UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


_______________





FORM
10-Q


_______________





[X]
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended March 31, 2010





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








HALO
COMPANIES, INC.


(Exact
name of registrant as specified in 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)


_______________








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


Yes 
[X]   No [   ]





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes 
[   ]   No [   ]


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company 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]


State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of April 30, 2010:  42,232,437 shares of Common Stock, $.01
par value per share outstanding.




-1-


Halo Companies, Inc.


INDEX







PART
I.  FINANCIAL INFORMATION




Item
      1.
            Financial StatementsConsolidated Balance Sheets at March 31, 2010
      (unaudited) and December 31, 2009
            3Consolidated Statements of Operations (unaudited) for
      the three months ended March 31, 2010 and 2009
            4Consolidated Statement of Changes in Equity (unaudited) for
      the three months ended March 31, 2010 and 2009
            5Consolidated Statements of Cash Flows (unaudited) for the
      three months ended March 31, 2010 and 2009
            6Notes to Consolidated Financial
    Statements
            7-20Item
      2.
            Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            21-24Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            25Item
      4T.
            Controls and Procedures
            25





PART
II.  OTHER INFORMATION


Item
      1.
            Legal Proceedings
            26Item
      1A.
            Risk Factors
            26Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            26Item
      3.
            Defaults upon Senior Securities
            26Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            26Item
      5.
            Other Information
            26Item
      6.
            Exhibits
            26SIGNATURES
            27







-2-
 
 INDEX


Part 1 – Financial Information




Item 1. Financial
Statements


Halo Companies, Inc. and
SubsidiariesCONSOLIDATED
      BALANCE SHEETSMarch
      31, 2010
              
              
              December
      31, 2009(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              207,302
              
              
              $
              86,090Restricted
      Cash
              
              
              240,645
              
              
              
              193,130Trade
      accounts receivable, net of allowance for doubtfulaccounts
      of $193,535 and $207,074, respectively
              
              
              2,381,330
              
              
              
              2,194,068Prepaid
      expenses and other assets
              
              
              124,531
              
              
              
              180,974Total
      current assets
              
              
              2,953,808
              
              
              
              2,654,262PROPERTY,
      EQUIPMENT AND SOFTWARE, net
              
              
              396,137
              
              
              
              420,578DEPOSITS
      AND OTHER ASSETS
              
              
              64,664
              
              
              
              32,664TOTAL
      ASSETS
              
              
              3,414,609
              
              
              
              3,107,504LIABILITIES
      AND EQUITYCURRENT
      LIABILITIESLines
      of credit
              
              $
              240,000
              
              
              $
              250,000Accounts
      payable
              
              
              192,635
              
              
              
              141,796Accrued
      liabilities (including $53,234 and$30,499
      to related parties, respectively)
              
              
              364,634
              
              
              
              259,462Deferred
      revenue
              
              
              20,598
              
              
              
              36,840Current
      portion of subordinated debt
              
              
              36,000
              
              
              
              -Current
      portion of notes payable to related parties
              
              
              938,204
              
              
              
              494,615Current
      portion of notes payable
              
              
              233,971
              
              
              
              247,570Total
      current liabilities
              
              
              2,026,042
              
              
              
              1,430,283NOTES
      PAYABLE, LESS CURRENT PORTION
              
              
              241,994
              
              
              
              281,847NOTES
      PAYABLE TO RELATED PARTY, LESS CURRENT PORTION
              
              
              43,089
              
              
              
              46,141SUBORDINATED
      DEBT, LESS CURRENT PORTION
              
              
              234,000
              
              
              
              -DERIVATIVE
      LIABILITY
              
              
              31,825
              
              
              
              -DEFERRED
      RENT
              
              
              253,994
              
              
              
              187,039Total
      liabilities
              
              
              2,830,944
              
              
              
              1,945,310EQUITYSeries
      Z Convertible Preferred Stock, par value $0.01 per share; 102,996 shares
              
              
              -
              
              
              
              -authorized;
      0 shares issued and outstanding at March 31, 2010Preferred
      Stock, par value $0.001 per share; 897,004 sharesauthorized;
      0 shares issued and outstanding at March 31, 2010
              
              
              -
              
              
              
              -Halo
      Group, Inc. Preferred stock, par value $0.001 per share; 2,000,000 shares
      authorizedSeries
      A Convertible Preferred Stock;500,000
      shares issued and outstanding at March 31, 2010liquidation
      preference of $782,724
              
              
              500
              
              
              
              500Series
      B Convertible Preferred Stock;500,000
      shares issued and outstanding at March 31, 2010liquidation
      preference of $1,034,668
              
              
              500
              
              
              
              500Series
      C Convertible Preferred Stock;152,000
      shares issued and outstanding at March 31, 2010liquidation
      preference of $380,000
              
              
              152
              
              
              
              152Common
      stock, par value $0.001 per share; 375,000,000 and
    375,000,000shares
      authorized; 42,242,488 and 42,232,437 shares issued andoutstanding
      at March 31, 2010 and December 31, 2009, respectively
              
              
              42,242
              
              
              
              42,232Additional
      paid-in capital
              
              
              4,072,092
              
              
              
