10-K 1 haln_10k2011.htm 10-K haln_10k2011.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, 2011
 
[_]
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, 2011, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the issuer was approximately $6,418,461 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 30, 2012 was 65,576,414.
 
 

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-

 
HALO COMPANIES, INC.
FORM 10-K
TABLE OF CONTENTS

 
 
Forward-Looking Statements
 
     
 
Part I
 
Item 1.
Business.
-4-
Item 1A.
Risk Factors.
-7-
Item 1B.
Unresolved Staff Comments.
-10-
Item 2.
Properties.
-10-
Item 3.
Legal Proceedings.
-10-
Item 4.
Mine Safety Disclosures.
-11-
     
 
Part II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
-11-
Item 6.
Selected Financial Data.
-12-
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
-12-
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
-18-
Item 8.
Financial Statements and Supplementary Data.
-18-
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
-19-
Item 9A.
Controls and Procedures.
-19-
Item 9B.
Other Information.
-19-
     
 
PART III
 
Item 10.  
Directors, Executive Officers and Corporate Governance.
-20-
Item 11.  
Executive Compensation.
-23-
Item 12.  
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
-25-
Item 13.  
Certain Relationships and Related Transactions, and Director Independence.
-28-
Item 14.  
Principal Accounting Fees and Services.
-29-
     
 
Part IV
 
Item 15.
Exhibits, Financial Statement Schedules.
-30-
     
 
SIGNATURES
 

 
-3-

 
FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this Report that are not statements of historical fact constitute “forward-looking statements”.  Words such as “may,” “seek,” “expect,” “anticipate,” “estimate,” “project,” “budget,” “goal,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “strategy,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements but are not the exclusive means of identifying such statements.  Although the Company believes that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the Company’s future plans, operations, business strategies, operating results and financial position, are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company’s control.  Those risks, uncertainties, and other factors could cause the actual results to differ materially from those in the forward-looking statements.  Those risks, uncertainties, and factors (including the risks contained in the section of this report titled “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 expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.

PART I
 
Item 1.  BUSINESS.
 
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

The Company, through its subsidiaries, operates a nationwide distressed asset services company, providing technology-driven asset management, portfolio due diligence, acquisition, repositioning and liquidation strategies for the private investment and mortgage servicing industry. Founded in 2004, Halo began operating in the mortgage origination sector, expanding quickly to an award-winning consumer financial services company. Halo’s years of experience, key leadership and industry knowledge, laid the foundation for its emergence as a premier distressed asset services company.
 
Products and Services

Halo focuses its distressed asset services, portfolio due diligence, and asset liquidation strategies primarily on single family residential real estate across the United States for its business customers (typically distressed debt investors or debt servicers) to market turnkey solutions for improved performance and monetization of their portfolios.  In today’s economy, lenders are experiencing an overflow of distressed assets.  Many mortgage debt servicers are currently overwhelmed with externally imposed programs that are stretching the limits of their human resources, money and time. Halo’s technology systems are bundled with transparency, accountability, efficiency, 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.  Secondarily, Halo assists consumers who may be in various stages of financial need, by individually reducing their debt, correcting their credit profile and providing proper insurance for their personal life and health and personal assets.  Although not part of the Company’s service portfolio heading into 2012, during 2011, the Company also assisted consumers with securing home mortgages and buying, selling, and renting residential residences.  

-4-

 
 The following outline briefly describes Halo’s various subsidiaries and the products and services they offer.  The Company provides segment reporting in accordance with generally accepted accounting principles in Note 4 to the consolidated financial statements.

Halo Asset Management, LLC   Halo Asset Management (HAM) was formed as the operating company for a “fee for service” default and disposition asset management business model supporting our clients’ investment into funds of real estate owned (REO) properties or non-performing loans.  The clients 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 notes is the core business of the Company today and 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.  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 to a large percentage of the consumer market, and (2) the over-correction of home prices particularly in low-to moderate-income markets.

UHalo Portfolio Advisors, LLCU  Halo Portfolio Advisors (HPA) works with asset managers, investors and servicers to provide a custom, 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 proprietary, in-house technology to provide a proprietary, customized analysis of a Client’s position.  HPA then custom tailors 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 with Halo’s suite of consumer financial products including short sale services, credit repair, and unsecured debt resolution to assist the Client in carrying out the custom solution that HPA recommended.  Secondarily, HPA targets other asset purchasers or servicers using 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.  These services include portfolio strategy consulting, default management, asset/liability management, asset preservation management, debt restructuring, portfolio acquisition and liquidation 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.  

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 multiple insurance companies, including State Auto, Safeco, Travelers, CNA, Progressive, and Hartford.  
U
 
Halo 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.  Although HDS has not taken on any new customers since October 2010, it continues to provide its debt settlement services and collect its fees from customers enrolled prior to that time.

-5-

 
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.  Although the HFS stopped soliciting new business in the second quarter of 2011, it continues to provide its services to customers enrolled prior to that time. U

Halo 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 Group Mortgage, LLCU   Halo Group Mortgage (HGM) is a full-service mortgage brokerage institution in the retail lending environment.  HGM is currently licensed in several southwestern states.  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 Benefits, Inc.U  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.

Equitas Housing Fund, LLC  In December 2010, Equitas Housing Fund, LLC (EHF) entered into an agreement to purchase non-performing mortgage notes secured by the property, across the United States, for 6.6% of unpaid principal balance. Total purchase price of the investment was $300,000.  The Company utilizes several different strategies to place a new borrower in an asset or to modify the terms of an existing borrower and subsequently plans to season the notes and collect cash flow payments from the borrower while providing consumer financial rehabilitation services to each customer, including debt relief, credit restoration and financial education.  Following seasoning, the Company plans to dispose of the performing Assets in bulk to various bulk performing asset buyers.

Recent Developments

Looking back to the year ended December 31, 2011, management believed that operational and financial capital was best spent on our opportunities in HAM and HPA, and, as a result, saw a material improvement in our bottom line for the year ended December 31, 2011 compared to the year ended December 31, 2010.  In doing so, management committed to growing the HAM and HPA business verticals at the expense of our debt settlement company, HFS.

Although not material to the consolidated financial statements, during the three months ended December 31, 2011, Halo wound down the joint venture agreement and remaining operations of the mortgage banking vertical.  The joint venture arrangement was not in line with the Company’s future growth strategy and financial capitalization of the asset management and portfolio advisor subsidiaries.

