
_______________
 

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  [_]     No  [X]
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes  [_]     No  [X]
 
Indicate by check mark whether the issuer:  (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 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  [_]
 
 
-1-

 
Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.  [X]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
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 Exchange Act.
Yes  [_]     No  [X] 
 
As of June 30, 2010, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the issuer was approximately $3,065,695 based on the last sales price of the issuer’s Common Stock, as reported by Bloomberg LP Investor Services.  This amount excludes the market value of all shares as to which any executive officer, director or person known to the registrant to be the beneficial owner of at least 5% of the registrant’s Common Stock may be deemed to have sole or shared voting power.
 
The number of shares outstanding of the registrant’s Common Stock as of March 4, 2011 was 65,429,706.
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
 
Listed below are documents incorporated herein by reference and the part of this Report into which each such document is incorporated:
 
None
 
-2-

 
FORM 10-K
TABLE OF CONTENTS
 
 
   
     
 
Part I
 
     
Item 1.
-4-
Item 1A.
-7-
Item 1B.
-10-
Item 2.
-10-
Item 3.
-10-
Item 4.
-11-
     
 
Part II
 
     
Item 5.
-11-
Item 6.
-12-
Item 7.
-12-
Item 7A.
-19-
Item 8.
-19-
Item 9.
-19-
Item 9A(T).
-19-
Item 9B.
-20-
     
 
PART III
 
     
Item 10.  
-20-
Item 11.  
-23-
Item 12.  
-25-
Item 13.  
-28-
Item 14.  
-29-
     
 
Part IV
 
     
Item 15.
-30-
     
  -31-

 
Certain statements in this Report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  When used in this Report, words such as “may,” “should,” “seek,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “goal,” “intend,” “strategy” and similar expressions are intended to identify forward-looking statements regarding events, conditions and financial trends that may affect the Company’s future plans, operations, business strategies, operating results and financial position.  Forward-looking statements are subject to a number of known and unknown risks and uncertainties (including the risks contained in the section of this report entitled “Risk Factors”) that could cause the Company’s actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements and its goals and strategies to not be achieved.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Report.  The Company does not undertake any responsibility to publicly update or revise any forward-looking statement or report.

PART I
 
 
General

Halo Companies, Inc. (“Halo” or the “Company”) was incorporated under the laws of the State of Delaware on December 9, 1986.  Its principal executive offices are located at One Allen Center, Suite 500, 700 Central Expy South, Allen, Texas 75013 and its telephone number is 214-644-0065.  The Company’s stock symbol is HALN.

Pursuant to an Agreement and Plan of Merger dated September 17, 2009 (the “Merger Agreement”), by and among GVC Venture Corp., a Delaware corporation, together with its subsidiaries, GVC Merger Corp., a Texas corporation and wholly owned subsidiary of the Company and Halo Group, Inc., a Texas corporation (“HGI”), GVC Merger Corp. merged with HGI, with HGI remaining as the surviving corporation and becoming a subsidiary of the Company (the “Merger”).  The Merger was effective as of September 30, 2009, upon the filing of a certificate of merger with the Texas Secretary of State.   The Company subsequently filed a restated Certificate of Incorporation with the Delaware Secretary of State effective December 11, 2009 which, among other things, effected a name change from GVC Venture Corp. to Halo Companies, Inc.  On the effective date of the Merger, HGI’s business became the business of the Company.  Unless otherwise provided in footnotes, all references from this point forward in this Report to “we,” “us,” “our company,” “our,” or the “Company” refer to the combined Halo Companies, Inc. entity, together with its subsidiaries.

Business Overview

Halo is a nationwide real estate investment, asset management and financial services company that provides technology and asset management solutions to asset owners as well as real estate and financial services to financially distressed consumers which can be applied individually or utilized as a comprehensive workout strategy. Halo is able to develop comprehensive, custom tailored solutions for consumers through debt settlement, credit repair, mortgage lending, real estate services and insurance protection. Halo also offers technology solutions, asset management, portfolio advisory and consulting services for investors and institutions holding portfolios or non-performing assets.

Products and Services

Halo focuses primarily on single family residential real estate across the United States as well as working with clients, who are either direct consumers of Halo or are a business customer of Halo (i.e. private funds who have clients whom own residential real estate property or mortgage backed investments) and who may be in various stages of financial need, to assist in reducing their debt, correcting their credit profile, securing a home mortgage, buying or selling a residence, providing proper insurance for their personal life and health and personal assets, mitigating potential home loss, and educating them in financial matters.  

Looking forward to the fiscal year ending December 31, 2011, our focus continues to remain on additional top line revenue growth in our subsidiaries named above while continuing to provide debt settlement services to the existing customers of HDS.  Effective October 27, 2010, there were no new sales in HDS (current servicing of existing customers is still active, including collecting of fees already earned and owed on all existing customers), rather all new sales of debt settlement services by Halo were performed by HFS and services performed specifically adhered with regulatory guidelines established under the recent amendments to the Federal Trade Commission’s (FTC) Telemarketing Sales Rule (“TSR”) applicable to debt settlement fees.  Under this TSR amendment, debt settlement companies are prohibited from, among other things, charging and accepting fees before the consumer’s debt has been settled and at least one payment has been made from the consumer to the creditor toward satisfying the settlement.  This massive overhaul and change in the debt settlement industry has had a much more dramatic impact than we anticipated.  Although HFS has seen an increase in the ability to quickly settle a customer’s debts and recognize revenue, it has become difficult to continue to market the service and obtain quality customers.  As more than 50% of the companies in the debt settlement industry closed their doors in late 2010, many of the lead vendors were unable to continue to utilize economies of scale to effectively market and produce viable debt settlement leads.  Throughout fourth quarter 2010, HFS saw lead marketing prices rise while lead quality decreased dramatically.  This impacted our ability to pass quality leads to our sales agents, which in turn lead to decreased sales and therefore a decrease in our ability to offer economically sensible compensation to our sales agents.  Because revenue is recognized following performance, the financial success of this business was going to be through long term residual growth built by building up a steady customer base over 2011 and seeing residual revenue start flowing in as successful customer settlements increased.  However, because management noticed a trend in rising marketing costs coupled with decreased sales volume and increased competition for leads and quality sales agents, management made a strategic decision to scale back sales operations and minimize the commitment of marketing dollars in HFS.  Management believes that operational capital is better spent on our opportunities in HAM and HPA and has seen an immediate impact on revenue since shifting increased marketing and operational capital to those subsidiaries at the expense of HFS.  Management believes the most effective way to leverage our HFS sales and negotiation back office is through both organic referrals from our other subsidiaries and wholesale accounts gained from our Client’s in HPA and our customers who seek our Assets in HAM.

The following outline briefly describes Halo’s various subsidiaries and the products and services they offer:

Halo Asset Management, LLC   Halo Asset Management (HAM) was formed as the operating company for the purchase or investment into funds of real estate owned (REO) properties or mortgage backed securities.  The primary investment focus is to acquire properties in metropolitan areas with an emphasis on acquiring below replacement cost, undervalued or distressed properties through REO.  The Company has allocated many of its resources to the development and launch of HAM which management believes will be the core business of the Company moving forward.  HAM will have access to the full gamut of operational efficiencies and stream line processes offered by the other Halo entities in order to properly service and provide necessary value added opportunities to the home owners and occupants in the homes that are purchased.  The success of HAM will be when home occupants reach financial rehabilitation thus helping the economic stabilization in the consumers’ respective local economies.  HAM created a unique business plan that takes advantage of two of the largest anomalies that exist in today’s residential real estate market: (1) the collapse of available capital for lending, and (2) the over-correction of home prices particularly in low-to moderate-income markets.

UHalo Portfolio Advisors, LLCU  Halo Portfolio Advisors (HPA) leverages the complete Halo business-to-consumer suite of services to market turnkey solutions to lenders and debt servicers. In today’s economy, lenders are experiencing an overflow of distressed assets.  Many debt servicers are currently overwhelmed with imposed programs that require more resources such as people, money and time to be effective. Halo’s technology systems are bundled with transparency, accountability, efficiency, speed, and flexibility. This unique strategy directs borrowers into an intelligent, results-driven process that establishes affordable, long-term mortgages while also achieving an improved return for lenders, debt servicers and investors, when compared to foreclosure.
 
UHalo Group Mortgage, LLCU   Halo Group Mortgage (HGM) is a full-service mortgage brokerage institution in the retail lending environment.  Currently licensed in several southwestern states, HGM specializes in partnering banks with both current and potential home owners to obtain mortgages.  During 2010, HGM began operations in a joint venture agreement for the purpose of providing mortgage banking services to consumers in states that HGM was not currently licensed in.
 
UHalo Debt Solutions, Inc.U  Halo Debt Solutions (HDS) provides debt settlement services, negotiating and settling various types of unsecured debt on behalf of its clients.  The Company’s primary goal is to help clients achieve an unsecured debt-free lifestyle.  The Company’s programs provide affordable payment plans, based upon each client’s personal financial situation.  HDS provides these services to its clients consistent with industry standards for debt negotiation and educational support.
 
UHalo Credit Solutions, LLCU  Halo Credit Solutions (HCS) uses proprietary credit repair management software to dispute inaccuracies and errors in consumer credit reports on behalf of its clients over a six-month time frame.  Each client exits the program with a guaranteed accurate credit report, as verified by credit reporting agencies.
 
UHalo Group Realty, LLCU  Halo Group Realty (HGR), a real estate agency, provides real estate services to home buyers and sellers, including marketing and listing services and home value appraisals.  Halo realizes that most of its clients have real estate needs and, because of the existing business relationship with other Halo subsidiaries, these clients are often willing to utilize the services of Halo Group Realty.
 
UHalo Loan Modification Services, LLCU  Halo Loan Modification Services has developed a process that puts its clients/borrowers into a systematic and streamlined work-out process to establish affordable, long-term mortgages.
 
UHalo Select Insurance Services, LLCU  Halo Select Insurance Services (HSIS) is a member in Halo Choice Insurance Services, LLC (HCIS), and owns a 49% interest.  Halo Select Insurance Services serves as a health and life insurance brokerage marketing multiple carriers’ products primarily in limited benefit health, major medical, short term medical, and life insurance.  HSIS is currently licensed in multiple states.  Halo Choice Insurance Services represents the lines of hundreds of insurance companies, including State Auto, Safeco, Travelers, CNA, Progressive, and Hartford.  Halo Choice Insurance Services’ relationships with these insurers give Halo Choice Insurance Services the opportunity to offer competitively-priced auto, home, life, health, small business and other insurance products to its clients.
 
UHalo Benefits, Inc.U  Formerly named Halo Group Consulting, Inc., Halo Benefits (HBI) offers financial services to individuals through associations, insurance companies, and employee benefit services groups. HaloCare, a product of Halo Benefits, provides a comprehensive solution to address most common financial challenges including debt settlement, credit repair, foreclosure avoidance, bankruptcy counseling, and financial education. Through the power of the HaloCare initiative, Halo Benefits provides unparalleled financial assistance for the American consumer.