              3,839,952Accumulated
      deficit
              
              
              (3,471,585
              )
              
              
              (2,671,031
              )Total
      equity
              
              
              643,901
              
              
              
              1,212,305NONCONTROLLING
      INTEREST
              
              
              (60,236
              )
              
              
              (50,111
              )Total
      shareholders' equity
              
              
              583,665
              
              
              
              1,162,194TOTAL
      LIABILITIES AND EQUITY
              
              $
              3,414,609
              
              
              $
              3,107,504The
      accompanying notes are an integral part of these consolidated financial
      statements.
  -3-
 
 INDEX
  Halo Companies, Inc. and SubsidiariesCONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)For
      the Three Months EndedMarch
      31,2010
              
              
              2009REVENUE
              
              $
              2,031,925
              
              
              $
              2,327,024OPERATING
      EXPENSESSales
      and marketing expenses
              
              
              411,488
              
              
              
              325,923General
      and administrative expenses (including $17,700 and$19,290
      to related parties, respectively)
              
              
              897,398
              
              
              
              587,311Salaries,
      wages, and benefits (including $232,049 and $0of
      stock-based compensation)
              
              
              1,457,123
              
              
              
              1,115,693Total
      operating expenses
              
              
              2,766,009
              
              
              
              2,028,927OPERATING
      INCOME (LOSS)
              
              
              (734,084
              )
              
              
              298,097OTHER
      EXPENSELoss
      on change in fair value of derivative
              
              
              (31,825
              )
              
              
              -Interest
      expense (including $25,227 and $23,870to
      related parties, respectively)
              
              
              (44,770
              )
              
              
              (30,702
              )Net
      income (loss) from operations, before income tax provision
              
              
              (810,679
              )
              
              
              267,395INCOME
      TAX PROVISION
              
              
              -
              
              
              
              -NET
      INCOME (LOSS)
              
              
              (810,679
              )
              
              
              267,395Loss
      attributable to the noncontrolling interest
              
              
              10,125
              
              
              
              -NET
      INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
              
              $
              (800,554
              )
              
              $
              267,395Earning
      per share:Basic
              
              $
              (0.019
              )
              
              $
              0.007Diluted
              
              $
              (0.019
              )
              
              $
              0.007Weighted
      Average Shares OutstandingBasic
              
              
              42,237,463
              
              
              
              40,056,000Diluted
              
              
              42,237,463
              
              
              
              40,829,835The
      accompanying notes are an integral part of these consolidated financial
      statements.
  -4-
 
 INDEX
  Halo Companies, Inc. and SubsidiariesCONSOLIDATED
      STATEMENTS OF CHANGES IN EQUITYFor
      the Three Months Ended March 31, 2010 and 2009(Unaudited)Halo
      Companies, Inc. Common Stock
              
              
              Halo
      Companies, Inc. Series Z 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
              
              
              TotalShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Shares
              
              
              AmountBalance
      at December 31, 2008
              
              
              40,056,000
              
              
              
              40,056
              
              
              
              -
              
              
              
              -
              
              
              
              500,000
              
              
              
              500
              
              
              
              89,910
              
              
              
              90
              
              
              
              -
              
              
              
              -
              
              
              
              1,265,738
              
              
              
              (775,073
              )
              
              
              -
              
              
              
              531,311Issuance
      of Series B Convertible Preferred
      Stock for cash
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              122,500
              
              
              
              122
              
              
              
              -
              
              
              
              -
              
              
              
              244,878
              
              
              
              -
              
              
              
              -
              
              
              
              245,000Dividends
      declared
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,910
              )
              
              
              -
              
              
              
              -
              
              
              
              (10,910
              )Net
      Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              267,395
              
              
              
              -
              
              
              
              267,395Balance
      at March 31, 2009
              
              
              40,056,000
              
              
              $
              40,056
              
              
              
              -
              
              
              $
              -
              
              
              
              500,000
              
              
              $
              500
              
              
              
              212,410
              
              
              $
              212
              
              
              
              -
              
              
              $
              -
              
              
              $
              1,499,706
              
              
              $
              (507,678
              )
              
              $
              -
              
              
              $
              1,032,796Balance
      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
              )
              
              
              1,162,194Stock-based
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              232,049
              
              
              
              -
              
              
              
              -
              
              
              
              232,049Exercise
      of Stock Options
              
              
              10,051
              
              
              
              10
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              91
              
              
              
              -
              
              
              
              -
              
              
              
              101Net
      loss attributable common shareholders
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (800,554
              )
              
              
              -
              
              
              
              (800,554
              )Allocation
      of loss to noncontrolling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,125
              )
              
              
              (10,125
              )Balance
      at March 31, 2010
              
              
              42,242,488
              
              
              $
              42,242
              
              
              
              -
              
              
              $
              -
              
              
              
              500,000
              
              
              $
              500
              
              
              
              500,000
              
              
              $
              500
              
              
              
              152,000
              
              
              $
              152
              
              
              $
              4,072,092
              
              
              $
              (3,471,585
              )
              
              $
              (60,236
              )
              
              $
              583,665The accompanying
      notes are an integral part of these consolidated financial
      statements.
  -5-
 