-6-

 
Competition

The 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.

Intellectual Property

The Company maintains copyrights on 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, 2011, the Company had 95 staff members, including 40 full-time employees and 55 independent contractors which were primarily residential real estate agents working in the north Texas region.  None of the Company’s employees is covered by a collective bargaining agreement.  Halo believes that it maintains good relationships with its employees and its independent contractors.

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.  See Risk Factors below for further discussion about the risks involved with Company’s regulatory environment.

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 distressed real estate and mortgage 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.
 
-7-

 
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 government regulations.  In the United States, we are regulated pursuant to laws applicable to businesses in general.  And in some areas of our business, we are subject to specific laws regulating the availability of certain material related to, or to the obtaining of, personal information.  Adverse developments in the legal or regulatory environment relating to the debt collection, mortgage servicing and mortgage origination industries in the United States could have a material adverse effect on our business, financial condition and operating results.  A number of legislative and regulatory proposals from the federal government and various state governments in the areas of debt collection, mortgage servicing, mortgage origination, consumer protection, advertising, and privacy, among others, have been adopted or are now under consideration.  We are unable at this time to predict which, if any, of the proposals under consideration may be adopted and, with respect to proposals that have been or will be adopted, whether they will have a beneficial or an adverse effect on our business, financial condition and operating results.
 
For the mortgage origination and mortgage servicing industries in particular, legislation in the United States has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous federal, state and local departments and agencies have issued extensive rules and regulations, some of which carry substantial penalties for failure to comply. These laws and regulations increase the cost of doing business and, consequently, affect profitability. Since new legislation affecting the mortgage origination and mortgage servicing industries is commonplace and existing laws and regulations are frequently amended or reinterpreted, the company is unable to predict the future cost or impact of complying with these laws and regulations.  However, the Company considers the cost of regulatory compliance a necessary and manageable part of its business.  Further, the Company has been able to plan for and comply with new regulatory initiatives without materially altering its operating strategies.
 
Specific laws which affect Halo Asset Management and Halo Portfolio Advisors in particular are the following:  The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“S.A.F.E. Act”), the Fair Debt Collection Practices Act (“FDCPA”), and the Real Estate Settlement Procedures Act (“Regulation X” or “RESPA”).  Currently, the Company is fully compliant with each of these laws.  The Company believes that these laws, as currently enacted, provide barriers to entry for potential competitors, by virtue of their respective bonding and licensing requirements, and the overall cost of compliance.  The Company believes that Halo Asset Management and Halo Portfolio Advisors maintain a competitive advantage in the marketplace because the Company is already fully compliant with each of the referenced laws.
 
In addition to the referenced federal laws and regulations, state mortgage origination and mortgage servicing laws and regulations also affect the Halo Asset Management and Halo Portfolio Advisors businesses, by providing further barriers to entry as well as additional compliance and enforcement procedures for our unlicensed, noncompliant competition.  The Company is currently compliant with all relevant state laws and regulations in the states in which the Company does business, however, if the relevant laws and regulations were to change in the states where the Company has its highest concentration of business, such change could have an adverse impact on the Company’s operating strategy and overall revenues.
 
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.
 
-8-

 
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.

-9-

 
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.

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 24,297 square feet of office space under lease.  Pursuant to an office lease dated September 2, 2011, the Company is required to make monthly lease payments of $43,552 per month.  Currently, the lease is set to expire on August 28, 2014.

Item 3.  LEGAL PROCEEDINGS.

The Company and certain of its affiliates, officers and directors have been named as defendants in an action filed on December 12, 2011 in the 191st District Court of Dallas County, Texas.  The Plaintiffs allege that the Company has misappropriated funds in connection with offerings of securities during 2010 and 2011.  The complaint further alleges that Defendants engaged in fraudulent inducement, negligent misrepresentation, fraud, breach of fiduciary duty, negligence, breach of contract, unjust enrichment, conversion, violation of the Texas Securities Act, and civil conspiracy.  The action seeks an injunction and a demand for accounting along with damages in the amount of $4,898,157.  The Company has taken the position that the Plaintiffs’ claims have no merit, and accordingly is defending the matter vigorously.  Defendants have filed a general denial of the claims as well as a Motion to Designate Responsible Third Parties whom Defendants believe are responsible for any damages Plaintiffs may have incurred.  Defendants have also filed a Motion for Sanctions against the Plaintiffs and their counsel arguing, among other things, that (i) the Plaintiffs’ claims are “judicially estopped” from moving forward by virtue of the fact that the same Plaintiffs previously filed suit against separate entities and parties with diametrically opposed and contradicting views and facts; (ii) Plaintiffs have asserted claims against Defendants without any basis in law or fact; and (iii) Plaintiffs have made accusations against Defendants that Plaintiffs know to be false.  This proceeding is in preliminary stages.  See Note 16 to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.

-10-

 
Item 4.  MINE SAFETY DISCLOSURES.

Not applicable.


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. 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, 2011
UHigh
ULow
First Quarter
$.90
$.10
Second Quarter
$1.01
$.11
Third Quarter
$.98
$.12
Fourth Quarter
$.13
$.05
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
 
The above prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
 
Holders
 
The Company estimates that there are approximately 4,539 shareholders including approximately 2,839 stockholders of record and 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, 2011, 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.

-11-

 
Repurchases of Equity Securities

The Company did not repurchase any of its equity securities during the year ended December 31, 2011.

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 and assumptions that could cause our actual results to differ materially from management’s expectations.  See the sections entitled “Forward-Looking Statements” and “Risk Factors” above.