UHalo Financial Services, LLCU  Halo Financial Services (HFS) is primarily focused in the consumer debt education, analysis and debt workout program.  HFS utilizes cutting edge technology and algorithms to produce the best scenario determined for each individual. The technology is derived from thousands of case studies which were evaluated and logged with consideration based on multiple factors. Factors include state, region, income level, debt load, type of debt, and many others.  This entity is focused on providing the Company additional opportunities in the market as its business model takes into consideration the ever increasing regulatory issues surrounding this consumer market.
 
Competition

The asset investment, asset management and financial services industries are highly competitive, and there is considerable competition from major institutions in Halo’s lines of business, including national financial institutions, real estate agencies and insurance companies, as well as specialty consumer financial services companies offering one or more of the products and services offered by Halo.  The development and commercialization of new products and services to address consumers’ financial needs is highly competitive, and there will be considerable competition from major companies seeking to expand their own product and service offerings. Many of Halo’s competitors have substantially more resources than Halo, including both financial and technical resources.  Additionally, competition is intense in obtaining highly qualified employees.


The Company maintains copyrights on all of its printed marketing materials, web pages and proprietary software.  Halo’s goal is to preserve the Company’s trade secrets, without infringing on the proprietary rights of other parties.

To help protect its proprietary know-how, which is not patentable, Halo currently relies and will in the future rely on trade secret protection and confidentiality agreements to protect its interest.  To this end, Halo requires all of its employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to Halo of the ideas, developments, discoveries and inventions important to its business.

Employees

As of December 31, 2010, the Company had approximately 67 full-time employees.  None of the Company’s employees is covered by a collective bargaining agreement.  As of December 31, 2010, the Company also had 26 independent residential real estate agents working primarily in the north Texas region.  Halo believes that it maintains good relationships with its employees and its independent agents.

Legal Proceedings

The Company is not currently involved in any material legal proceedings.
 
Government Regulation

The services provided by the Company, through its subsidiaries, are extensively regulated by federal and state authorities in the United States.  Halo believes it is in compliance with federal and state qualification and registration requirements in order that it may continue to provide services to its clients consistent with applicable laws and regulations.

Item 1A.  RISK FACTORS.
 
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.  The Company has a relatively limited operating history.  Our limited operating history and the unpredictability of the consumer financial services industry make it difficult for investors to evaluate our business.  An investor in our securities must consider the risks, uncertainties and difficulties frequently encountered by companies in rapidly evolving markets.
 
We will need additional financing to implement our business plan.  The Company will need additional financing to fully implement its business plan in a manner that not only continues to expand an already established direct-to-consumer approach, but also allows the Company to establish a stronger brand name in all the area in which it operates, including mortgage servicing and distressed asset sectors.  In particular, the Company will need substantial financing to:
·  
further develop its product and service lines and expand them into new markets;
·  
expand its facilities, human resources, and infrastructure;
·  
increase its marketing efforts and lead generation; and
·  
expand its business into purchasing and servicing distressed asset portfolios.
 
There are no assurances that additional financing will be available on favorable terms, or at all.  If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures.  The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations.  Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict the Company’s operations.
 
Our products and services are subject to changes in applicable laws and regulations.  The Company’s business is particularly subject to changing federal and state laws and regulations related to the provision of financial services to consumers.   In the current economic climate where consumer protection is paramount, the Company has already seem many regulatory changes particularly in debt settlement, mortgage and credit repair which had a substantial impact on the Company’s operations.  The Company’s continued success depends in part on its ability to anticipate and respond to these changes, and the Company may not be able to respond in a timely or commercially appropriate manner.  If the Company fails to adjust its products and services in response to changing legal and/or regulatory requirements, the ability to deliver its products and services may be hindered, which in turn could have a material adverse effect on the Company’s business, financial condition and results of operations.
 
We rely on key executive officers, and their knowledge of our business and technical expertise would be difficult to replace.  We are highly dependent on our executive officers.  If one or more of the Company’s senior executives or other key personnel are unable or unwilling to continue in their present positions, the Company may not be able to replace them easily or at all, and the Company’s business may be disrupted.  Such failure could have a material adverse effect on the Company’s business, financial condition and results of operations.
 
We may never pay dividends to our common stockholders.  The Company currently intends to retain its future earnings to support operations and to finance expansion and therefore the Company does not anticipate paying any cash dividends in the foreseeable future other than to holders of Halo Group preferred stock.
 
The declaration, payment and amount of any future dividends on common stock will be at the discretion of the Company’s Board of Directors, and will depend upon, among other things, earnings, financial condition, capital requirement, level of indebtedness and other considerations the Board of Directors considers relevant.  There is no assurance that future dividends will be paid on common stock or, if dividends are paid, the amount thereof.
 
Our common stock is quoted through the OTCQB, which may have an unfavorable impact on our stock price and liquidity.  The Company’s common stock is quoted on the OTCQB, which is a significantly more limited market than the New York Stock Exchange or NASDAQ.  The trading volume may be limited by the fact that many major institutional investment funds, including mutual funds, follow a policy of not investing in Bulletin Board stocks and certain major brokerage firms restrict their brokers from recommending Over the Counter stock because they are considered speculative and volatile.
 
The trading volume of the Company’s common stock has been and may continue to be limited and sporadic.  As a result, the quoted price for the Company’s common stock on the OTC Bulletin Board may not necessarily be a reliable indicator of its fair market value.
 
Additionally, the securities of small capitalization companies may trade less frequently and in more limited volume than those of more established companies.  The market for small capitalization companies is generally volatile, with wide price fluctuations not necessarily related t the operating performance of such companies.
 
Our common stock is subject to price volatility unrelated to our operations.  The market price of the Company’s common stock could fluctuate substantially due to a variety of factors, including market perception of the Company’s ability to achieve its planned growth, operating results of it and other companies in the same industry, trading volume of the Company’s common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company or its competitors.
 
Our common stock is classified as a “penny stock.”
 
Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us.  It is likely that the Company’s common stock will be considered a penny stock for the immediately foreseeable future.
 
For any transactions involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased.  In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also provide disclosures to its customers, prior to executing trades, about the risks of investing in penny stocks in both public offerings and in secondary trading in commissions payable to both the broker-dealer and the registered representative, and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
 
Because of these regulations, broker-dealers may not wish to furnish the necessary paperwork and disclosures and/or may encounter difficulties in their attempt to buy or sell shares of the Company’s common stock, which may in turn affect the ability of Company stockholders to sell their shares.
 
Accordingly, this classification severely and adversely affects any market liquidity for the Company’s common stock, and subjects the shares to certain risks associated with trading in penny stocks.  These risks include difficulty for investors in purchasing or disposing of shares, difficulty in obtaining accurate bid and ask quotations, difficulty in establishing the market value of the shares, and a lack of securities analyst coverage.

We may continue to encounter substantial competition in our business.  The Company believes that existing and new competitors will continue to improve their products and services, as well as introduce new products and services with competitive price and performance characteristics.  The Company expects that it must continue to innovate, and to invest in product development and productivity improvements, to compete effectively in the several markets in which the Company participates.  Halo’s competitors could develop a more efficient product or service or undertake more aggressive and costly marketing campaigns than those implemented by the Company, which could adversely affect the Company’s marketing strategies and could have a material adverse effect on the Company’s business, financial condition and results of operations.

Important factors affecting the Company’s current ability to compete successfully include:

·    
lead generation and marketing costs;
·    
service delivery protocols;
·    
branded name advertising; and
·    
product and service pricing.

In periods of reduced demand for the Company’s products and services, the Company can either choose to maintain market share by reducing product service pricing to meet the competition or maintain its product and service pricing, which would likely sacrifice market share.  Sales and overall profitability would be reduced in either case.  In addition, there can be no assurance that additional competitors will not enter the Company’s existing markets, or that the Company will be able to continue to compete successfully against its competition.

We may not successfully manage our growth.  Our success will depend upon the expansion of our operations and the effective management of our growth, which will place significant strain on our management and our administrative, operational and financial resources.  To manage this growth, we may need to expand our facilities, augment our operational, financial and management systems and hire and train additional qualified personnel.  If we are unable to manage our growth effectively, our business would be harmed.

Asset Investments have not been identified; Appropriate investments may not be available. Halo intends to focus its real estate investment operations in acquiring “suitable properties” and real estate investments in the domestic United States.  Although Halo continually reviews prospective investments, it has not identified specific properties for acquisition.  There is no assurance that Halo will acquire any future assets, properties, or investments, or, if it does, what the terms of such acquisitions or investments might include.  Halo expects to engage in a number of acquisitions, sales, exchanges, developments, improvements, investments, and dispositions of mainly single-family residential properties.  There is no firm information available with respect to the future assets of Halo that an investor can evaluate.

Real Estate investments are illiquid and value is dependent on conditions beyond Halo’s control.  Real estate investments are relatively illiquid.  The ability of Halo to vary its investments in response to the changes in economic and other conditions will be limited.  Further, no assurances can be given that the fair market value of any assets acquired by Halo will not decrease in the future.  The underlying value of the assets and Halo’s income will be dependent upon Halo’s ability to manage the assets in a manner sufficient to maintain or increase revenues in excess of operating expenses.  Revenues may be adversely affected by adverse changes in national or local economic conditions, defaults by lessees or inhabitants of Halo’s properties, changes in interest rates and the availability, costs and terms of financing, costs and terms of development, the impact of present or future environmental legislation and compliance with environmental laws, changes in real estate tax rates and other operating expenses, condemnations and eminent domain, adverse changes in governmental rules and fiscal policies, civil unrest, acts of God, earthquakes, hurricanes and other natural disasters (which may result in uninsured losses), acts of war and terrorism, adverse changes in zoning laws, and other facts which are beyond Halo’s control.

Adverse conditions in many U.S. real estate markets.  As widely reported, many real estate markets in the United States have declined in value.  Although conditions vary widely among markets, in general, areas that experienced rapid increases in real estate prices in recent years are experiencing greater difficulties than areas in which prices rose less rapidly.  Also, in areas that are expecting difficulties, the current downturn is typically more sever in, or in some cases largely limited to, the market for residential real estate.

Lack of geographical diversification could subject Halo’s real estate investment portfolio to concentration risk.  Real estate investment success is dependent upon the general economic conditions in the geographic areas in which a substantial number of investments are located.  Halo will be subject to any adverse economic, political or business developments in such areas, including natural hazard risks, which may adversely affect the value of Halo assets.

Halo’s properties will be subject to environmental risk.  Halo’s operating costs may be affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation with respect to its assets.  In the due diligence process, to the extent Halo deems the same appropriate, efforts will be made to identify potential environmental liabilities prior to acquisition of assets, including identification of hazardous substances or wastes, contaminants, pollutants or sources thereof.

The risk of uninsured losses will be borne by Halo.  Halo expects to maintain insurance coverage against liability to third parties and property damage as is customary for similar business, insofar as Halo deems the same necessary or appropriate.  There can be no assurances that insurance will be available or sufficient to cover all such risks.  Insurance against certain risks may be unavailable or commercially infeasible.  Uninsured losses will be borne by the Company.