 INDEX
 Halo Companies, Inc. and SubsidiariesCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)For
      the Three Months EndedMarch
      31, 2010
                  
                  
                  March
      31, 2009CASH
      FLOWS FROM OPERATIONSNet
      income (loss)
                  
                  $
                  (800,554
                  )
                  
                  $
                  267,395Adjustments
      to reconcile net income to net cashused
      in operating activitiesDepreciation
                  
                  
                  29,884
                  
                  
                  
                  12,421Bad
      debt expense
                  
                  
                  376,122
                  
                  
                  
                  217,969Stock
      based compensation
                  
                  
                  232,049
                  
                  
                  
                  -Noncontrolling
      interest
                  
                  
                  (10,125
                  )
                  
                  
                  -Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (563,384
                  )
                  
                  
                  (728,515
                  )Restricted
      cash
                  
                  
                  (47,515
                  )
                  
                  
                  (2,542
                  )Prepaid
      expenses and other current assets
                  
                  
                  56,443
                  
                  
                  
                  (24,205
                  )Deposits
      and other assets
                  
                  
                  (7,500
                  )
                  
                  
                  -Accounts
      payable
                  
                  
                  50,839
                  
                  
                  
                  (10,178
                  )Accrued
      liabilities
                  
                  
                  105,172
                  
                  
                  
                  79,002Derivative
      Liability
                  
                  
                  31,825
                  
                  
                  
                  -Deferred
      rent
                  
                  
                  66,955
                  
                  
                  
                  37,232Deferred
      revenue
                  
                  
                  (16,242
                  )
                  
                  
                  15,827Net
      cash used in operating activities
                  
                  
                  (496,031
                  )
                  
                  
                  (135,594
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in joint venture
                  
                  
                  (24,500
                  )Purchases
      of property and equipment
                  
                  
                  (5,443
                  )
                  
                  
                  (30,037
                  )Net
      cash used in investing activities
                  
                  
                  (29,943
                  )
                  
                  
                  (30,037
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      received from issuance of preferred stock
                  
                  
                  -
                  
                  
                  
                  245,000Issuance
      of common stock for the exercise of stock options
                  
                  
                  101
                  
                  
                  
                  -Net
      payments on lines of credit
                  
                  
                  (10,000
                  )
                  
                  
                  (270,400
                  )Proceeds
      from notes payable
                  
                  
                  -
                  
                  
                  
                  374,000Principal
      payments on notes payable
                  
                  
                  (53,452
                  )
                  
                  
                  (9,438
                  )Proceeds
      from notes payable to related parties
                  
                  
                  473,355
                  
                  
                  
                  15,000Principal
      payments on notes payable to related parties
                  
                  
                  (32,818
                  )
                  
                  
                  (155,000
                  )Proceeds
      from subordinated debt
                  
                  
                  270,000Payments
      made to related parties
                  
                  
                  -
                  
                  
                  
                  (6,171
                  )Dividends
      paid to shareholders
                  
                  
                  -
                  
                  
                  
                  (16,971
                  )Net
      cash provided by financing activities
                  
                  
                  647,186
                  
                  
                  
                  176,020Net
      increase in cash and cash equivalents
                  
                  
                  121,212
                  
                  
                  
                  10,389CASH
      AND CASH EQUIVALENTS, beginning of period
                  
                  
                  86,090
                  
                  
                  
                  180,349CASH
      AND CASH EQUIVALENTS, ending of period
                  
                  $
                  207,302
                  
                  
                  $
                  190,738SUPPLEMENTAL
      INFORMATIONCash
      paid for interest
                  
                  $
                  22,274
                  
                  
                  $
                  24,726The
      accompanying notes are an integral part of these consolidated financial
      statements.
  -6-
 
 INDEX





Halo Companies, Inc.


Notes To
Consolidated Financial Statements


March 31,
2010




NOTE
1.  ORGANIZATION AND RECENT DEVELOPMENTS




UMerger




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, 700 Central Expy South, Suite 500,
Allen, Texas 75013 and its telephone number is 214-644-0065.





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 and into 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 effective December 11, 2009 which, among other things, effected a
name change from GVC Venture Corp. to Halo Companies, Inc.





Pursuant
to the terms of the Merger Agreement, upon the conversion of all HGI preferred
stock and the exercise of all presently outstanding HGI stock options, former
HGI common stockholders, preferred stockholders and option holders own
approximately 44,527,202 shares, or 95.96%, of the Company’s common stock and
pre-Merger Company stockholders own 1,875,101 shares, or 4.04%, of the Company’s
common stock.





For
accounting purposes, the Merger has been accounted for as a reverse acquisition,
with HGI as the accounting acquirer (legal acquiree).  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.




As of
December 31, 2009, the Company awaited regulatory approval from the Financial
Industry Regulatory Authority (FINRA) in regards to the following corporate
actions, in compliance with listing requirements of the Over the Counter
Bulletin Board (OTCBB) (a) reverse split, (b) name change, and (c) new stock
symbol.  The regulatory approval was granted on February 24, 2010 with
an effective date of February 25, 2010.  Also on December 31, 2009,
Bernard Zimmerman resigned from the Board of Directors of the
Company.   On January 1, 2010, Tony Chron, President of the
Company, was elected to the Board of Directors to fill the vacancy left by
Bernard Zimmerman’s departure.