Plan of Operations
 
Halo has developed a fee for service business model through Halo Asset Management for the monetization of non-performing, residential mortgage notes (“NPNs”) or foreclosed single family homes (“REO”) (collectively, “Assets”).  Halo provides investors and asset owners a complete suite of asset management and mortgage services including, but not limited to (i) portfolio due diligence such as valuation engines, tax research, portfolio bid management, cost allocations and decision support; (ii) acquisition services including portfolio reconciliation, title, and tax reporting, an investor portal, initial portfolio inspection and servicing transfer assistance; (iii) repositioning services including portfolio restructuring, valuations, document preparation engine, document e-vaulting and proprietary loan underwriting; (iv) asset management and mortgage servicing including portfolio accounting, servicing and loan management functions, escrow administration, payment processing, loss mitigation and default resolution; and (v) liquidation strategies including predictive liquidity waterfalls, portfolio liquidation analysis, market analysis and disposition support.  Halo focuses on the monetization and servicing of distressed real estate assets and finding a win-win solution for the asset owner/investor and the consumer.  Halo will board REO properties as well as sub-performing and non-performing first lien mortgages from banks, financial institutions and mortgage servicers which have been purchased by investors.  The majority of the assets will be either modified first lien mortgages or sold via owner finance, as opposed to a fire sale through a real estate network.  HAM, through its strategic sub-servicing relationship, will season the notes collecting cash flow payments from the borrower.  Simultaneously, Halo can provide consumer financial rehabilitation services to each customer, including low cost health insurance, credit restoration and financial education.  Following several months of seller financed payment seasoning, Halo will assist in the disposal of the performing Assets in bulk to various bulk performing asset buyers.  Prior to any bulk disposal, Halo will attempt to secure refinancing opportunities for those consumers that have achieved a level of qualification capable of securing a traditional mortgage.  
 
For the NPN’s, Halo will attempt to 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.  For the borrowers who either lack the desire to stay in the home, or who lack the capacity to afford the home, Halo will get a deed-in-lieu of foreclosure from the borrower (which ensures the investor ownership of the underlying asset; not just the purchased note), often times through incentives, and 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 with achievable and manageable down payments and subsequent monthly payments.  Halo originates land contracts or mortgage notes for the new home owners.  A land contract (sometimes known as an “installment contract” or “contract for deed”) is a contract between a seller and buyer on real property in which the seller provides the buyer 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.  As a general rule, the seller is obligated to convey legal title of the property to the buyer when the full purchase price has been paid including any interest.  This process creates entry level housing with built-in, fully amortized financing that equates to payments that are equivalent to what the buyers are currently paying in rent, and often as much as 35% less.
 
-12-

 
During the initial term of the loan, Halo attempts to 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 loans are “seasoned,” they are attractive investment vehicles to be either refinanced or sold in bulk.  Halo 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 borrowers who did not achieve qualifying levels will be sold in bulk at a discount of par value on the remaining unpaid principle balance of the notes.
 
Currently, HAM is under contract to manage and service approximately 6,600 assets in various stages of their life-cycle including REO, non-performing loans, re-performing note modifications, and performing owner financed contract-for-deeds.  As the Company currently has the management, infrastructure, and physical work area capacity to scale and support additional assets under contract, it is actively seeking new clients as well as helping existing clients increase their respective asset pool.  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 investors will continue to be able to purchase Assets in bulk from large institutional sellers at deep discounts and Halo’s goal is to establish itself, with the help of its unique technology platform and key servicing and vendor relationships, as the premier asset manager/servicer in the distressed non-performing loan and REO industry.
 
In addition to asset management fees and disposition fees, 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 restructuring, portfolio acquisition and liquidation support.
 
HPA’s focus is to work with asset managers, investors and servicers to provide a custom, 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 proprietary in-house technology to provide a customized analysis of a Client’s position.  HPA then custom tailors 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 with Halo’s suite of consumer financial products including short sale services and credit repair to assist the Client in carrying out the custom solution that HPA recommended.

The current economic environment finds lenders and servicers drowning in an overflow of defaulted 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 business plan.  At its core, the plan seeks to execute on delivering asset management, valued analytics, and consumer financial rehabilitation to mid-size institutional investors, while limiting the acquisition costs of consumer prospects for other Halo subsidiaries.
 
-13-

 
Significant effort and investment capital has been incurred by the Company over the past seven years in order to attract and maintain a qualified and capable staff, develop proprietary software platforms, and implement 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.

Results of Operations for the year ended December 31, 2011 Compared to the year ended December 31, 2010

Revenues

For the year ended December 31, 2011, revenue was down $580,890 or 8% to $6,280,314 for the year ended December 31, 2011 from $6,861,204 for the year ended December 31, 2010.  The difference and overall reduction in revenue is primarily in HDS due to several factors including management’s decision in late 2010 to implement a smaller marketing and customer lead budget, a reduced sales team and the overall affect of the amended Federal Trade Commission’s (FTC) Telemarketing Sales Rule (“TSR”) applicable to debt settlement fees and the debt settlement industry in general.  HDS revenue was $398,440 for the year ended December 31, 2011 compared to $5,649,702 for the year ended December 31, 2010.  It should be noted the Company continues to focus on HAM and HPA subsidiaries as its primary revenue producers, both in the short term, and in its long term growth plans.  For the year ended December 31, 2011, revenue was up $3,857,167 to $4,060,339 from $203,172 for the year ended December 31, 2010 in the Company’s HAM and HPA subsidiaries combined.  The $4,060,339 in revenues accounts for 65% of the Company’s revenues for the year ended December 31, 2011 compared to $203,172 and 3% for the year ended December 31, 2010.  For the year ended December 31, 2011, revenue was up $582,557 to $1,145,835 from $563,278 for the year ended December 31, 2010 in the Company’s HGR subsidiary.  The $1,145,835 in revenue accounts for 18% of the Company’s revenues in 2011 compared to $563,278 and 8% of consolidated revenues in 2010.  Notwithstanding, overall Revenue was down $580,890 or 8% to $6,280,314 for the year ended December 31, 2011 from $6,861,204 for the year ended December 31, 2010.  The difference and overall reduction in revenue is primarily in HDS due to several factors including management’s decision in late 2010 to implement a smaller marketing and customer lead budget, a reduced sales team and the overall affect of the amended Federal Trade Commission’s (FTC) Telemarketing Sales Rule (“TSR”) applicable to debt settlement fees and the debt settlement industry in general.  HDS revenue was $398,440 for the year ended December 31, 2011 compared to $5,649,702 for the year ended December 31, 2010.  The Company continues to focus on HAM and HPA subsidiaries as its primary revenue producers, both in the short term, and in its long term growth plans.  

As it relates to the Company providing debt settlement services to customers, management summarizes the following; 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 specifically in adherence with regulatory guidelines established under the recent amendments to the TSR applicable to debt settlement fees.  Under the TSR, for which all cash flows were received 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 cash flows start flowing in as successful customer settlements increased.  Although HFS has seen an increase in the ability to quickly settle a customer’s debts and recognize revenue, 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 opportunities in HAM and HPA and has seen an immediate impact on revenue since shifting increased marketing and operational capital to those subsidiaries.  Management does not anticipate HFS revenues being material to the Company going forward.