Item 1B.  UNRESOLVED STAFF COMMENTS.

None.

Item 2.  PROPERTIES.

The Company’s corporate offices are located at 700 Central Expressway South, Suite 500, Allen, Texas 75013, where Halo has 34,524 square feet of office space under lease.  Pursuant to an office lease dated November 12, 2007, as amended, the Company is required to make monthly lease payments of $32,663, with an increase in May 2010 to $49,789 and in November 2010 to $61,199 per month.  The lease expires on August 14, 2014.

Item 3.  LEGAL PROCEEDINGS.

The Company is not aware of any material legal proceeding that is pending against the Company or to which any of its property is the subject.


PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.

Market Information
 
The Company’s Common Stock is currently traded in the over-the-counter market and quoted under the symbol HALN.OTCQB. The following are the high and low sales prices for the Company’s Common Stock for the periods reflected below, as reported by Bloomberg LP Investor Services:
 
UFiscal Year Ended December 31, 2010
UHigh
ULow
First Quarter
$2.87
$.38
Second Quarter
$3.25
$.45
Third Quarter
$1.40
$.53
Fourth Quarter
$.95
$.51
UFiscal Year Ended December 31, 2009
UHigh
ULow
First Quarter
$.03
$.03
Second Quarter
$.08
$.02
Third Quarter
$.60
$.03
Fourth Quarter
$.40
$.05
 
The above prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
 
Holders
 
The approximate number of stockholders of record of the Company’s Common Stock on December, 31 2010 was 3,119. The Company estimates that, in addition, there are approximately 1,700 stockholders with shares held in “street name.”
 
Dividends
 
We intend to retain future earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.
 
Recent Sales of Unregistered Securities

During the fiscal year ended December 31, 2010, except as included in our Quarterly Reports on Form 10-Q or in our Current Reports on Form  8-K, we have not sold any equity securities not registered under the Securities Act.

Repurchases of Equity Securities

The Company did not repurchase any of its equity securities during the year ended December 31, 2010.

Item 6.  SELECTED FINANCIAL DATA.
 
Not applicable.
 
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward-Looking Statements
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our historical results of operations during the periods presented and our financial condition. This MD&A should be read in conjunction with our financial statements and the accompanying notes, and contains forward-looking statements that involve risks and uncertainties. See the section entitled “Forward-Looking Statements” above.

Company Overview
 
The Company, through its subsidiaries, operates primarily in the distressed asset acquisition, asset management and financial services industry, providing services related to distressed asset acquisition, distressed asset monetization, real estate asset management, personal debt, credit, mortgage, real estate, loan modification and insurance.

We work with our business clients, who are typically distressed debt investors or debt servicers to market turnkey solutions to greater monetization of their portfolios. In today’s economy, lenders are experiencing an overflow of distressed assets.  Many debt servicers are currently overwhelmed with imposed programs that require more resources such as people, money and time to be effective. Halo’s technology systems are bundled with transparency, accountability, efficiency, speed, and flexibility. This unique strategy directs borrowers into an intelligent, results-driven process that establishes affordable, long-term mortgages while also achieving an improved return for lenders and investors, when compared to foreclosure

We work with our consumer clients that may be in various stages of financial crisis, to assist in reducing their debt, correcting their credit profile, securing a home mortgage, buying, selling, or renting a residence, providing proper insurance for their assets, providing major medical and limited benefit health insurance products, mitigating potential home loss, and educating them in financial matters.
 
Plan of Operations
 
Halo has developed a business model through Halo Asset Management for the monetization of non-performing, residential mortgage notes (“NPNs”) or foreclosed single family homes (“REO”) (collectively, “Assets”).  These Assets are purchased in bulk with cash for $2,000 - $10,000 each and in-turn resold for $30,000 - $45,000 each using seller provided financing.  HAM will season the notes for 6-24 months collecting cash flow payments from the borrower while providing consumer financial rehabilitation services to each customer, including debt relief, credit restoration and financial education.  Halo utilizes several different strategies to place a new borrow in the Asset and following several months of seller financed payment seasoning, disposes of the performing Assets in bulk to various bulk performing asset buyers.  Prior to any bulk disposal, Halo will refinance those consumers that have achieved a level of qualification capable of securing the loan.  The Company will participate in the profits of the monetization in addition to the service revenues generated for HAM and other Halo subsidiaries.
 
For the NPN’s, Halo will get a deed-in-lieu of foreclosure from the borrower (which ensures Halo ownership of the underlying asset; not just the purchased note) and will subsequently restructure or modify the note for those borrowers who have a desire to stay in the home and have the capacity to afford the home.  The borrowers who either lack the desire to stay in the home or who lack the capacity to afford the home shall be removed, often times through incentives, and Halo shall take the home back to an REO.
 
For the REO’s, traditional apartment or home renters become buyers after a qualification and screening process because they are given the opportunity to purchase affordable homes at achievable and manageable down payment and subsequent monthly payments.  Halo issues land contracts or mortgage notes for the new home owners.  A land contract (sometimes known as “contract for deed”) is a contract between a seller and buyer or real property in which the seller provides financing to buy the property for an agreed-upon purchase price and the buyer repays the loan in installments.  Under a land contract, the seller retains the legal title to the property, while permitting the buyer to take possession of it for most purposes other than legal ownership.  The sales price is typically paid in periodic installments.  When the full purchase price has been paid including any interest, the seller is obligated to convey legal title to the property to the buyer.  Halo provides entry level housing with built-in, fully amortized financing that equates to payments that are no more than the buyers are currently paying in rent and often as much as 35% less.
 
Typically, Halo will set the amortization schedule for the loans at 20 years or 33% shorter than the typical bank loan currently available.  Therefore, the buyers have an accelerated equity accumulation compared to conventional 30-year amortizing debt.
 
It is during this time that we work directly with the bower to improve their financial stability.  This is accomplished by analyzing their budget and financial disposition and creating a plan to address their unsecured debt burden, credit profile, insurance needs, and financial education.
 
When the home loans are “seasoned” they are attractive investment vehicles to be either financed or sold.  We will attempt to refinance the rehabilitated borrowers through an FHA loan providing the Client with an exit at 90-95% of par value.  The notes of the other borrowers that did not achieve qualifying levels of rehabilitation will be sold at between 60% and 85% of par value.
 
The Company believes that the country is in a long term deleveraging cycle whereby home financing will continue to be difficult to obtain.  For this same reason, we believe that we will continue to be able to purchase Assets in bulk from large institutional sellers at deep discounts.
 
In addition to purchasing and monetizing Assets for HAM, we plan to increase concentration on the business-to-business marketing strategy.  HPA targets other asset purchasers or servicers (“Client”) and leverages the business model described above as well as an integrated approach for returning performance to distressed asset/debt portfolios by balancing strong focus on restoring stability and predictability to loan portfolios and increasing cash flow with unique and convenient solutions for our Clients and their customers.  HPA services include portfolio strategy consulting, default management, asset/liability management, asset preservation management, debt servicing, debt restructuring, campaign management advisement, portfolio acquisition and disposal support.  We will utilize the HAM business model described above to assist in the monetization of NPNs and REO.  The Company will participate in the proceeds of any Client monetization in addition to service revenues generated for HAM and other Halo subsidiaries.  Currently, the Company is under contract to work on over 10,000 Assets and projects an additional 8,000 Assets to be under contract during the next 6 months.  We believe that there is exponential value in the ability to rehabilitate consumers’ financial wherewithal to bankable levels and provide an additional exit strategy for Clients at improved returns of over 20% of their independent achievable IRR.
 
HPA’s focus is to work with asset managers, investors and servicers to provide a unique, tailored workout program that will improve the performance of the assets or notes through a myriad of creative analytic and retention strategies.  HPA utilizes Halo’s in-house technology to provide a proprietary, customized analysis of a Client’s position.  HPA then custom tailor’s a solution for the Client which provides the Client analytics on which assets or notes to monetize first and what options are best utilized to monetize each individual asset or note.  HPA is then able to follow up with Halo’s suite of consumer financial products including loan modification, short sale services, refinancing, credit repair, and unsecured debt resolution to assist the Client in carrying out the custom solution that HPA provided.

The current economic environment finds lenders and servicers drowning in an overflow of distressed assets and Halo recognizes the cause behind a typical troubled asset is often not one, but several contributing factors. HPA’s workout program allows for management of a diverse portfolio of loans.  HPA’s technology systems are bundled with transparency, accountability, efficiency, speed, and flexibility.  This unique strategy delivers Clients an intelligent, results-driven process that achieves an improved return for lenders, investors and servicers.  Halo’s operational support services allow endless opportunities for strategic relationships with major distressed asset managers and servicers.
 
Our management team is well-positioned to execute its opportunity intensive business plan.  At its core, the plan seeks to execute on delivering asset management, valued analytics, consumer financial rehabilitation and asset monetization through mortgage lending in HAM or to mid-size institutional investors while limiting the cost associated with acquiring consumers for other Halo subsidiaries through traditional retail channels.
 
Significant effort and investment capital has been incurred by the Company over the past seven years in order to put together a qualified and capable staff, and proprietary software platforms as well as develop the systems, procedures and infrastructure to execute the business plan on a large-scale.  Given the short time frame this current market opportunity has existed, we have a significant competitive advantage over others who may try to execute the same business plan.
 
It is our intent to continue expanding the direct-to-consumer business via the service verticals noted above, both organically, as well as potentially through acquisition.  We also plan to increase our concentration on the business-to-business marketing strategy, specifically in the mortgage servicing industry.  We have supplemented our operating cash-flow with debt and equity financing to support our growth in marketing and business development. We intend to pursue additional funding through debt, subordinated debt, and equity financing to continue expansion and growth efforts.
 
Results of Operations for the year ended December 31, 2010 Compared to the year ended December 31, 2009

Revenues

For the year ended December 31, 2010, Revenue was up $654,000 to $866,000 from $212,000 for the year ended December 31, 2009 in the Company’s HPA, HGR and HSIS subsidiaries combined.  Notwithstanding, overall Revenue was down $2,252,752 or 25% to $6,861,204 for the year ended December 31, 2010 from $9,113,956 for the year ended December 31, 2009.  The difference and overall reduction in revenue is primarily in HDS due to several factors including management’s decision to implement a smaller marketing and customer lead budget, a reduced sales team and the overall affect of the amended TSR on the debt settlement industry.  We continue to earmark marketing dollars in several of the smaller subsidiaries in an effort to increase those subsidiaries top line revenues as part of the Company’s long term growth plans.  Those subsidiaries include HGR, HSIS, HGM, and HPA.  These entities have seen revenue growth in 2010 to help offset the decrease of HDS.  Halo continues to innovate and deploy its overall market strategy and reinvent its ability to provide increasingly effective and efficient services to business and consumer customers alike.