UNature
of Business





HGI was
formed on January 25, 2007 and through its wholly-owned subsidiaries Halo Debt
Solutions, Inc. (“HDS”), Halo Group Mortgage, LLC (“HGM”), Halo Group Realty,
LLC (“HGR”), Halo Credit Solutions, LLC (“HCS”), Halo Benefits, Inc. (“HBI”),
previously doing business as Halo Group Consulting, Inc. (HGC), Halo Loan
Modification Services, LLC (“HLMS”), Halo Select Insurance Services, LLC
(“HSIS”), Halo Financial Services, LLC (“HFS”), and Halo Portfolio Advisors, LLC
(HPA), provides debt settlement, mortgage brokerage, real estate brokerage,
credit restoration, association benefit services, loan modification services,
insurance brokerage, and financial education to customers throughout the United
States.  HPA exists to market all of the Company’s operations into
turnkey solutions for strategic business to business opportunities with major
debt servicers and lenders.  The Company’s corporate office is located
in Allen, Texas.





-7-
 
 INDEX





NOTE
2.  SIGNIFICANT ACCOUNTING POLICIES




The
accompanying Consolidated Financial Statements as of March 31, 2010, and for the
three month periods ended March 31, 2010 and 2009 include the accounts of the
Company and have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP).  Certain
balances have been reclassified in prior period to be consistent with current
year presentation.




Certain
financial information that is normally included in annual financial statements
prepared in accordance with GAAP, but is not required for interim reporting
purposes, have been condensed.




URevenue
Recognition and Accounts Receivable





The Company generally recognizes
revenue in the period in which services are provided.  HDS recognizes
its revenue over the average service period, defined as the average length of
time it takes to receive a contractually obligated settlement offer from each
creditor, calculated on the entire HDS client base, currently eight
months.  The service being provided for each client is evaluated at an
individual creditor level, thus the revenue recognition period estimate is
calculated at an individual creditor level.  The estimate is derived
by comparing the weighted average length of time from when the creditor was
enrolled with HDS to the time HDS received a contractually obligated settlement
offer, per creditor, on all accounts since the inception of HDS to the weighted
average length of time all other creditors that are currently enrolled at the
time of the estimate that have not received a contractually obligated settlement
offer. This dual approach ensures a holistic representation of the service
period. There are several factors that can affect the average service period,
including economic conditions, number of clients enrolled, operational
efficiencies, the time of year, and creditor dispositions.  Therefore,
the average service period is analyzed on a quarterly basis ensuring an accurate
revenue recognition period estimate.  In the event that the average
service period estimate changes, HDS will prospectively reamortize the remaining
revenue to be recognized on current clients and recognize all future revenue
pursuant to the new estimate.  Provisions for discounts, refunds and
bad debt are provided over the period the related revenue is recognized. Cash
receipts from customers in advance of revenue recognized are recorded as
deferred revenue.





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





HDS
receivables represent 99.6% of total accounts receivable at March 31,
2010.





UNet Loss
Per Common Share





Basic net
income per share is computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares
outstanding during the period (denominator).  Diluted net income per
share is computed using the weighted average number of common shares and
dilutive potential common shares outstanding during the period.  At
March 31, 2010 and 2009, there were 3,407,088 and 844,272 shares, respectively,
underlying potentially dilutive convertible preferred stock and stock options
outstanding.  These shares were not included in weighted average
shares outstanding for the period ending March 31, 2010 because their effect is
anti-dilutive due to the Company’s reported net loss.




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




-8-
 
 INDEX





Principles
of Consolidation





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





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





UCash and
Cash Equivalents





The
Company considers all liquid investments with a maturity of 90 days or less to
be cash equivalents.





URestricted
Cash





Restricted
cash represents collections from customers that are processed and held by a
merchant bank in the ordinary course of business. Ninety-five percent of these
funds are made available to the Company as determined by the bank, normally
within 7 business days.  Five percent of funds collected from
customers by the bank are released to the Company after 90 days, less amounts
withheld to cover potential losses by the bank.  During April 2010,
the Company updated the agreement that $100,000 in total funds would be kept by
the bank to cover potential losses by the bank and 100% of all future cash
collections from customers are made available to the Company as determined by
the bank, normally within 7 business days.  At the time of the updated
agreement, the Company had approximately $125,000 in the 90 day reserve account
and as such received approximately $25,000 back into its operating cash
account.





UProperty
and Equipment





Property
and equipment are stated at cost.  Depreciation and amortization is
provided in amounts sufficient to relate the cost of the depreciable assets to
operations over their estimated service lives, ranging from three to seven
years. Provisions for depreciation and amortization are made using the
straight-line method.





Major
additions and improvements are capitalized, while expenditures for maintenance
and repairs are charged to expense as incurred. Upon sale or retirement, the
cost of the property and equipment and the related accumulated depreciation are
removed from the respective accounts, and any resulting gains or losses are
credited or charged to operations.