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 and contract service costs directly associated with the Company’s sales in both HAM and HPA.  Sales and marketing expenses increased $705,253 and 50% to $2,104,139 for the year ended December 31, 2011 from $1,398,886 for the year ended December 31, 2010.  This increase is primarily attributable to the following factors; (1) overall increase in HGR’s real estate closing commissions paid to independent agents during the same time period, consistent with the above noted increases in revenues in HGR, (2) overall increase in HAM commissions paid to both internal and external sales force for success fees earned, consistent with above noted increases in revenues in HAM, (3) overall increase in HPA contract service costs directly associated with an increase in sales and Asset units under management, consistent with above noted increases in revenue in HPA.  This increase is offset by a material reduction in HDS lead purchase expense, consistent with the above noted decrease in revenues, during the year ended December 31, 2011 compared to the year ended December 31, 2010.

-14-

 
General and administrative expenses decreased $923,150 or 24% to $2,927,348 for the year ended December 31, 2011 from $3,850,498 for the year ended December 31, 2010.  This decrease is a result of several items including a decrease in allowance for doubtful accounts which is charged to bad debt expense, included within general and administrative expenses.  This decrease is in line with the overall decrease in revenue and accounts receivable of HDS.  See significant accounting policies contained in Note 2 to the consolidated financial statements.  The decrease is also attributable to the following; (a) reduction of consulting costs occurred during 2011 compared to 2010, and (b) reduction in insurance costs associated with reduction in employee headcount.  The decrease is offset by an increase in rent expense contractually entered into which included increased square footage occupied at the Company’s offices and the $257,012 reduction fee associated with the Company’s offices as discussed further in Note 16 to the consolidated financials.

Salary, wages and benefits decreased $2,014,690 or 40% to $3,052,153 for the year ended December 31, 2011 from $5,066,843 for the year ended December 31, 2010.  Approximately $475,494 or 24% of this decrease is stock option compensation expense for any options that had vested during the year ended December 31, 2011 compared to the year ended December 31, 2010.  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 was recognized into earnings over the vesting period of the options beginning September 30, 2009.  Stock compensation related to the 2007 stock plan is fully vested as of December 31, 2011.  Stock compensation is a non-cash expense item.  The remaining $1,539,196 or 76% decrease is a reduction in overall employee headcount primarily from reduction in force efforts at both the parent company and within HFS and HDS, consistent with senior leadership’s decision to implement decreased marketing, salaries, and variable overhead and operational costs to HFS and HDS as we increased our efforts to grow revenue in various other Halo ventures discussed above.  Looking forward to 2012, the Company anticipates increasing its headcount in line with the growth of asset units managed under HAM.  As salaries, wages and benefits are 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 $288,254 or 146% to $485,810 for the year ended December 31, 2011 from $197,556 for the year ended December 31, 2010.  The increase is primarily attributable to the 2011 $75,000 quarterly interest expense associated with secured asset promissory note discussed in Note 13 to the consolidated financial statements, offset by a reduction of interest expense in its notes payable related to scheduled paydown of those note balances.

The Company experienced a decrease in its overall net loss of $1,096,335 to a net loss of $2,503,028 for the year ended December 31, 2011 from a net loss of $3,599,363 for the year ended December 31, 2010, 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 and Deferred Revenue

The Company recognizes revenue in the period in which services are earned and realizable.  To further understand the Company’s business, HAM earns fees from its clients for its boarding and initial asset management fee, success fees, and its monthly servicing fee.  The boarding and initial asset management services are performed in the first 30-60 days of assets being boarded and include; IRR analysis of loans boarded, detailed asset level workout exit strategy analysis, boarding the assets onto HAM’s proprietary software platform and the integrated servicing platform, identification and oversight of custodial files, oversight of mortgage/deed assignment from previous servicer, oversight of title policy administration work, and delinquent property tax research and exposure review.  HAM’s monthly success fees are earned for completing its default and asset disposition services including loan modification, originating owner finance agreements, and cash sales of REO properties owned by the client.  HAM’s servicing fees are earned monthly and are calculated per a monthly unit price for assets under management.

-15-

 
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.  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).  Any new debt settlement business to the Company after October 27, 2010 has been and will continue to be transacted in the HFS entity.  As such, the 10 month revenue recognition period previously discussed in prior annual financial statements for all new clients enrolled into HDS in October of 2010 has been fully recognized by July 2011.  Cash receipts from customers (including boarding an initial asset management fees from clients of HAM) in advance of revenue recognized are originally recorded as deferred revenue and recognized into revenue over the period services are provided.

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.  HAM receivables are typically paid the month following services performed.

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 actual 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.

UUse 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.

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.

-16-

 
Liquidity and Capital Resources

As of December 31, 2011, the Company had cash and cash equivalents of $657,135.  The increase of $452,974 in cash and cash equivalents from December 31, 2010 was due to cash provided by operating activities of $287,508, cash provided by investing activities of $169,555, offset by cash used in financing activities of $4,089.
 
Net cash provided by operating activities was $287,508 for the year ended December 31, 2011, compared to $1,763,662 net cash used in operating activities for the year ended December 31, 2010.  The net cash provided by operating activities for the year ended December 31, 2011 was due to a net loss of $2,223,787, adjusted primarily by the following: (1) non cash expense items including depreciation of $122,775, bad debt expense of $931,719, impairment loss on investment in portfolio assets of $279,241, and share-based compensation expense of $113,400 and (2) an increase in accounts payable of $442,521, a decrease in gross accounts receivable of $114,711, an increase in deferred revenue of $681,878, and an increase in deferred rent of $127,320.  The remaining immaterial variance is related to changes in operating assets and liabilities, a change in the noncontrolling interest balance, a non cash gain on the change in fair value of derivative, a gain on sale of equipment and income from investment in an unconsolidated entity (net of cash return on the investment).
 