Looking forward to the fiscal year ending December 31, 2011, our focus continues to remain on additional top line revenue growth of its subsidiaries named above while continuing to provide debt settlement services to the existing customers of HDS.  Effective October 27, 2010, there were no new sales in HDS (current servicing of existing customers is still active, including collecting of fees already earned and owed on all existing customers), rather all new sales of debt settlement services by Halo were performed by HFS and services will be performed specifically in adherence with regulatory guidelines established under the recent amendments to the TSR applicable to debt settlement fees.  Management believes the most effective way to leverage our HFS sales and negotiation back office is through both organic referrals from our other subsidiaries and wholesale accounts gained from our Client’s in HPA and our customers who seek our Assets in HAM.

As noted above, Halo’s HPA subsidiary saw revenue grow from $0 in 2009 to just over $200,000 in 2010 and has seen that growth rate increase exponentially in the first two months of 2011 and expects that growth to continue throughout 2011.

As the Company also looks forward to fiscal year 2011, as noted above, Halo has developed a business model in its HAM subsidiary in the monetization of Assets.  In 2011, the Company expects operations and cash flows to this Halo vertical to be material to the Company.

Operating Expenses
 
Sales and marketing expenses include advertising, marketing and customer lead purchases, and direct sales costs incurred including appraisals, credit reports, and contract service commissions.  The majority of contract service commissions include those commissions paid to our independent real estate agents in HGR. Sales and marketing expenses increased $13,497 or 1% to $1,398,886 for the year ended December 31, 2010 from $1,385,389 for the year ended December 31, 2009.  This increase is primarily attributable to two factors; (a) the increased contract service commissions associated with HGR, in which we pays our independent agents commissions on the closing of residential real estate brokerage services and (b) the increase in overall volume of lead generation purchases the first six months of 2010 compared to the first six months of 2009.  The overall volume of lead generation purchases has declined for the six months ended December 31, 2010, primarily attributable to the overall reduction in lead purchase expense in HDS, consistent with the above noted decrease in HDS revenues.

General and administrative expenses increased $584,820 or 18% to $3,850,498 for the year ended December 31, 2010 from $3,265,678 for the year ended December 31, 2009.  This increase is a result of several items including a growth in allowance for doubtful accounts which is charged to bad debt expense, included within general and administrative expenses.  See significant accounting policies contained in Note 2 to the consolidated financial statements.  The increase is also attributable to the following; (a) additional costs associated with rent expense contractually entered into during October 2009, (b) variable general and administrative costs incurred to grow revenues, (c) several new subsidiaries began operations during 2009, including Halo Loan Modification Services, LLC, Halo Portfolio Advisors, LLC, and Halo Choice Insurance Services, LLC, and in 2010 Halo Select Insurance Services, LLC, and as such, there have been increased general and administrative expenses and costs involved to get these companies fully operational, (d) additionally, as a result of now being a public company, we have incurred increased costs related to professional fees (accounting, legal, and stock transfer agent) that were not incurred for the full year ended December 31, 2009.

Salary, wages and benefits decreased $1,259,143 or 20% to $5,066,843 for the year ended December 31, 2010 from $6,325,986 for the year ended December 31, 2009.  Approximately $810,929 or 64% of this decrease is stock option compensation expense for any options that had vested during the year ended December 31, 2010 compared to the year ended December 31, 2009.  Stock option compensation expense was $588,894 for the year ended December 31, 2010 compared to $1,399,823 for the year ended December 31, 2009.  As noted in the significant accounting policies contained in Note 2 to the consolidated financial statements, the fair value of stock options at the date of grant is determined via the Black Scholes model and, since the options were exercisable upon the occurrence of the Merger occurring on September 30, 2009, the fair value of such options is recognized in earnings over the vesting period of the options beginning when the Merger occurred.  Stock compensation expense is a non-cash expense item.  The remaining decrease in 2010 from 2009 is attributable to reduction in head count and variable costs associated with head count which primarily resulted in reduction in force efforts at both the parent company and within HDS, consistent with senior leadership’s decision to implement decreased marketing, salaries, and variable overhead and operational costs to HDS as we increased our efforts to grow revenue in various other Halo ventures discussed above.  As salaries, wages and benefits is the most significant cost to the Company, management actively monitors this cost to ensure it is in line with our business plan.

Interest expense increased $106,389 or 117% to $197,556 for the year ended December 31, 2010 from $91,167 for the year ended December 31, 2009.  The increase is primarily attributable to the increase in subordinated debt balance during 2010 as discussed in Note 11 to the consolidated financial statements.  Also requiring discussion is that the Company paid off several material portions of its notes payable during December 2010, however, the interest expense was still incurred for a majority of the year and as such did not materially impact interest expense.

The Company experienced losses of $1,703,405 to a net loss of $3,599,363 for the year ended December 31, 2010 from a net loss of $1,895,958 for the year ended December 31, 2009, primarily attributable to the reasons noted above.

Significant Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.  These policies are contained in Note 2 to the consolidated financial statements and summarized here.

URevenue Recognition and Accounts Receivable

The Company generally recognizes revenue in the period in which services are provided.  With respect to any enrolled debt account, HFS recognizes its revenue once a client makes at least one payment to a creditor pursuant to a settlement agreement, debt management plan, or other valid contractual agreement between the client and the creditor. The revenue recognized on any enrolled account bears the same proportional relationship to the total revenue that would be recognized for renegotiating, settling, reducing, or altering the terms of the debt balance on all of a particular client’s enrolled accounts as the individual debt amount bears to the entire debt amount.   Settlements can be in the form of a lump sum creditor settlement payment or via contractual payment plans.  HDS recognizes its revenue over the average service period. The average service period is defined as the average length of time it takes to receive a settlement offer from each creditor which satisfies HDS’ contractual obligation to the client per the client’s service agreement with HDS, calculated on the entire HDS client base, currently ten months.  The service being provided for each client is evaluated at an individual creditor level, thus the revenue recognition period estimate is calculated at an individual creditor level.  The estimate is derived by comparing (i) the weighted average length of time from when the creditor was enrolled with HDS, to (ii) the time HDS received a contractually obligated settlement offer, per creditor, on all accounts since the inception of HDS, to (iii) the weighted average length of time all other creditors that are currently enrolled at the time of the estimate that have not received a contractually obligated settlement offer. This dual approach ensures a holistic representation of the service period. There are several factors that can affect the average service period, including economic conditions, number of clients enrolled, operational efficiencies, the time of year, and creditor dispositions.  Therefore, the average service period is analyzed on a quarterly basis ensuring an accurate revenue recognition period estimate.  In the event that the average service period estimate changes, HDS will prospectively reamortize the remaining revenue to be recognized on current clients and recognize all future revenue pursuant to the new estimate.  Provisions for discounts, refunds and bad debt are provided over the period the related revenue is recognized. Cash receipts from customers in advance of revenue recognized are recorded as deferred revenue.   

Revenue recognition periods for HFS and HDS customer contracts are shorter than the related payment terms.  Accordingly, HFS and HDS accounts receivable are the amount recognized as revenue less payments received on account.  The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: past transaction history with the customer, current economic and industry trends, and changes in customer payment terms.  The Company provides for estimated uncollectible amounts through an increase to the allowance for doubtful accounts and a charge to earnings based on historical trends and individual account analysis.  Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts.

Use of Estimates and Assumptions

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ from those estimates.  Significant estimates include the company’s revenue recognition method, valuation of equity based compensation, and derivative liabilities.
U
 
Principles of Consolidation

The consolidated financial statements of the Company for the year ended December 31, 2010 include the combined financial results of HCI, HGI, HCS, HDS, HGM, HGR, HBI, HLMS, HSIS, HCIS (defined below), HFS, HPA, HAM, and EHF.  All significant intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements of the Company for the year ended December 31, 2009 include the combined financial results of HCI, HGI, HCS, HDS, HGM, HGR, HBI, HLMS, HSIS, HCIS, HFS, and HPA.  All significant intercompany transactions and balances have been eliminated in consolidation.

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Equity-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with ASC 718 “Compensation-Stock Compensation” (formerly SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”)).  Under ASC 718, the fair value of stock options at the date of grant is recognized in earnings over the vesting period of the options beginning when the specified events become probable of occurrence.  There has been no new stock compensation awarded since September 30, 2009.  All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date of the fair value of the equity instrument issued is the earlier of (i) the date on which the counterparty’s performance is complete, or (ii) the date on which it is probable that performance will occur.

Liquidity and Capital Resources

As of December 31, 2010, we had cash and cash equivalents of $174,598.  The increase in cash and cash equivalents from December 31, 2009 was due to cash provided by financing activities of $2,283,224, offset by cash used in operating activities of $1,727,320 and cash used in investing activities of $467,396.
 
Net cash used in operating activities was $1,727,320 for the year ended December 31, 2010, compared to $1,454,945 net cash used in operating activities for the year ended December 31, 2009.  The net cash used in operating activities for the year ended December 31, 2010 was due to a net loss of $3,599,363, adjusted primarily by the following: an increase in depreciation and amortization of $131,190, an increase in bad debt expense of $1,831,014, an increase in amortization of share-based compensation expense of $588,894, a decrease in prepaid expenses and other current assets of $180,974 primarily for amortization of prepaid consulting agreements and prepaid rent which was credited as a rent payment per the rental agreement, an increase in accounts payable of $79,060, an increase in accrued liabilities of $165,201, an increase in deferred rent of $106,296, and an increase in derivative liability of $98,560, offset by an increase in accounts receivable of $1,402,301.  The remaining immaterial variance is related to changes in operating assets and liabilities, a change in the noncontrolling interest balance, and earnings from investment in an unconsolidated entity (net of cash return on the investment).
 
Net accounts receivable decreased by $428,713 or 19.5%.  The decrease was a result of the increase of $1,831,014 in write-offs with the allowance for doubtful accounts (contra asset) less the increase in gross accounts receivable of $1,402,301.  Allowance for loan loss and bad debt expense is discussed in significant accounting policies above.  Heading into 2011, the Company will continue its debt settlement operations over the contractual service period entered into with its customers.  The majority of these contracts in force as of December 31, 2010 extend through December 31, 2012.  Management anticipates the winding down of existing HDS/HFS customers and associated accounts receivable balance via contractual payments of customers less cancellations and chargeoffs.  Management anticipates of the $1,765,355 net accounts receivable balance as of December 31, 2010, seventy-five percent will be primarily collected over the next 12 months and the remaining twenty-five percent over the next 13-24 months, less cancellations and chargeoffs.

The accounts payable increase was primarily the result of the Company’s increase in general and administrative costs during the first six months of 2010 resulting in an increase in monthly vendor commitments and payables.  During 2010, the Company performed multiple entity wide re-assessments of all general and overhead costs, including payroll costs of all sales and non sales personnel, as part of its standard efforts to pro-actively manage its cash outflows. The Company also pro-actively manages the timing and aging of vendor payables throughout the year.  The increase in accrued liabilities of $165,201 is primarily related to a $173,152 increase in deferred compensation to multiple senior management personnel as discussed in Note 7 to the consolidated financial statements, a $71,165 increase in accrued interest and $27,881 increase in other accruals, offset by $106,997 decrease in salaries and wages payable related to a decrease in employees in 2010 compared to 2009 as well as the timing of when the payroll pay date was  for the year ended December 31, 2010 vs. December 31, 2009.   Deferred rent increased from $187,039 at December 31, 2009 to $293,335 at December 31, 2010, and this increase was related to the executed lease commitment of additional office space in our headquarters for which we negotiated deferred rental payments.  The deferred rent balance began to decrease in November 2010 as our monthly cash payment began exceeding the straight line monthly expense booked in general and administrative expenses.  The increase in the derivative liability is related to warrants issued in connection with our Subordinated Offering discussed in Note 11 to the consolidated financial statements.