UInternally
Developed Software





Internally
developed legacy application software consisting of database, customer relations
management, process management and internal reporting modules are used in each
of the HGI subsidiaries.  The Company accounts for computer software
used in the business in accordance with Accounting Standards Codification (ASC)
350 “Intangibles-Goodwill and Other” (formerly Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use).  ASC 350 requires computer software costs associated with
internal use software to be charged to operations as incurred until certain
capitalization criteria are met. Costs incurred during the preliminary project
stage and the post-implementation stages are expensed as incurred. Certain
qualifying costs incurred during the application development stage are
capitalized as property, equipment and software. These costs generally consist
of internal labor during configuration, coding, and testing activities.
Capitalization begins when the preliminary project stage is complete, management
with the relevant authority authorizes and commits to the funding of the
software project, and it is probable both that the project will be completed and
that the software will be used to perform the function intended. Management has
determined that the significant portion of costs incurred for internally
developed software came from the preliminary project stage and
post-implementation stages; as such, no costs for internally developed software
were capitalized.


U





-9-
 
 INDEX





Long-Lived
Assets





Long-lived
assets are reviewed on an annual basis or whenever events or changes in
circumstance indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets held and used is generally
measured by a comparison of the carrying amount of an asset to undiscounted
future net cash flows expected to be generated by that asset. If it is
determined that the carrying amount of an asset may not be recoverable, an
impairment loss is recognized for the amount by which the carrying amount of the
asset exceeds the fair value of the asset.  Fair value is the
estimated value at which the asset could be bought or sold in a transaction
between willing parties.  There were no impairment charges for the
three months ended March 31, 2010 and 2009.





UEquity-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 which are contingently exercisable upon the
occurrence of a specified event is recognized in earnings over the vesting
period of the options beginning when the specified events become probable of
occurrence.  The specified event (Merger) occurred on September 30,
2009.  As of September 30, 2009, there was no active market for the
Company’s common shares and management has not been able to identify a similar
publicly held entity that can be used as a benchmark.  Therefore, as a
substitute for volatility, the Company used the historical volatility of the Dow
Jones Small Cap Consumer Finance Index, which is generally representative of the
Company’s size and industry. There have been no new stock compensation options
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 the date on which the counterparty’s
performance is complete or the date on which it is probable that performance
will occur.





Fair Value of Financial
Instruments





The carrying value of cash, cash
equivalents, receivables, accounts payable and accruals approximate fair value
due to the short maturity of these items.





We consider the warrants related to its
Subordinated Debt to be derivatives, and we record the fair value of the
derivative liabilities in our consolidated balance sheets.  Changes in
fair value of the derivative liabilities are included in loss on change in fair
value of derivative in the consolidated statements of operations.





UIncome
Taxes





The
Company accounts for income taxes in accordance with ASC 740 “Income Taxes”
(formerly SFAS No. 109, Accounting for Income Taxes and FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB
Statement No. 109” (“FIN 48”)). ASC 740 requires the use of the asset and
liability method whereby deferred tax assets and liability account balances are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.  These differences result in deferred tax assets and
liabilities, which are included in the Company’s consolidated balance
sheet.





The
Company then assesses the likelihood of realizing benefits related to such
assets by considering factors such as historical taxable income and the
Company’s ability to generate sufficient taxable income of the appropriate
character within the relevant jurisdictions in future years. If the realization
of these assets is not likely based on these factors, a valuation allowance is
established against the deferred tax assets.





-10-
 
 INDEX





Effective
January 1, 2009, the Company was required to adopt ASC 740-10. ASC 740-10
establishes standards for accounting for uncertainty in income taxes. ASC 740-10
provides several clarifications related to uncertain tax positions. Most
notably, a “more likely-than-not” standard for initial recognition of tax
positions, a presumption of audit detection and a measurement of recognized tax
benefits based on the largest amount that has a greater than 50 percent
likelihood of realization. ASC 740-10 applies a two-step process to determine
the amount of tax benefit to be recognized in the financial statements. First,
the Company must determine whether any amount of the tax benefit may be
recognized. Second, the Company determines how much of the tax benefit should be
recognized (this would only apply to tax positions that qualify for
recognition.) No additional liabilities have been recognized as a result of the
implementation. The Company has not taken a tax position that, if challenged,
would have a material effect on the financial statements or the effective tax
rate during the three months ended March 31, 2010.





UDeferred
Rent





The Company’s operating leases for its
office facilities contain free rent periods during the lease
term.  For these types of leases the Company recognizes rent expense
on a straight line basis over the minimum lease term and records the difference
between the amounts charged to expense and the amount paid as deferred rent.





UNon-controlling
Interest





On
January 1, 2009, HSIS entered into a joint venture with another entity to form
Halo Choice Insurance Services, LLC (HCIS).  HSIS contributed 49% of
the opening equity balance.  Under a qualitative analysis performed in
accordance with ASC 810 “Consolidation” (formerly FIN 46(R): Consolidation of
Variable Interest Entities), HCIS is a variable interest entity and HSIS is the
primary beneficiary as HSIS’s parent company, HGI, acts as the sole manager of
the entity and HSIS, effective January 1, 2010, has the exclusive and
irrevocable right and option to purchase all the membership interests of the
co-joint venture entity for a contractually determined price.  Based
on this analysis, HSIS has consolidated HCIS with the non-controlling 51%
interest included in non-controlling interest on the balance sheet and statement
of operations.