Net accounts receivable decreased by $1,046,430 or 59%.  The decrease was a result of bad debt expense of $931,719, primarily in HDS, directly impacting the allowance for doubtful accounts less the decrease in gross accounts receivable of $114,711.  Allowance for loan loss and bad debt expense is discussed in significant accounting policies above.  Continuing into fiscal year end 2012, we expect the majority of the HDS account receivable balance to be fully collected as we continue to fully implement the business plan discussed in Plan of Operations.  The Company expects the HDS provision for uncollectible accounts to be immaterial in 2012 as the remaining customer base makes their schedule payments, less the estimated charge offs included in the allowance for doubtful account balance.

The accounts payable increase is primarily the result of the timing of payments in monthly vendor commitments and payables.  As the Company has seen declines in its top line revenues, expenses have also declined accordingly.  However, the timing of the revenue decreases, in line with the Company’s attempt to raise capital for future successful business operations discussed in Plan of Operations above, has required the Company to strategically monitor its payables and cash flow outlays.  The Company pro-actively manages the timing and aging of vendor payables throughout the year.  Deferred revenue increased $681,878 primarily related to the collection of asset management fees in its HAM subsidiary.  Deferred revenue is discussed further in significant accounting policies above.  Deferred rent increased $127,320 primarily related to the $257,012 reduction fee accrued in September 2011 from the Company’s office lessor discussed in Note 16 to the consolidated financials, offset by the release of deferred rent associated with the reduction in office space leased as well as the paydown of deferred rent balance during the year ended December 31, 2011.  Continuing forward, the deferred rent balance will continue to decrease as the monthly cash payment to the office lessor exceeds the straight line monthly expense booked in general and administrative expenses.

Net cash provided by investing activities was $169,555 for the year ended December 31, 2011, compared to net cash used in investing activities of $467,396 for the year ended December 31, 2010.  Investing activities for the year ended December 31, 2011 consisted primarily of the release of $90,000 in deposits held by the merchant bank to cover potential losses by the bank from HDS customer cancellations (see further discussion in Note 2 to the consolidated financial statements), $59,550 proceeds received from the sale of equipment during the year, and the receipt of $20,759 in proceeds on portfolio assets as discussed in Note 7 to the consolidated financials.

Net cash used in financing activities was $4,089 for the year ended December 31, 2011, compared to net cash provided by financing activities of $2,319,566 for the year ended December 31, 2010.  Financing activities for the year ended December 31, 2011 consisted primarily of $651,736 in payment of principal on notes payable, related party notes payable and subordinated debt, offset by the proceeds of $513,000 received from notes payable to related parties and the net proceeds received from issuance of Series X Convertible preferred stock (less discretionary redemptions) of $134,000.  The Company received proceeds of $648 from the exercise of stock options during the year ended December 31, 2011.

-17-

 
As shown below, at December 31, 2011, our contractual cash obligations totaled approximately $4,027,424, all of which consisted of operating lease obligations and debt principal and accrued interest repayment.
 
   
Payments due by Period
 
Contractual Obligations
 
Less than
1 Year
   
1-3 years
   
4-5 years
   
More than
5 years
   
Total
 
Debt Obligations
  $ 1,528,797     $ 709,845     $ 71,999     $ 0     $ 2,310,641  
                                         
Operating Lease Obligations
  $ 811,573     $ 905,210     $ 0     $ 0     $ 1,716,783  
                                         
Total Contractual Cash Obligations
  $ 2,340,370     $ 1,615,055     $ 71,999     $ 0     $ 4,027,424  

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 including asset management and mortgage servicing of distressed asset sectors.  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, in the normal course of business, 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.

Off Balance Sheet Transactions and Related Matters
 
Other than operating leases discussed in Note 16 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 leveraged and, accordingly, is 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.

-18-

 
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, 2011. 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, 2011`, 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.
 
-19-

 
Item 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

Directors and Executive Officers

On September 26, 2011 Tony Chron, resigned from his role as President of the Company.  Tony Chron still remains on the Board of Directors of the Company.  On September 30, 2011, Reif Chron was appointed to serve as President and Chief Legal Counsel of the Company.  He was previously serving as General Counsel of the Company.  On September 30, 2011, Robert A. Boyce was appointed to serve as Chief Operating Officer of the Company.  He was previously serving as Executive Vice President 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 2011.

UName
 
UAge
UPositions with the Company
Brandon C. Thompson
 
32
Chairman of the Board, Chief Executive Officer and Director
 
Paul Williams
 
55
Vice Chairman of the Board, Chief Financial Officer, Treasurer, Assistant Secretary and Director
 
Tony J. Chron
57
President (until resignation on September 26) and Director
 
T. Craig Friesland
 
40
Secretary and Director
 
Richard G. Morris
 
57
Director
Reif Chron
 
33
President and Chief Legal Counsel
Robert A. Boyce
 
49
Chief Operating Officer
 
Brandon C. Thompson

Brandon C. Thompson, 32, 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.

-20-

 
Paul Williams

            Paul Williams, 55, 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, 57, 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 is Mr. Thompson’s uncle and Reif Chron’s father.  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.

T. Craig Friesland

T. Craig Friesland, 40, 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, 57, 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.

-21-

 
Reif O. Chron

Reif O. Chron, 33, currently serves as President and General Counsel of the Company.  Mr. Chron joined Halo in March of 2009 to serve as General Counsel.  Mr. Chron studied Accounting at Texas A&M University and subsequently graduated with his Juris Doctorate from Washington University School of Law.  Prior to attending Washington University, Mr. Chron spent time at Pricewaterhouse Coopers LLP where he specialized in tax planning for high net worth clients.  Mr. Chron also worked at Trademark Property Company, where he participated in several projects, including a $160 million real estate portfolio sale to Heritage Property Investment Trust, a new 400,000 square foot shopping center in Flowood, MS and a $100 million lifestyle center located in the Woodlands, TX. Mr. Chron also compiled market research that has led to three new development projects.  After earning his law degree, he practiced as a real estate attorney at Kelly Hart & Hallman where his experience includes the negotiation, due diligence review, documentation, and closing of sophisticated real estate transactions, including the acquisition and disposition of office buildings, hotels, commercial tracts and ranch land as well as representing developers in the acquisition, leasing and management of shopping centers and mixed-use projects.

Robert A. Boyce, Jr.