Net cash used in investing activities was $467,396 for the year ended December 31, 2010, compared to net cash used in investing activities of $235,421for the year ended December 31, 2009. In December of 2010, the Company purchased $300,000 in single family residential real estate as part of the Company’s business plan to acquire undervalued or financially distressed single-family real estate properties across the United States of America.   The remaining cash used in investing activities consisted primarily of purchasing property and equipment of $42,896 and an investment by Halo Group Mortgage, LLC, in a joint venture of $24,500 related to our business plan of increasing revenues in our mortgage brokerage subsidiary.  Halo contributed $24,500, equal to a 49% opening equity balance, in the joint venture.  Under a qualitative and quantitative analysis performed in accordance with ASC 810 “Consolidation,” we do not meet the requirements of a variable interest entity for which we are the primary beneficiary.  As such, the equity method investment is included on the balance sheet in Investments in Unconsolidated Entities.  The remaining $100,000 decrease is related to a reclassification of restricted cash to deposits as the company renegotiated its agreement with a merchant bank such that the merchant bank will hold $100,000 in deposit to cover potential losses by the bank from customer cancellations.  See further discussion in Note 2 to the consolidated financial statements.

Net cash provided by financing activities was $2,283,224 for the year ended December 31, 2010, compared to net cash provided by financing activities of $1,596,107 for the year ended December 31, 2009.  Our financing activities for the year ended December 31, 2010 consisted primarily of the proceeds received from issuance of Series X Convertible preferred stock of $702,000, proceeds of $1,081,355 received from notes payable to related parties, proceeds from subordinated debt of $420,000, and proceeds of $1,200,000 received from investment into a fund formed by the company to purchase, acquire, own, hold, develop, maintain, manage, operate, sell, exchange, transfer or otherwise dispose of distressed or undervalued real estate assets, offset by $1,087,424 in payment of principal on notes payable, related party notes payable, subordinated debt, and net payments on the line of credit.  The Company did receive proceeds of $3,635 from the exercise of stock options during the year ended December 31, 2010.  The remaining decrease is related to debt discount for subordinated debt as discussed in Note 11 of the consolidated financial statements.

As shown below, at December 31, 2010, our contractual cash obligations totaled approximately $5,015,099, all of which consisted of operating lease obligations and debt principal repayment.
 
   
Payments due by Period
 
Contractual Obligations
 
Less than 1 Year
   
1-3 years
   
4-5 years
   
More than 5
years
   
Total
 
Debt Obligations
  $ 747,333     $ 1,501,000     $ 0     $ 0     $ 2,248,333  
                                         
Operating Lease Obligations
  $ 779,663     $ 1,548,496     $ 438,607     $ 0     $ 2,766,766  
                                         
Total Contractual Cash Obligations
  $ 1,526,996     $ 3,049,496     $ 438,607     $ 0     $ 5,015,099  

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan in a manner that not only continues to expand the already established direct-to-consumer approach, but also allows the Company to establish a stronger brand name in all the areas which it operates, including mortgage servicing of distressed asset sectors and the monetization of non-performing, residential mortgage notes or REO.

There are no assurances that additional financing will be available on favorable terms, or at all.  If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations.  The Company has a backlog of fees under contract in addition to the Company’s accounts receivable balance.  The failure to adequately fund its capital requirements could have a material adverse effect on our business, financial condition and results of operations.  Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict our operations.  Management is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific capital projects.

Other than operating leases discussed in Note 15 to the consolidated financial statements, there are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Interest Rate Risk.  Our business is highly leveraged and, accordingly, is highly sensitive to fluctuations in interest rates. Any significant increase in interest rates could have a material adverse affect on our financial condition and ability to continue as a going concern.
 
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements required by this item are included in this report in Part IV, Item 15 beginning on page F-1.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
None
 
Item 9A. CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the officers concluded that, as of the date of the evaluation, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the officers, to allow timely decisions regarding required disclosure. It should be noted that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Report of Management on Internal Control over Financial Reporting
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of the Company’s principal executive officer and principal financial officer, to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that the Company’s transactions are recorded as necessary to permit preparation of the Company’s financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
 
The Company’ management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control – Integrated Framework.  Based on this assessment, the Company’s management concluded that, as of December 31, 2010, the Company’s internal control over financial reporting is effective based on those criteria.
 
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  OTHER INFORMATION.

None.
 
Item 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

Directors and Executive Officers

On January 1, 2010, Tony Chron, President of the Company, was elected to the Board of Directors to fill the vacancy left by Bernard Zimmerman’s departure. On August 3, 2010, Jimmy Mauldin resigned as Chief Strategy Officer and Director of the Company.  Set forth below is certain information regarding the persons who were directors and executive officers at any time during the fiscal year 2010.

UName
 
UAge
UPositions with the Company
Brandon C. Thompson
 
31
Chairman of the Board, Chief Executive Officer and Director
 
Paul Williams
 
54
Vice Chairman of the Board, Chief Financial Officer, Treasurer, Assistant Secretary and Director
 
Tony J. Chron
56
President and Director
 
Jimmy Mauldin
 
60
Chief Strategy Officer and  Director until resignation on August 3, 2010
 
T. Craig Friesland
 
39
Chief Legal Officer (until resignation in October 2010), Secretary and Director
 
Richard G. Morris
 
56
Director
 
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Brandon C. Thompson

Brandon C. Thompson, 31, currently serves as Chairman of the Board and Chief Executive Officer of the Company.  Mr. Thompson was a co-founder of HGI and has served as the Chairman of the Board of Directors and Chief Executive Officer of HGI since its founding in January 2007.  Commencing in March 2003, Mr. Thompson served as a Loan Officer with Morningstar Mortgage, LLC, a mortgage company, and eventually acquired the assets of that company through Halo Funding Group, LLC in February 2005, which was ultimately consolidated into HGI in January 2007. Following this acquisition, Mr. Thompson founded and has served as Chairman, President, and Chief Executive Officer of Halo Credit Solutions, LLC, Halo Debt Solutions, Inc., and Halo Group Consulting, Inc.  In January 2007, upon the founding of HGI, Mr. Thompson contributed his interest in these companies, as well as his interest in Halo Funding Group, LLC (currently named Halo Group Mortgage, LLC), to HGI.  The breadth of Mr. Thompson’s entrepreneurial and consumer services experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.  Mr. Thompson was nominated for the Ernst & Young Entrepreneur of the Year Award, has served on the advisory board of Independent Bank of Texas. Mr. Thompson graduated from Abilene Christian University with a degree in Finance.

Paul Williams

            Paul Williams, 54, currently serves as Vice Chairman of the Board, Chief Financial Officer, Treasurer and Assistant Secretary of the Company.  Mr. Williams was a co-founder of HGI, has served as Vice Chairman of the Board, Chief Financial Officer and Treasurer of HGI since its founding in January 2007 and as Assistant Secretary since late September 2009.  Mr. Williams has over 30 years of business experience primarily in the capital markets and mergers and acquisitions.  Since October 2007, Mr. Williams has also served as an executive officer for Bison Financial Group, Inc., a business development company, and as an executive officer for Blue Star Equities, Inc., a capital markets company, since September 2007. From November 1999 to the present, Mr. Williams has also served as the managing member of Lincoln America Investments, LLC, a real estate and equity investment company.  From January 15, 2006 to March 12, 2008, Mr. Williams served as an officer and director of NeXplore Corporation.  In June 2007, NeXplore and its executive team received an administrative order from the Arkansas Securities Department, suspending their ability to offer or sell securities in the state.    Mr. Williams has previously served three terms on the Board of the Texas Economic Development Council in Austin.  In 2007 he served as Chairman of the Board of the Frisco Chamber of Commerce and in 2009 was recognized by the Dallas Business Journal as the CFO of the Year for companies under $50MM in revenues. Mr. Williams graduated from Austin College in Sherman, Texas with a double-major in Economics and Business Administration.  He also graduated from the Institute of Organization Management, affiliated with the U.S. Chamber of Commerce.  The breadth of Mr. Williams’ entrepreneurial and financial services experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.

Tony J. Chron

Tony J. Chron, 56, joined the Company in late September 2009 as its President.  Mr. Chron brings to the Company over 33 years of business experience in both public and private companies.  From 1997 to September 2009, Mr. Chron was a Senior Partner with Trademark Property Company, a major mixed-use and retail developer, and served in various executive capacities including, most recently, as Chief Operating Officer and Executive Vice President.  Mr. Chron also served on Trademark Property’s Executive Committee.  From 1986-1992 Mr. Chron served as Associate Corporate Counsel and Director of Real Estate and Property Management for Pier 1 Imports, Inc., a specialty retailer.  In 1992, following Pier 1 Imports’ purchase of Sunbelt Nursery Group, Inc., Mr. Chron served as General Counsel and Vice-President of Real Estate for Sunbelt, a specialty nursery retailer, and following the purchase by Frank’s Nursery & Crafts, Inc. of a 49% interest in Sunbelt, as Vice President of Store Development for Frank’s, a specialty retailer, where he remained until 1994.  From 1994 until 1997 Mr. Chron served as Vice President of Real Estate and Real Estate Legal for Michael Stores, Inc., a specialty retailer.  Mr. Chron earned a Doctor of Jurisprudence degree from South Texas College of Law in 1983.  He also has a BS degree from Abilene Christian University.  Mr. Chron has been a licensed attorney in the State of Texas for more than twenty-six years.  The breadth of Mr. Chron’s professional and legal experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.

-21-

Jimmy Mauldin

Jimmy Mauldin, 60, served as Chief Strategy Officer of the Company until August 6, 2010.  Mr. Mauldin was a co-founder of HGI, has served in various capacities with HGI, including as President, Director, and Chief Strategy Officer, since its founding in January 2007.  Mr. Mauldin joined the company which is currently named Halo Credit Solutions, LLC in June of 2005.  In 2002, Mauldin founded Fund America Now, LLC, a national fund-raising company, and served as Chairman, President, and Chief Executive Officer.  He also established and serves as a director for the Halo Institute for Financial Education, a Section 501(c)(3) nonprofit corporation.  The breadth of Mr. Mauldin’s entrepreneurial experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.