Recently
Issued Accounting Pronouncements





In the
third quarter of 2009, the Company adopted the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (ASC). The ASC is the single
official source of authoritative, nongovernmental GAAP, other than guidance
issued by the SEC. The adoption of the ASC did not have any impact on the
financial statements included herein.





In
February 2010, the FASB amended ASC 855, “Subsequent Events”. The amended ASC no
longer requires a date to be disclosed in the footnotes.  The
amendment of ASC 855 had no material impact on the Company’s financial position
and results of operations.





In
October 2009, the FASB issued Accounting Standards Update No. 2009-13,
“Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging
Issues Task Force” (“ASU 2009-13”).  ASU 2009-13 provides principles
for allocation of consideration among its multiple-elements, allowing more
flexibility in identifying and accounting for separate deliverables under an
arrangement. The ASU introduces an estimated selling price method for valuing
the elements of a bundled arrangement if vendor-specific objective evidence or
third-party evidence of selling price is not available, and significantly
expands related disclosure requirements. This standard is effective on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may
be on a retrospective basis, and early application is permitted. The Company
does not expect the adoption of this statement to have a material effect on its
consolidated financial statements or disclosures.





In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value,” (“ASU 2009-05”). ASU 2009-05 provides guidance on
measuring the fair value of liabilities and is effective for the first interim
or annual reporting period beginning after its issuance. The Company’s adoption
of ASU 2009-05 did not have an effect on its disclosure of the fair value of its
liabilities.





-11-
 
 INDEX





In June
2009, the FASB issued ASC 105, “Generally Accepted Accounting Principles” This
statement’s objective is to communicate that the FASB Accounting Standards
Codification will become the single official source of authoritative U.S.
generally accepted accounting principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. On the
effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This Statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009; and the Company adopted this standard in the third quarter of 2009. The
adoption of ASC 105 did not have a material effect on the Company’s financial
statements.





In June
2009, the FASB issued ASC 810, “Consolidation”. This statement, among other
things, requires a qualitative rather than a quantitative analysis to determine
the primary beneficiary of a variable interest entity ("VIE"); requires
continuous assessments of whether an enterprise is the primary beneficiary of a
VIE; enhances disclosures about an enterprise's involvement with a VIE; and
amends certain guidance for determining whether an entity is a VIE. Under ASC
810, a VIE must be consolidated if the enterprise has both (a) the power to
direct the activities of the VIE that most significantly impact the entity's
economic performance, and (b) the obligation to absorb losses or the right to
receive benefits from the VIE that could potentially be significant to the VIE.
ASC 810 will be effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, and for interim
periods within that first annual reporting period.  Earlier
application is prohibited. Management does not expect that the adoption of ASC
810 will have a material effect on the Company’s financial position and results
of operations.





In June
2009, the FASB issued ASC 860, “Transfers and Services”. This statement, and
requires more information about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the
risks related to transferred financial assets. ASC 860 also eliminates the
concept of a "qualifying special-purpose entity", changes the requirements for
derecognizing financial assets and requires additional disclosures. ASC 860 must
be applied as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, and for interim periods within that
first annual reporting period. Earlier application is
prohibited.  Management does not expect that the adoption of ASC 860
will have a material effect on the Company’s financial position and results of
operations.





In
December 2007, the FASB issued ASC 810 “Consolidation”.  ASC 810
requires (a) that non-controlling (minority) interest be reported as a component
of shareholders' equity; (b) that net income attributable to the parent and to
the non-controlling interest be separately identified in the consolidated
statement of operations; (c) that changes in a parent's ownership interest while
the parent retains its controlling interest be accounted for as equity
transactions; (d) that any retained non-controlling equity investment upon the
deconsolidation of the subsidiary be initially measured at fair value; and (e)
that sufficient disclosures are provided that clearly identify and distinguish
between the interest of the parent and the interests of the non-controlling
owners. ASC 810 is effective for fiscal years beginning after December 15, 2008,
and applied to the Company in the quarter ended September 30, 2009. The Company
revised its disclosures regarding minority interest, but there was no material
effect from the adoption of ASC 810.





NOTE
3.  CONCENTRATIONS OF CREDIT RISK


The Company maintains aggregate cash
balances, at times, with financial institutions, which are in excess of amounts
insured by the Federal Deposit Insurance Corporation (FDIC). During 2010, the
FDIC insured cash accounts up to $250,000.  At March 31, 2010, the
Company’s cash accounts in different financial institutions were all less than
the $250,000 FDIC insured amount.





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of accounts receivable.





In the
normal course of business, the Company extends unsecured credit to its
customers.   Because of the credit risk involved, management has
provided an allowance for doubtful accounts which reflects its estimate of
amounts which will eventually become uncollectible.  In the event of
complete non-performance by the Company’s customers, the maximum exposure to the
Company is the outstanding accounts receivable balance at the date of
non-performance.