Robert A. Boyce, Jr., 49, has been appointed to serve as Chief Operating Officer of the Company.  Mr. Boyce joined Halo in June of 2011 bringing over 27 years of business operating experience in public companies and the private sector.  For the five years prior to joining Halo, Mr. Boyce managed and operated commercial real estate holdings in Texas and commercial agricultural properties in Mississippi.  From 1990 to 2005, Mr. Boyce held various executive positions for United Agri Products (and its related entities), which prior to being taken public by the Apollo Group, was a wholly-owned subsidiary of ConAgra Foods.  While with UAP, Mr. Boyce held the positions of President of Verdicon, the non-crop distribution business with revenues of $300 million; Executive Vice President of United Agri Products responsible for $1.2 billion in revenue; and President and General Manager for two independent operating companies with revenue of $200 million.  Prior to joining UAP, Mr. Boyce worked for Helena Chemical Company and ICI Americas.  Throughout his career, Mr. Boyce has served on national and regional industry-related boards.  He is a graduate from the University of Mississippi, B.B.A., 1984.

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 2011 and Forms 5 and amendments thereto furnished to us with respect to fiscal year 2011, or written representations that Form 5 was not required for fiscal year 2011, we believe that except as noted below, 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.  James G. Temme, beneficial owner of greater than 10% of our common stock, failed to comply with his Section 16(a) filing requirements.  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.

No Committees of the Board of Directors; No Financial Expert

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.

-22-

 
Item 11.  EXECUTIVE COMPENSATION.

Summary Compensation Table
 
The particulars of compensation paid to the following persons during the fiscal period ended December 31, 2011 and 2010 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, 2011 and 2010; 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, 2011 and 2010;

(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
2011
2010
$155,809
$153,000
-0-
-0-
-0-
-0-
-0-
-0-
$155,809
$153,000
Paul Williams, CFO
2011
2010
$109,629
$153,000
-0-
-0-
-0-
-0-
-0-
-0-
$109,629
$153,000
Reif Chron, President & General Counsel (executive officer effective September 30, 2011)
2011
2010
$154,426
$132,000
-0-
-0-
-0-
-0-
-0-
-0-
$154,426
$132,000
Tony J. Chron, President (thru September 26, 2011)
2011
2010
$111,346
$150,000
-0-
-0-
-0-
$0
-0-
-0-
$111,346
$150,000
 
** 2010 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, 2011, no outstanding stock options or other equity-based awards were re-priced or otherwise materially modified.  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.

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
Reif Chron,
President & General Counsel
23,000
77,000
0
0
0
0
$0.94
$1.59
3/11/2014
6/29/2014
0
0
0
0
0
0
0
0


-24-

 
Compensation of Directors
 
DIRECTOR COMPENSATION
Name
 
 
 
Fees earned or
Paid in Cash
 
($)
Stock Awards
 
($)
Option Awards
 
($)
All Other
Compensation
 
 ($)
Total
 
($)
T. Craig Friesland
$13,100
-0-
-0-
-0-
$13,100
Richard G. Morris
$13,100
-0-
-0-
-0-
$13,100

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 30, 2012 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.
 
-25-

 
UBeneficial Owner (1)
Amount and Nature
of Beneficial
UOwnership
Percent
Uof Class (3)
     
Brandon C. Thompson (2)
20,051,110
30.6%
     
James Temme (2)
17,808,000 (7)
27.2%
     
Jimmy Mauldin (2)
8,514,487
13.0%
     
Paul Williams (2)
4,395,243
6.7%
     
T. Craig Friesland (2)
2,250,122
3.4%
     
Richard G. Morris (2)
2,210,006 (4)
3.4%
     
Tony J. Chron (2)
1,290,069 (5)
2.0%
     
Reif Chron (2)
1,160,005 (6)
1.8%
     
Directors and executive officers as a group (six persons)
31,356,555 (8)
47.9%
 
(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 700 Central Expressway South, Suite 500, Allen, Texas 75013.
 
(3)     Asterisk indicates that the percentage is less than one percent.
 
(4)     Includes 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 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.
 
(6)     Includes 2,222 shares of the Company’s Series Z preferred stock (100,000 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 between Halo and Equitas Asset Management, described in Note 18 to the consolidated financial statements.
 
(8)     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 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 and (c) 2,222 shares of the Company’s Series Z preferred stock (100,000 shares of the Company’s common stock into which such Series Z preferred stock will be convertible) issuable upon exercise of the HGI stock options.
 
-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
1,462,350(1)
$0.81
-0-
Equity compensation plans not approved by security holders
-0-
-0-
-7,000,000-
Total
2,194,070
$0.81
-7,000,000-

 
(1)    
 Includes 1,462,350 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.  This plan is discussed in further detail in Note 17 to the consolidated financials.

-27-

 
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, 2011, 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, 2011 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).

In 2011, the Company was indebted to Richard Morris, Director of the Company, for working capital advances he made to the Company, which amount is evidenced by a promissory note.  The note beginning balance was $38,000 on January 1, 2011.  During 2011, total advances to the Company and paydowns to Mr. Morris totaled $190,000 and $228,000, respectively.  As of December 31, 2011, the Company has fully repaid all advances and the remaining note balance was $0.

During 2011, the Company entered into one unsecured promissory note with Tony Chron, Director of the Company, in the amount of $250,000.  The note accrued interest of $52,426.  As of December 31, 2011 the remaining total principal and accrued interest balance was $246,436.  The balance accrues interest at an annual rate of 6%.

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 and 2011 was $50,000 and $70,000, respectively.  The agreement has been paid in full as of December 31, 2011.

During 2010, Martin Williamson 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.  Mr. Williamson is Reif Chron’s stepfather.  All accrued interest has been paid to Mr. Williamson through December 31, 2011.

During the year ended December 31, 2011, the Company selectively redeemed on a discretionary basis, 6,400 Series X Preferred shares to Jimmy Mauldin, beneficial owner.  The shares have a par value of $10.00 per share for total cash consideration of $64,000.  The Company plans, at its sole discretionary right, to redeem the remaining 8,500 shares for an additional $85,000 throughout 2012.

Prior to and during 2011, the Company had a related party note with an entity owned by the father of Jimmy Mauldin, a beneficial owner, totaling $370,639.  The note currently bears interest of 6% and has a maturity date of September 15, 2016.  As of December 31, 2011, the note balance was $315,672.
 
-28-

 
Director Independence; Board Leadership Structure

The Company’s common stock is quoted through the OTC 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 five 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, 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.

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, 2011 and 2010, respectively.