T. Craig Friesland

T. Craig Friesland, 39, currently serves as Secretary of the Company and served as Chief Legal Officer until October of 2010.  Mr. Friesland was a co-founder of HGI and had served as a Director and Chief Legal Officer since its inception in January 2007.  He also practices law in his own firm, Law Offices of T. Craig Friesland, founded in January 2005.  Prior to establishing his own firm, Mr. Friesland practiced law with Haynes and Boone, LLP, one of the largest law firms in Texas, from September 1998 through December 2004.  Mr. Friesland earned his law degree at Baylor University School of Law in 1998.  He also has a Master of Business Administration degree from Baylor University and a Bachelor of Business Administration degree in Finance from The University of Texas at Austin.  Mr. Friesland was admitted to the State Bar of Texas in 1998.  The breadth of Mr. Friesland’s professional legal experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.

Richard G. Morris

Richard G. Morris, 56, currently serves as a Director of the Company.  Mr. Morris was a co-founder of HGI, and has served as a Director since its inception in January 2007.  Prior to joining the Company, he served in various positions with United Parcel Service from 1976 until March 2002, most recently, from January 2001 to March 2002 as one of its three District Operations Managers.  In that role, Mr. Morris was responsible for 5,400 employees, a staff of 18 senior managers, a monthly operating budget of approximately $28 million, and revenues in excess of $35 million.  After departing UPS, in July 2002, Mr. Morris became the principal owner of Rammco Distributors, Incorporated, an equipment rental company which he still owns.  In July 2004, Mr. Morris co-founded Blue River Development, Inc., a real estate investment and development company, and is currently the sole owner and operator of this company.  In August 2008, Mr. Morris acquired Port City, Inc., a plastics manufacturing company which Mr. Morris also currently owns and operates.  The breadth of Mr. Morris’ entrepreneurial, managerial and operational experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires officers, directors and persons who beneficially own more than 10% of a class of our equity securities registered under the Exchange Act to file reports of ownership and changes in ownership with the Securities and Exchange Commission.  Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us during fiscal year 2009 and Forms 5 and amendments thereto furnished to us with respect to fiscal year 2009, or written representations that Form 5 was not required for fiscal year 2009, we believe that all Section 16(a) filing requirements applicable to each of our officers, directors and greater-than-ten percent stockholders were fulfilled in a timely manner.  We have notified all known beneficial owners of more than 10% of our common stock of their requirement to file ownership reports with the Securities and Exchange Commission.

Code of Ethics
 
We do not currently have a Code of Ethics applicable to our principal executive, financial, and accounting officers.


We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of our Board of Directors. Nor do we have an audit committee “financial expert”.  At present, our entire Board of Directors acts as our audit committee.  None of the members of our Board of Directors meets the definition of “audit committee financial expert” as defined in Item 407(d) of Regulation S-K promulgated by the Securities and Exchange Commission.  We have not retained an audit committee financial expert because we do not believe that we can do so without undue cost and expense.  Moreover, we believe that the present members of our Board of Directors, taken as a whole, have sufficient knowledge and experience in financial affairs to effectively perform their duties.

Item 11.  EXECUTIVE COMPENSATION.

Summary Compensation Table
 
The particulars of compensation paid to the following persons during the fiscal period ended December 31, 2010 and 2009 are set out in the summary compensation table below:

 
·
our Chief Executive Officer (Principal Executive Officer);
 
·
our Chief Financial Officer (Principal Financial Officer);
 
·
each of our three most highly compensated executive officers, other than the Principal Executive Officer and the Principal Financial Officer, who were serving as executive officers at the end of the fiscal year ended December 31, 2010 and 2009; and
 
·
up to two additional individuals for whom disclosure would have been provided under the item above but for the fact that the individual was not serving as our executive officer at the end of the fiscal year ended December 31, 2010 and 2009;

(collectively, the “ Named Executive Officers ”):
 
SUMMARY COMPENSATION TABLE
 
Name and Principal
Position
 
Year
 
Salary
($)**
Stock
Awards
($)
Option
Awards
($)
All Other
Compensation
 ($)
Total
($)
Brandon C. Thompson, CEO
2010
2009
$153,000
$151,632
-0-
-0-
-0-
-0-
-0-
-0-
$153,000
$151,632
Paul Williams, CFO
2010
2009
$153,000
$154,159
-0-
-0-
-0-
-0-
-0-
-0-
$153,000
$154,159
Scott McGuane, CM&SO
2009
$126,228
-0-
$625,210
-0-
$751,438
Jimmy Mauldin, CSO
2010
2009
$51,615
$118,872
-0-
-0-
-0-
-0-
-0-
-0-
$51,615
$118,872
Tony J. Chron, President
2010
2009
$150,000
$44,167
-0-
-0-
-0-
$85,939
-0-
-0-
$150,000
$130,106

** Salary includes both gross cash payments made and deferred compensation accrued as of December 31, 2010

-23-

Summary Compensation

The Company has no employment agreements with any of its Directors or executive officers.

For the fiscal year ended December 31, 2010 no outstanding stock options or other equity-based awards were repriced or otherwise materially modified, with exception of Scott McGuane stock options noted below.  No stock appreciation rights have been granted to any of our Directors or executive officers and none of our Directors or executive officers exercised any stock options or stock appreciation rights.  There are no non-equity incentive plan agreements with any of our Directors or executive officers.

Mr. McGuane was granted two separate stock option awards in January and August 2009, for the purchase of 500,000 shares and 250,000 shares, respectively.  Both stock option awards were granted pursuant to the HGI 2007 Stock Plan and have a standard 2 year vesting period.  The Grant Date Fair Value of the options was $410,140 and $215,070, respectively, calculated at $.082 and $0.86 per share, respectively.  During the year ended December 31, 2009, options for 125,000 shares vested, creating a stock compensation expense of $102,535.  During 2010, Mr. McGuane’s options were modified as follows; (1) of the 500,000 shares issuance, 250,000 shares which had not vested, vested immediately and were given a 3 year life to exercise and (2) of the 250,000 shares issuance, 62,500 shares vested and the remaining 187,500 shares were cancelled.  The result of this change, when incorporating a new fair value at time of modification, resulted in an overall reduction of stock compensation expense of $186,372 over the life of the vesting period.  Stock compensation expense was $336,303 for the year ended December 31, 2010.

Outstanding Equity Awards

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS
 
 
STOCK AWARDS
Name
 
 
Number of Securities Underlying Unexercised options
 
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
 
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
 
(#)
Option
Exercise
Price
 
($)
Option
Expiration
Date
 
 
Number of
Shares or
Units of
Stock that
have not Vested
 
(#)
Market
Value of
Shares or
Units of
Stock that
have not Vested
 
($)
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or
Other
Rights that
have not
Vested
 
(#)
Equity Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or other
Rights that
have not
Vested
 
($)
Brandon C. Thompson,
CEO
0
0
0
0
0
0
0
0
0
Paul Williams, CFO
0
0
0
0
0
0
0
0
0
Tony Chron, President
50,000
0
50,000
$1.59
07/16/2014
0
0
0
0


 
DIRECTOR COMPENSATION
Name
 
 
 
 
Fees earned or
Paid in Cash
 
($)
Stock Awards
 
($)
Option Awards
 
($)
All Other
Compensation
 
 ($)
Total
 
($)
T. Craig Friesland
$12,100
-0-
-0-
-0-
$12,100
Richard G. Morris
$12,100
-0-
-0-
-0-
$12,100

 
Mr. Morris was granted a stock option award in February 2009 and August 2009 for the purchase of 120,000 and 52,000 shares, respectively.  These stock option awards were granted pursuant to the HGI 2007 Stock Plan and vested immediately.  The Grant Date Fair Value of the options was $102,581, calculated at $0.85 per share, and $44,735, calculated at $0.86 per share, respectively.  During the year ended December 31, 2010, there was no stock compensation expense as all expense was taken on these option shares during the year ended December 31, 2009.

Employment Contracts, Termination of Employment, Change-in-Control Arrangements
 
There are no employment or other contracts or arrangements with officers or Directors. There are no compensation plans or arrangements, including payments to be made by us, with respect to our officers, Directors or consultants that would result from the resignation, retirement or any other termination of service in respect of such Directors, officers or consultants. There are no arrangements for Directors, officers, employees or consultants that would result from a change-in-control.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Security Ownership of Certain Beneficial Owners and Management
 
The following table sets forth certain information with respect to the beneficial ownership, as of March 31, 2011 of the Company’s common stock, which is the Company’s only outstanding class of voting securities, and the voting power resulting from such beneficial ownership, by
 
    ·
each stockholder known by the Company to be the beneficial owner of more than 5% of the Company’s outstanding common stock;
    ·
each director of the Company;
    ·
each executive officer of the Company; and
    ·
all directors and executive officers of the Company as a group.
 
UBeneficial Owner (1)
Amount and Nature
of Beneficial
UOwnership
Percent
Uof Class (3)
     
Brandon C. Thompson (2)
20,551,109
31.51%
     
James Temme (2)
17,808,000 (7)
27.31%
     
Jimmy Mauldin(2)
9,014,487
13.82%
     
Paul Williams(2)
4,500,243
6.9%
     
T. Craig Friesland(2)
2,250,122
3.45%
     
Richard G. Morris(2)
2,198,302 (4)
3.37%
     
Tony J. Chron (2)
1,282,985 (5)
1.97%
     
Reif Chron (2)
1,135,000 (6)
1.74%
     
Directors and executive officers as a group (seven persons)
58,740,248 (8)
89.61%

 
(1)       We understand that, except as noted below, each beneficial owner has sole voting and investment power with respect to all shares attributable to that owner.
 
(2)       The address for each such beneficial owner is Suite 500, 700 Central Expressway South, Allen, Texas 75013.
 
(3)       Asterisk indicates that the percentage is less than one percent.
 
(4)       Includes (a) 3,822 shares of the Company’s Series Z preferred stock (172,009 shares of the Company’s common stock into which such Series Z preferred stock will be convertible) issuable upon exercise of HGI stock options.
 
(5)       Includes (a) 978 shares of the Company’s Series Z preferred stock (44,002 shares of the Company’s common stock into which such Series Z preferred stock is convertible) issuable upon conversion of HGI preferred stock and (b) 1,111 shares of the Company’s Series Z preferred stock (50,002 shares of the Company’s common stock into which such Series Z preferred stock will be convertible) issuable upon exercise of HGI stock options.
 
(6)       Includes 1,667 shares of the Company’s Series Z preferred stock (75,000 shares of the Company’s common stock into which such Series Z preferred stock is convertible) issuable upon exercise of HGI stock options.
 
(7)       Shares issued pursuant to the transaction described herein below between Halo and Equitas Asset Management.
 
(8)       Includes (a) 6,467 shares of the Company’s Series Z preferred stock (291,031 shares of the Company’s common stock into which such Series Z preferred stock will be convertible) issuable upon exercise of HGI stock options and (b) 978 shares of the Company’s Series Z preferred stock (44,002 shares of the Company’s common stock into which such Series Z preferred stock will be convertible) issuable upon conversion of HGI preferred stock.

-26-

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our Company.

Securities authorized for issuance under equity compensation plans

The following table provides information as of the end of the most recently completed fiscal year, with respect to Company compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.
 