-12-
 
 INDEX





NOTE
4.  GOING CONCERN





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 fully implement its business plan in a manner that not
only continues to expand already established direct-to-consumer approach, but
also allows the Company to establish a stronger brand name in all the areas
which it operates, including mortgage servicing 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.  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
operations.  The Company has incurred an accumulated net loss of
$3,471,585 as of March 31, 2010.  However, of the accumulated net
loss, $1,631,872 of expense was incurred as stock-based compensation which is a
non-cash expense.   Management is trying to raise additional
capital through sales of common stock as well as seeking financing from third
parties. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.




NOTE
5.  PROPERTY, EQUIPMENT AND SOFTWARE




Property,
equipment and software consist of the following as of March 31, 2010 and
December 31, 2009, respectively:


Computers and
      purchased software
              
              $
              161,029
              
              
              $
              155,973Furniture and
      equipment
              
              
              431,142
              
              
              
              430,755592,171
              
              
              
              586,728Less:  accumulated
      depreciation
              
              
              (196,034
              )
              
              
              (166,150
              )$
              396,137
              
              
              $
              420,578


Depreciation
totaled $29,884 and $12,421 for the three months ended March 31, 2010 and
2009.




NOTE
6.  ACCRUED LIABILITIES




The Company accounted for $364,634 in
accrued liabilities at March 31, 2010.  Included in this accrual was
$261,001 in salaries and wages payable, $56,093 in accrued interest, $42,814 in
Texas Franchise Tax and $4,726 in other.  The Company accounted for
$259,462 in accrued liabilities at March 31, 2009.  Included in this
accrual was $228,168 in salaries and wages payable, $24,127 in accrued interest,
and $7,167 in other.




NOTE
7.  LINES OF CREDIT





On March
6, 2009, the Company entered into a new revolving line of credit (“LOC”)
facility with Legacy Texas Bank (“LTB”) which provides maximum borrowings of
$250,000, subject to a borrowing base, bears interest at the bank’s rate as
defined as prime plus 1% (6% floor) and matures in November 2010.  On
September 6, 2009, the Company increased the line of credit $75,000 to a maximum
borrowing amount of $325,000, subject to a borrowing base, with the same
interest rate and maturity date of November 2010.  The $325,000
maximum borrowing amount includes a $75,000 letter of credit to the Company’s
business office lessor.  The $75,000 letter of credit expires November
2010.  As of March 31, 2010, the Company has received net advances
totaling $240,000 under this new LOC.  The LOC is cross collateralized
by all of the Company’s assets.





-13-
 
 INDEX




NOTE
8.  NOTES PAYABLE DUE TO RELATED PARTIES





During
2007, the Company entered into three promissory notes totaling $397,000 with two
board of directors for the purchase of their member interests in HGM and HCS
(the “Board of Director Notes”).  The Board of Director Notes bear
interest at a rate of 8% per annum and matures in February 2011, with the
exception of $20,000 in principal amount of the notes, which bears interest at a
rate of 8% and matures in October 2011.  All interest and principal is
due on demand by the board of directors, but if no demand is made then upon
maturity.   The Board of Director Notes are subordinate to the
LOC and notes payable.  As of March 31, 2010 and December 31, 2009,
amounts outstanding under the Board of Director Notes totaled $268,000 and
$268,000.





During
2007 the Company entered into two unsecured promissory notes with a director for
working capital advances made to the Company, totaling $60,000 (the “Director
Loans”).  The Director Loans bear interest at a rate of 8% per annum,
are due on demand by the director, but if no demand is made then upon maturity
in November 2010.  All interest and principal is due upon maturity. As
of March 31, 2010 and December 31, 2009, amounts outstanding under the Director
Loans totaled $60,000 and $60,000.


During
January 2009 the Company entered into one unsecured promissory note with a
director for a working capital advance to the Company in the amount of $15,000
(the “Director Note”).  The Director Note bears interest at a rate of
8% per annum , is due on demand, but if no demand is made then upon maturity in
January 2011.  All interest and principal is due upon
maturity.  As of March 31, 2010 and December 31, 2009, the amount
outstanding under the Director Note totaled $15,000 and
$15,000.


During
April 2009 the Company entered into one unsecured promissory note with a related
party for a working capital advance to the Company in the amount of $65,000 (the
“Related Party Note”).  The Related Party Note bears interest at a
rate of 8% per annum and is a monthly installment note with final maturity of
April 2011.  All interest and principal is due upon
maturity.  As of March 31, 2010, the amount outstanding under the
Related Party Note totaled $54,938, of which $43,089 is included in long term
liabilities.  As of December 31, 2009, the amount outstanding under
the Related Party Note totaled $57,756, of which $46,141 is included in long
term liabilities.





During
October 2009 the Company entered into two unsecured promissory notes with two
directors for working capital advances to the Company in the amount of $60,000
(Related Party Note 2) and $15,000 (Related Party Note 3).  The
Related Party Note 2 and Related Party Note 3 bear interest at a rate of 0.71%
per annum with original maturity December 26, 2009 and December 27, 2009,
respectively.    The maturity date was extended to April 16,
2010 and February 15, 2011, respectively.  All interest and principal
is due upon maturity.  The Related Party Note 2 was refinanced in
January 2010 as discussed below with the outstanding balance rolled into the
refinanced note.  As of March 31, 2010 and December 31, 2009, the
amount outstanding under the Related Party Note 3 totaled $15,000 and $15,000,
respectively.  On April 1, 2010, The Related Party Note 3 interest
rate was updated to reflect a rate of 8% per annum.