UAudit FeesU .   Fees billed or remainder to be billed for audit services by Montgomery Coscia Greilich L.L.P. were $84,837 in fiscal year 2011 and $93,507 in fiscal year 2010. 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 2011 or 2010.

UTax FeesU .   Fees billed for tax compliance by Montgomery Coscia Greilich L.L.P. were $7,544 in fiscal year 2011 and $10,645 in fiscal year 2010.

UAll Other Fees.  Other Fees billed by Montgomery Coscia Greilich L.L.P. were $0 in fiscal year 2011 and $6,600 in fiscal year 2010.

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.

-29-

 
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).
       
   
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
 
-30-

 
SIGNATURES
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
Date: March 30, 2012
By:
/s/ Brandon Cade Thompson
 
Brandon Cade Thompson
 
Chief Executive Officer
 
(Principal Executive Officer)
   
Date: March 30, 2012
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.
 
USignatureU   CCapacity   Date
         
/s/ Brandon Cade Thompson   Chairman, CEO, Director    
Brandon Cade Thompson   (principal executive officer)   March 30, 2012
         
/s/ Paul Williams   Vice Chairman, CFO, Director    
Paul Williams   (principal financial officer)   March 30, 2012
         
/s/ Robbie Hicks        
Robbie Hicks   Vice President and Controller   March 30, 2012
         
/s/ Tony Chron        
Tony Chron   Director   March 30, 2012
         
U/s/ T. Craig Friesland
       
T. Craig Friesland   Director   March 30, 2012
         
/s/ Richard Morris        
Richard Morris   Director   March 30, 2012
 
-31-

 
HALO COMPANIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011


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

Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Financial Statements:
 
   
Balance Sheets as of December 31, 2011 and 2010
F-3
   
Statements of Operations for the Years Ended December 31, 2011 and 2010
F-4
   
Statements of Changes in Equity for the Years Ended December 31, 2011 and 2010
F-5
   
Statements of Cash Flows for the Years Ended December 31, 2011 and 2010
F-6
   
Notes to Financial Statements
F-7

 


To the Board of Directors and
Stockholders of Halo Companies, Inc.
 
We have audited the accompanying consolidated balance sheets of Halo Companies, Inc. as of December 31, 2011 and 2010, 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, 2011 and 2010, 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 5 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 Note 5. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
 
/s/ Montgomery Coscia Greilich LLP
Montgomery Coscia Greilich LLP
Plano, Texas
March 30, 2012
 
-F-2-

 
Halo Companies, Inc. and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS
 
               
               
ASSETS  
December 31, 2011
     
December 31, 2010
 
CURRENT ASSETS
             
Cash and cash equivalents
  $ 657,135       $ 204,161  
Trade accounts receivable, net of allowance for doubtful accounts of $446,722 and $331,085, respectively
    718,925         1,765,355  
Total current assets
    1,376,060         1,969,516  
                   
PROPERTY, EQUIPMENT AND SOFTWARE, net
    199,094         333,951  
INVESTMENTS IN UNCONSOLIDATED ENTITIES
    9,823         38,647  
INVESTMENTS IN PORTFOLIO ASSETS
    -         300,000  
DEPOSITS AND OTHER ASSETS
    48,333         179,897  
TOTAL ASSETS
    1,633,310         2,822,011  
                   
LIABILITIES AND (DEFICIT) EQUITY
                 
CURRENT LIABILITIES
                 
Line of credit
  $ -       $ 1  
Accounts payable
    588,377         220,856  
Accrued and other liabilities (including $55,030 and $94,307 to related parties, respectively)
    332,713         424,663  
Deferred revenue
    693,560         11,682  
Current portion of secured asset promissory note
    1,200,000         -  
Current portion of subordinated debt
    66,556         66,556  
Current portion of notes payable to related parties
    63,847         414,724  
Current portion of notes payable
    164,418         248,608  
Current portion of deferred rent
    319,874         80,000  
Total current liabilities
    3,429,345         1,467,090  
                   
NOTES PAYABLE, LESS CURRENT PORTION
    8,456         -  
NOTES PAYABLE TO RELATED PARTY, LESS CURRENT PORTION     498,261         -  
SECURED ASSET PROMISSORY NOTE, LESS CURRENT PORTION     -         1,200,000  
SUBORDINATED DEBT, LESS CURRENT PORTION
    215,546         282,102  
OTHER LIABILITIES (including accrued interest on related party notes payable of $50,068 and $0, respectively)     50,068         -  
DERIVATIVE LIABILITY
    24,970         98,560  
DEFERRED RENT
    100,781         213,335  
Total liabilities
    4,327,427         3,261,087  
                   
EQUITY
                 
Series Z Convertible Preferred Stock, par value $0.01 per share; 82,730 shares
 
authorized; 0 shares issued and outstanding at December 31, 2011
    -         -  
Preferred Stock, par value $0.001 per share; 917,270 shares
           
authorized; 0 shares issued and outstanding at December 31, 2011
    -         -  
Series X Convertible Preferred Stock, par value $0.01 per share; 152,177 shares
 
authorized; 152,177 shares issued and outstanding at December 31, 2011
    1,522         1,388  
liquidation preference of $1,521,770
                 
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, 2011
           
liquidation preference of $630,758
    373         373  
Series B Convertible Preferred Stock;
                 
229,956 shares issued and outstanding at December 31, 2011
           
liquidation preference of $520,775
    230         230  
Series C Convertible Preferred Stock;
                 
124,000 shares issued and outstanding at December 31, 2011
           
liquidation preference of $349,480
    124         124  
Common Stock, par value $0.001 per share; 375,000,000 and 375,000,000
       
shares authorized; 65,494,506 and 65,429,706 shares issued and
           
outstanding at December 31, 2011 and December 31, 2010, respectively
    65,495         65,430  
Additional paid-in capital
    7,000,218         6,580,767  
Accumulated deficit
    (9,679,700 )       (7,005,070 )
Total (deficit) equity
    (2,611,738 )
 
    (356,758 )
NONCONTROLLING INTEREST
    (82,379 )       (82,318 )
Total shareholders' (deficit) equity
    (2,694,117 )
 