Equity Compensation Plan Information
 
A(1)
B
C
Plan category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column A)
Equity compensation plans approved by security holders
2,194,070(1)
 
$0.47
 
-0-
 
Equity compensation plans not approved by security holders
-0-
 
-0-
 
-7,000,000-
 
Total
2,194,070
$0.47
-7,000,000-

 
(1)   
 Includes 2,194,070 shares subject to stock options under the HGI 2007 Stock Plan.

Following is a brief description of the material features of each compensation plan under which equity securities of the Company are authorized for issuance, which was adopted without the approval of the Company security holders:

Prior to the Merger, HGI granted stock options to certain employees and contractors under the HGI 2007 Stock Plan.  Pursuant to the terms of the Merger and the terms of the HGI 2007 Stock Plan, the Company’s common stock will be issued upon the exercise of the HGI stock options.  At December 31, 2009, pursuant to the terms of the Merger Agreement, all options available for issuance under the HGI 2007 Stock Plan have been forfeited and consequently the Company has no additional shares subject to options or stock purchase rights available for issuance under the HGI 2007 Stock Plan.  Currently outstanding options under the HGI 2007 Stock Plan vest over a period no greater than two years, are contingently exercisable upon the occurrence of specified events as defined by the option agreements, and expire upon termination of employment or five years from the date of grant.

On July 19, 2010, the board of directors approved the Company’s 2010 Incentive Stock Plan (2010 Stock Plan).  The 2010 Stock Plan allows for the reservation of 7,000,000 shares of the Company’s common stock for issuance under the plan.  The 2010 Stock Plan became effective July 19, 2010 and terminates July 18, 2020.  As of December 31, 2010, no shares have been issued under the 2010 Stock Plan.
 
 
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Transactions with Related Persons, Promoters and Certain Control Persons

Since the beginning of the fiscal year January 1, 2010 and except as disclosed below, none of the following persons has had any direct or indirect material interest in any transaction to which the Company  was or is a party, or in any proposed transaction to which the Company proposes to be a party:
 
 
·
any director or officer of the Company;

 
·
any proposed director of officer of the Company;

 
·
any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to the Company’s common stock; or

 
·
any member of the immediate family of any of the foregoing persons (including a spouse, parents, children, siblings, and in-laws).

As discussed in Note 9 to the consolidated financial statements, on May 10, 2010, several related party note holders entered into irrevocable agreements to cancel certain related party indebtedness owed to them for consideration in full of the issuance of respective equivalent dollar amount of shares in the Company’s Series X Preferred Stock, valued at $10.00 per share.  The transactions resulted in the net paydown of related party notes of $685,771 and a corresponding increase in Series X Preferred Stock of 68,577 shares totaling $685,771.  Interest accrued on these related party note balances until May 2010.  These noteholders included Brandon C. Thompson, Jimmy Mauldin, Richard Morris, and Tony Chron.

As of December 31, 2010, the Company is indebted to Richard Morris, Director of the Company, in the aggregate amount of $38,000, which amount is evidenced by a promissory note.  Total proceeds to the Company under the note include principal amounts of $258,000 and principal payments on the note to Mr. Morris of $220,000.

During 2010, the company entered into a consulting agreement with a company owned by Jimmy Mauldin, previously CSO and Director of the Company until his resignation in August 2010.  Total payments made to this company under contractual agreement for the year ended December 31, 2010 was $50,000.  Total contractual commitment to the company is $120,000.  As such, $70,000 in payments to Mr. Mauldin’s company is expected to be incurred during the fiscal year ended December 31, 2011.

During 2010, Martin Williamson, Reif Chron’s stepfather, invested $1,200,000 in the $20,000,000 Equitas Housing Fund 25% Secured Promissory Note Offering.  $1,200,000 of principal balance is still outstanding. The offering provided for a 25% rate of interest and a 24 month term.


The Company’s common stock is quoted through the OTC Bulletin Board System.  For purposes of determining whether members of the Company’s Board of Directors are “independent,” the Company’s Board utilizes the standards set forth in the NASDAQ Stock Market Marketplace Rules.  At present, the Company’s entire Board serves as its Audit, Compensation and Nominating Committees.  The Company’s Board of Directors has determined that, of the Company’s present directors, Richard G. Morris, constituting one of the six members of the Board, is an “independent director,” as defined under NASDAQ’s Marketplace Rules, for purposes of qualifying as independent members of the Board and an Audit, Compensation and Nominating Committee of the Board, but that Brandon C. Thompson, Paul Williams, Jimmy Mauldin, Tony J. Chron, and T. Craig Friesland are not “independent directors” since they serve as executive officers of the Company.  In reaching its conclusion, the Board determined that Mr. Morris does not have a relationship with the Company that, in the Board’s opinion, would interfere with his exercise of independent judgment in carrying out the responsibilities of a director, nor does Mr. Morris have any of the specific relationships set forth in NASDAQ’s Marketplace Rules that would disqualify him from being considered an independent director.

Since the effective date of the Merger, the Company has not changed the structure of its Board of Directors and currently, Mr. Brandon C. Thompson serves as both Chairman of the Board and Chief Executive Officer.  As noted above, Mr. Richard G. Morris is the sole independent director and, as a recent addition to the Board of Directors, Mr. Morris has not taken on any supplemental role in his capacity as director.  It is anticipated that additional independent directors will be added to the Board, however, the Company’s Board of Directors has not set a timetable for such action.

In light of the recent change in the Company’s business (following the Merger), the Company’s Board of Directors is of the view that the current leadership structure is suitable for the Company at its present stage of development, and that the interests of the Company are best served by the combination of the roles of Chairman of the Board and Chief Executive Officer.

As a matter of regular practice, and as part of its oversight function, the Company’s Board of Directors undertakes a review of the significant risks in respect of the Company’s business.  Such review is conducted in concert with the Company’s in-house legal staff, and is supplemented as necessary by outside professionals with expertise in substantive areas germane to the Company’s business.  With the Company’s current governance structure, the Company’s Board of Directors and senior executives are, by and large, the same individuals, and consequently, there is not a significant division of oversight and operational responsibilities in managing the material risks facing the Company.
 
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
 
The following information summarizes the fees billed to us by Montgomery Coscia Greilich LLP for professional services rendered for the fiscal year ended December 31, 2010 and 2009, respectively.

UAudit FeesU .   Fees billed for audit services by Montgomery Coscia Greilich L.L.P. were $93,507 in fiscal year 2010 and $33,937 in fiscal year 2009. Audit fees include fees associated with the annual audit and the reviews of the Company’s quarterly reports on Form 10-Q, and other SEC filings.

UAudit-Related FeesU .   The Company did not pay any audit-related service fees to Montgomery Coscia Greilich L.L.P., other than the fees described above, for services rendered during fiscal year 2010 or 2009.

UTax FeesU .   Fees billed for tax compliance by Montgomery Coscia Greilich L.L.P. were $10,645 in fiscal year 2010 and $6,896 in fiscal year 2009.

UAll Other Fees.  Other Fees billed by Montgomery Coscia Greilich L.L.P. were $6,600 in fiscal year 2010 and $2,286 in fiscal year 2009.

Consistent with SEC policies regarding auditor independence, the audit committee has responsibility for appointing, setting compensation, approving and overseeing the work of the independent auditor.  In recognition of this responsibility, the audit committee pre-approves all audit and permissible non-audit services provided by the independent auditor.  The Board of Directors serves as the audit committee for the Company.

PART IV
 
Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a) Financial Statements and financial statement schedules
         
  (1)   and  (2) The financial statements and financial statement schedules required to be filed as part of this report are set forth in Item 8 of Part II of this report.
         
  (3)  Exhibits. See Item 15(b) below.
         
(b)  Exhibits required by Item 601 of Regulation S-K
         
  Exhibit No.   Description
       
  2.1   Assignment and Contribution Agreement by and among Halo Companies, Inc, Halo Asset Management, LLC, the Members of Equitas Asset Management, LLC and Equitas Asset Management, LLC. (filed as Exhibit 2.1 to Form 8-K filed with the Commission on December 17, 2010, and incorporated herein by reference).
       
  3.1   Restated Certificate of Incorporation of GVC Venture Corp. changing the name of the Company to Halo Companies, Inc., filed with the Secretary of State of the State of Delaware on December 11, 2009 (filed as Exhibit 3.1 to Form 8-K filed with the Commission on December 15, 2009, and incorporated herein by reference).
       
  3.2   Amendment to Restated Certificate of Incorporation of Halo Companies, Inc., filed with the Secretary of State of the State of Delaware on December 11, 2009 (filed as Exhibit 3.2 to Form 8-K filed with the Commission on December 15, 2009, and incorporated herein by reference).
       
  3.3   Amended By-Laws of Halo Companies, Inc., as amended through December 11, 2009 (filed as Exhibit 3.3 to Form 8-K filed with the Commission on December 15, 2009, and incorporated herein by reference).
       
  21.1   List of subsidiaries
       
  31.1   Sarbanes-Oxley Section 302(a) Certification of Brandon C. Thompson
       
  31.2   Sarbanes-Oxley Section 302(a) Certification of Paul Williams
       
  32.1   Sarbanes-Oxley Section 906 Certifications
 
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

Date: March 31, 2011
By:
/s/ Brandon Cade Thompson
 
Brandon Cade Thompson
 
Chief Executive Officer
 
(Principal Executive Officer)
   
Date: March 31, 2011
By:
/s/ Paul Williams
 
Paul Williams
 
Chief Financial Officer
 
(Principal Financial Officer)
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
SignatureU   CCapacity   Date
         
/s/ Brandon Cade Thompson   Chairman, CEO, Director    
Brandon Cade Thompson   (principal executive officer)   March 31, 2011
         
/s/ Paul WilliamsU   Vice Chairman, CFO, Director    
Paul Williams   (principal financial officer)    March 31, 2011
         
/s/ Robbie Hicks        
Robbie Hicks   Vice President and Controller     March 31, 2011
         
U/s/ Tony ChronU        
Tony Chron   President, Director   March 31, 2011
         
/s/ T. Craig Friesland        
T. Craig Friesland   Director    March 31, 2011
         
/s/ Richard Morris        
Richard Morris   Director   March 31, 2011
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010


The following consolidated financial statements of the Company are contained in this Report on the pages indicated:
 



-F-1-

Certified Public Accountants
2500 Dallas Parkway, Suite 300
Plano, Texas 75093
972.748.0300 p
972.748.0700 f
 
Thomas A. Montgomery, CPA
Matthew R. Coscia, CPA
Paul E. Greilich, CPA
Jeanette A. Musacchio
James M. Lyngholm
Christopher C. Johnson, CPA
 
J. Brian Simpson, CPA
Rene E. Balli, CPA
Erica D. Rogers, CPA
Dustin W. Shaffer, CPA
Gary W. Boyd, CPA
Michal L. Gayler, CPA
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
To the Board of Directors and
Stockholders of Halo Companies, Inc.


We have audited the accompanying consolidated balance sheet of Halo Companies, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended. Halo Companies, Inc. management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Halo Companies, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming Halo Companies, Inc. will continue as a going concern.  As discussed in Note 4 to the financial statements, Halo Companies, Inc. has incurred losses since its inception and has not yet established profitable operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regards to these matters are also described in 4. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ MONTGOMERY COSCIA GREILICH LLP

Plano, Texas
March 31, 2011

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CONSOLIDATED BALANCE SHEETS
 
               
ASSETS  
December 31, 2010
     
December 31, 2009
 
CURRENT ASSETS
             
 
Cash and cash equivalents
  $ 174,598       $ 86,090  
 
Restricted cash
    29,563         193,130  
 
Trade accounts receivable, net of allowance for doubtful
                 
 
accounts of $331,085 and $207,074, respectively
    1,765,355         2,194,068  
 
Prepaid expenses and other assets
    -         180,974  
 
Total current assets
    1,969,516         2,654,262  
                     
PROPERTY, EQUIPMENT AND SOFTWARE, net
    333,951         420,578  
INVESTMENTS IN UNCONSOLIDATED ENTITIES
    38,647            
INVESTMENTS IN PORTFOLIO ASSETS
    300,000         -  
DEPOSITS AND OTHER ASSETS
    179,897         32,664  
                     
TOTAL ASSETS
    2,822,011         3,107,504  
                     
LIABILITIES AND (DEFICIT)EQUITY
                 
CURRENT LIABILITIES
                 
 
Lines of credit
  $ 1       $ 250,000  
 
Accounts payable
    220,856         141,796  
 
Accrued liabilities (including $94,307 and
                 
 
$30,499 to related parties, respectively)
    424,663         259,462  
 
Deferred revenue
    11,682         36,840  
 
Current portion of subordinated debt
    66,556         -  
 
Current portion of notes payable to related parties
    414,724         494,615  
 
Current portion of notes payable
    248,608         247,570  
 
Current portion of deferred rent
    80,000         -  
 
Total current liabilities
    1,467,090         1,430,283  
                     
NOTES PAYABLE, LESS CURRENT PORTION
    -         281,847  
NOTES PAYABLE TO RELATED PARTY, LESS CURRENT PORTION     -         46,141  
SECURED ASSET PROMISSORY NOTE
    1,200,000         -  
SUBORDINATED DEBT, LESS CURRENT PORTION
    282,102         -  
DERIVATIVE LIABILITY
    98,560         -  
DEFERRED RENT
    213,335         187,039  
 
Total liabilities
    3,261,087         1,945,310  
                     
EQUITY
                 
 
Series Z Convertible Preferred Stock, par value $0.01 per share; 84,170 shares
       
 
authorized; 0 shares issued and outstanding at December 31, 2010
    -         -  
 
Preferred Stock, par value $0.001 per share; 915,830 shares
                 
 
authorized; 0 shares issued and outstanding at December 31, 2010
    -         -  
 
Series X Convertible Preferred Stock, par value $0.01 per share; 175,000 shares
       
 
authorized; 138,777 shares issued and outstanding at December 31, 2010
    1,388         -  
 
liquidation preference of $1,387,771
                 
 
Halo Group, Inc. Preferred Stock, par value $0.001 per share; 2,000,000 shares authorized
 
 
Series A Convertible Preferred Stock;
                 
 
372,999 shares issued and outstanding at December 31, 2010
           
 
liquidation preference of $575,435
    373         500  
 
Series B Convertible Preferred Stock;
                 
 
229,956 shares issued and outstanding at December 31, 2010
           
 
liquidation preference of $487,634
    230         500  
 
Series C Convertible Preferred Stock;
                 
 
124,000 shares issued and outstanding at December 31, 2010
           
 
liquidation preference of $323,127
    124         152  
 
Common Stock, par value $0.001 per share; 375,000,000 and 375,000,000
       
 
shares authorized; 65,429,706 and 42,232,437 shares issued and
           
 
outstanding at December 31, 2010 and December 31, 2009, respectively
    65,430         42,232  
 
Additional paid-in capital
    6,580,767         3,839,952  
 
Accumulated deficit
    (7,005,070 )       (2,671,031 )
 
Total (deficit)equity
    (356,758 )
 
    1,212,305  
NONCONTROLLING INTEREST
    (82,318 )       (50,111 )
 
Total shareholders' (deficit)equity
    (439,076 )
 
    1,162,194  
TOTAL LIABILITIES AND (DEFICIT)EQUITY
  $ 2,822,011  
 
  $ 3,107,504  
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-F-3-

 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
             
   
For the Year Ended
 
   
December 31,
 
   
2010
   
2009
 
             
REVENUE
  $ 6,861,204     $ 9,113,956  
                 
OPERATING EXPENSES
               
Sales and marketing expenses
    1,398,886       1,385,389  
General and administrative expenses (including $92,650
               
and $69,625 to related parties, respectively)
    3,850,498       3,265,678  
Salaries, wages, and benefits (including $588,894 and
               
$1,399,823 of stock-based compensation)
    5,066,843       6,325,986  
Total operating expenses
    10,316,227       10,977,053  
                 
OPERATING INCOME (LOSS)
    (3,455,023 )     (1,863,097 )
                 
OTHER INCOME (EXPENSE)
               
Income from unconsolidated entities
    34,766       -  
Loss on change in fair value of derivative
    (49,135 )     -  
Other income
    -       74,577  
Interest expense (including $78,354 and $50,088 to
               
related parties, respectively)
    (197,556 )     (91,167 )
Net income (loss) from operations, before income tax provision
    (3,666,948 )     (1,879,687 )
                 
INCOME TAX PROVISION
    (35,378 )     66,382  
                 
NET INCOME (LOSS)
    (3,631,570 )     (1,946,069 )
                 
Loss attributable to the noncontrolling interest
    32,207       50,111  
                 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ (3,599,363   $ (1,895,958 )
                 
Earning per share:
               
Basic & Diluted
  $ (0.067 )   $ (0.046 )
                 
Weighted Average Shares Outstanding
               
Basic & Diluted
    53,831,072       41,114,219  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-F-4-

 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/(DEFICIT)
 
For the Years Ended December 31, 2010 and 2009
 
                                                                                     
                                                                                     
   
Halo Companies, Inc. Common Stock
   
Halo Companies, Inc. Series Z Convertible Preferred Stock
   
Halo Companies, Inc. Series X Convertible Preferred Stock
   
Halo Group, Inc. Series A Convertible Preferred Stock
   
Halo Group, Inc. Series B Convertible Preferred Stock
   
Halo Group, Inc. Series C Convertible Preferred Stock
   
Additional Paid-in Capital
   
Accumulated Deficit
   
Noncontrolling Interest
   
Total
 
   
Shares
 
Amount
   
Shares
 
Amount
   
Shares
 
Amount
   
Shares
 
Amount
   
Shares
 
Amount
   
Shares
 
Amount
                         
                                                                                     
Balance at December 31, 2008
    40,056,000     40,056       -     -       -     -       500,000     500       89,910     90       -     -       1,265,738       (775,073 )     -       531,311  
                                                                                                                     
Issuance of Common Stock
    134,035     134       -     -       -     -       -     -       -     -       -     -       212,982       -       -       213,116  
                                                                                                                     
Issuance of Series B Convertible Preferred Stock for cash
    -     -       -     -       -     -       -     -       401,202     401       -     -       802,003       -       -       802,404  
                                                                                                                     
Issuance of Series B Convertible Prefered Stock as dividend reinvestment
    -     -       -     -       -     -       -     -       8,888     9       -     -       17,767       -       -       17,776  
                                                                                                                     
Issuance of Series C Convertible
Preferred Stock for cash
    -     -       -     -       -     -       -     -       -     -       152,000     152       379,848       -       -       380,000  
                                                                                                                     
Issuance of Common Stock shares as payment of discretionary dividend
    165,094     165       -     -       -     -       -     -       -     -       -     -       (165 )     -       -       -  
                                                                                                                     
Dividends declared
    -     -       -     -       -     -       -     -       -     -       -     -       (39,905 )     -       -       (39,905 )
                                                                                                                     
Issuance of Halo Companies, Inc. Common Stock pursuant to the merger
agreement
    1,877,308     1,877       -     -       -     -       -     -       -     -       -     -       (198,139 )     -       -       (196,262
                                                                                                                     
Stock-based compensation expense
    -     -       -     -       -     -       -     -       -     -       -     -       1,399,823                       1,399,823  
                                                                                                                     
Net loss attributable to common shareholders
    -     -       -     -       -     -       -     -       -     -       -     -       -       (1,895,958 )     -       (1,895,958 )
                                                                                                                     
Allocation of loss to noncontrolling interest
    -     -       -     -       -     -       -     -       -     -       -     -       -       -       (50,111 )     (50,111 )
                                                                                                                     
Balance at December 31, 2009
    42,232,437   $ 42,232       -   $ -       -   $ -       500,000   $ 500       500,000   $ 500       152,000   $ 152     $ 3,839,952     $ (2,671,031 )   $ (50,111 )   $ 1,162,194  
                                                                                                                     
Stock-based compensation expense
    -     -       -     -       -     -       -     -       -     -       -     -       588,894       -       -       588,894  
                                                                                                                     
Exercise of Stock Options
    363,500     364       -     -       -     -       -     -       -     -       -     -       3,271       -       -       3,635  
                                                                                                                     
Issuance of Common Stock shares as payment of  stock and discretionary dividends (FN 17)
    1,080,456     1,080       -     -       -     -       -     -       -     -       -     -       733,596       (734,676 )     -       -  
                                                                                                                  -  
Issuance of Common Shares
    59,524     60                                                                             49,940                       50,000  
                                                                                                                     
Issuance of Common Shares per assignment agreement (FN 17)
    21,200,000     21,200       -     -       -     -       -     -       -     -       -     -       (21,200 )     -       -       -  
                                                                                                                     
Conversion of Halo Group Inc. Preferred Stock into Common Stock
    493,789     494       -     -       -     -       (127,001   (127 )     (270,044   (270 )     (28,000   (28 )     (69 )     -       -       -  
                                                                                                                     
Issuance of Series X Convertible Preferred Stock for cash (FN 17)
    -     -       -     -       70,200     702       -     -       -     -       -     -       701,298       -       -       702,000  
                                                                                                                     
Issuance of Series X Convertible Preferred Stock in exchange for debt (FN 17)
    -     -       -     -       68,577     686       -     -       -     -       -     -       685,085       -       -       685,771  
                                                                                                                     
Net loss attributable to common shareholders
    -     -       -     -       -     -       -     -       -     -       -     -       -       (3,599,363 )     -       (3,599,363 )
                                                                                                                     
Allocation of loss to noncontrolling interest
    -     -       -     -       -     -       -     -       -     -       -     -       -       -       (32,207 )     (32,207 )
                                                                                                                     
Balance at December 31, 2010
    65,429,706   $ 65,430       -   $ -       138,777   $ 1,388       372,999   $ 373       229,956   $ 230       124,000   $ 124     $ 6,580,767     $ (7,005,070 )   $ (82,318 )   $ (439,076 )
                                                                                                                     
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-F-5-

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the Year Ended
 
   
December 31, 2010
   
December 31, 2009
 
CASH FLOWS FROM OPERATIONS
           
Net loss
  $ (3,599,363 )