    (439,076 )
TOTAL LIABILITIES AND (DEFICIT) EQUITY
  $ 1,633,310  
 
  $ 2,822,011  
                   
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-F-3-

 
Halo Companies, Inc. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
             
   
For the Year Ended
 
   
December 31,
 
   
2011
   
2010
 
             
REVENUE (including $986,162 and $0 from related parties, respectively)   $ 6,280,314     $ 6,861,204  
                 
OPERATING EXPENSES
               
Sales and marketing expenses
    2,104,139       1,398,886  
General and administrative expenses (including $74,750 and $92,650 to related parties, respectively)
    2,927,348       3,850,498  
Salaries, wages, and benefits (including $113,400 and $588,894 of stock-based compensation)
    3,052,153       5,066,843  
Total operating expenses
    8,083,640       10,316,227  
                 
OPERATING INCOME (LOSS)
    (1,803,326 )     (3,455,023 )
                 
OTHER INCOME (EXPENSE)
               
Income (loss) from unconsolidated entities
    (14,677 )     34,766  
Gain (loss) on change in fair value of derivative
    73,590       (49,135 )
Gain on sale of equipment
    19,270       -  
Loss on investment in portfolio assets
    (279,241 )        
Interest expense (including $86,892 and $78,354 to related parties, respectively)
    (485,810 )     (197,556 )
Net income (loss) from operations, before income tax provision
    (2,490,194 )     (3,666,948 )
                 
INCOME TAX PROVISION
    12,895       (35,378 )
                 
NET INCOME (LOSS)
    (2,503,089 )     (3,631,570 )
                 
Loss attributable to the noncontrolling interest
    61       32,207  
                 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
  $ (2,503,028 )   $ (3,599,363 )
                 
Earning per share:
               
Basic & Diluted
  $ (0.038 )   $ (0.067 )
                 
Weighted Average Shares Outstanding
               
Basic & Diluted
    65,462,106       53,831,072  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-F-4-

 
Halo Companies, Inc. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/(DEFICIT)
 
For the Years Ended December 31, 2011 and 2010
 
                                                                                     
   
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, 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
    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
    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
    -     -       -     -       70,200     702       -     -       -     -       -     -       701,298       -       -       702,000  
                                                                                                                     
Issuance of Series X Convertible Preferred Stock in exchange for debt
    -     -       -     -       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 )
                                                                                                                     
Stock-based compensation expense
    -     -       -     -       -     -       -     -       -     -       -     -       113,400       -       -       113,400  
                                                                                                                     
Exercise of Stock Options
    64,800     65       -     -       -     -       -     -       -     -       -     -       583       -       -       648  
                                                                                                                     
Issuance of Series X Convertible Preferred Stock for cash (FN 18)
    -     -       -     -       19,800     198       -     -       -     -       -     -       197,802       -       -       198,000  
                                                                                                                     
Discretionary redemption of Series X Convertible Preferred Stock (FN 18)
                                (6,400 )   (64 )     -     -       -     -       -     -       (63,936 )     -       -       (64,000 )
                                                                                                                     
Common Shares Distributable (FN 18)
    -     -       -     -       -     -       -     -       -     -       -     -       171,602       (171,602 )     -       -  
                                                                                                                     
Net loss attributable to common shareholders
    -     -       -     -       -     -       -     -       -     -       -     -       -       (2,503,028 )     -       (2,503,028 )
                                                                                                                     
Allocation of loss to noncontrolling interest
    -     -       -     -       -     -       -     -       -     -       -     -       -       -       (61 )     (61 )
                                                                                                                     
Balance at December 31, 2011
    65,494,506   $ 65,495       -   $ -       152,177   $ 1,522       372,999   $ 373       229,956   $ 230       124,000   $ 124     $ 7,000,218     $ (9,679,700 )   $ (82,379 )   $ (2,694,117 )
                                                                                                                     
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-F-5-

 
Halo Companies, Inc. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
For the Year Ended
 
   
December 31, 2011
   
December 31, 2010
 
CASH FLOWS FROM OPERATIONS
           
             
Net loss
  $ (2,503,028 )   $ (3,599,363 )
Adjustments to reconcile net loss to net cash
               
provided by (used in) operating activities
               
Depreciation and amortization
    122,775       144,273  
Bad debt expense
    931,719       1,831,014  
Loss on investment in portfolio assets
    279,241       -  
(Gain)/ Loss on change in fair value of derivative
    (73,590 )     49,135  
Gain on sale of equipment
    (19,270 )     -  
Loss/ (Income) from investments in unconsolidated entities
    14,677       (34,766 )
Distributions of earnings from unconsolidated entities
    14,147       20,619  
Stock based compensation
    113,400       588,894  
Noncontrolling interest
    (61 )     (32,207 )
Changes in operating assets and liabilities:
               
Accounts receivable
    114,711       (1,402,301 )
Restricted cash
    -       193,130  
Prepaid expenses and other current assets
    -       180,974  
Deposits and other assets
    31,564       1,100  
Accounts payable
    442,521       79,060  
Accrued and other liabilities
    9,504       165,201  
Deferred rent
    127,320       106,296  
Deferred revenue
    681,878       (25,158 )
Net cash provided by (used in) operating activities
    287,508       (1,734,099 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Investment in joint venture
    -       (24,500 )
Investments in portfolio assets
    -       (300,000 )
Proceeds received on portfolio assets
    20,759       -  
Purchases of property and equipment
    (754 )     (42,896 )
Proceeds received on sale of equipment
    59,550       -  
Deposits
    90,000       (100,000 )
Net cash provided by (used in) investing activities
    169,555       (467,396 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds received from issuance of preferred stock
    198,000       702,000  
Discretionary redemption of preferred stock
    (64,000 )        
Issuance of common stock for the exercise of stock options
    648       3,635  
Net payments on lines of credit
    (1 )     (249,999 )
Principal payments on notes payable
    (150,734 )     (280,809 )
Proceeds from notes payable to related parties
    513,000       1,081,355  
Principal payments on notes payable to related parties
    (417,002 )     (521,616 )
Proceeds from subordinated debt
    -       420,000  
Principal payments on subordinated debt
    (84,000 )     (35,000 )
Proceeds received from issuance of secured asset promissory note
    -       1,200,000  
Net cash provided by (used in) financing activities
    (4,089 )     2,319,566  
                 
Net increase in cash and cash equivalents
    452,974       118,071  
                 
CASH AND CASH EQUIVALENTS, beginning of period
    204,161       86,090