During
November 2009 the Company entered into one unsecured promissory note with a
related party for a working capital advance to the Company in the amount of
$60,000 (Related Party Note 4).  The Related Party Note 4 bears
interest at a rate of 8% per annum with a maturity date of April,
2010.  All interest and principal is due upon maturity.  At
December 31, 2009, the amount outstanding under the Related Party Note 4 totaled
$30,000.  On January 5, 2010, the Company entered into one unsecured
promissory note with a related party for a working capital advance to the
Company in the amount of $230,584 (Amended Related Party Note
4).  This note includes the refinancing of the $30,000 outstanding
Related Party Note 4 and the associated $584 of accrued interest from the
respective related party note.  All outstanding balances of the
Related Party Note 4 are considered paid in full effective on the date of this
note.  The note bears interest at a rate of 16% per annum with a
maturity date of October 17, 2010.  All interest and principal is due
upon maturity.  As of March 31, 2010, the amount outstanding under the
Amended Related Party Note 4 totaled $230,584.





-14-
 
 INDEX





During
December 2009 the Company entered into two unsecured promissory notes with two
directors for working capital advances to the Company in the amount of $20,000
(Related Party Note 5) and $20,000 (Related Party Note 6).  The
Related Party Note 5 and Related Party Note 6 bear interest at a rate of 8% per
annum, is due on demand, but if no demand is made then upon original maturity of
January 8, 2010.  The maturity date was extended to April 16, 2010 and
April 1, 2010, respectively.  All interest and principal is due upon
maturity.  As of December 31, 2009, the amount outstanding under the
Related Party Note 5 and Related Party Note 6 totaled $20,000 and $15,000,
respectively.  The Related Party Note 5 was refinanced in January 2010
as discussed below with the outstanding balance rolled into the refinanced
note.  As of March 31, 2010 the amount outstanding under the Related
Party Note 6 totaled $10,000.





On
January 21, 2010, the Company entered into one unsecured promissory note with a
director for a working capital advance to the Company in the amount of $230,771
(Amended Related Party Note 5).  This note includes the refinancing of
the $60,000 outstanding Related Party Note 2 and the $20,000 outstanding Related
Party Note 5 and the associated $771 of accrued interest from those respective
related party notes.  All outstanding balances of Related Party Note 2
and Related Party Note 5 are considered paid in full effective on the date of
this note.  The note bears interest at a rate of 16% per annum with a
maturity date of October 17, 2010.  All interest and principal is due
upon maturity.  As of March 31, 2010, the amount outstanding under the
Amended Related Party Note 5 totaled $230,771.





On March
3, 2010, the Company entered into one unsecured promissory note with a director
for a working capital advance to the Company in the amount of $50,000 (Related
Party Note 7).  The note bears interest at a rate of 16% per annum, is
due on demand by the director, but if no demand is made then upon maturity on
October 3, 2010.  All interest and principal is due upon maturity. As
of March 31, 2010, the amount outstanding under the Related Party Note 7 totaled
$50,000.





On March
17, 2010, the Company entered into two unsecured promissory notes with a
director for a working capital advance to the Company in the amount of $50,000
(Related Party Note 8) and $22,000 (Related Party Note 9).  The notes
bear interest at a rate of 16% per annum, is due on demand by the director, but
if no demand is made then upon maturity on October 17, 2010.  All
interest and principal is due upon maturity. As of March 31, 2010, the amount
outstanding under the Related Party Note 8 and 9 totaled $25,000 and $22,000,
respectively.





The
Company incurred $25,227 and $23,870 of interest expense to directors and other
related parties during the three months ended March 31, 2010 and
2009.  Accrued interest due to directors and other related parties
totaled $53,234 and $30,499 at March 31, 2010 and December 31, 2009,
respectively.


NOTE
9.  NOTES PAYABLE





On March
6, 2009, the Company entered into a 36 month secured promissory note with Legacy
Texas Bank in the amount of $374,000.  The proceeds of this note
payable were used to pay off the two lines of credit as discussed in Note
5.  The note bears interest at the Federal Home Loan Bank (FHLB) 2.5
to 3 year rate plus 3.25% (6.16% fixed rate over the term of the note) and
matures March 2012.  As of March 31, 2010, the note payable balance
was $256,985, of which $132,479 is included in long term
liabilities.
 
 The note
is collateralized by all of the Company’s assets.  Additionally, the
note contains certain affirmative covenants including a debt to net worth
ratio.  At March 31, 2010 the Company did not meet the debt to net
worth covenant.  The Company is currently in discussions with the bank
on obtaining a covenant waiver of this ratio calculation.


On April
15, 2009, the Company entered into a 60 month secured promissory note with
Legacy Texas Bank in the amount of $167,000.  The proceeds of this
note payable were used to purchase communication equipment.  The note
bears interest at 7% per annum with monthly installments and a final maturity in
April 2014.  The note is collateralized by all of the Company’s
assets.  As of March 31, 2010, the note payable balance was $140,377,
of which $109,515 is included in long term liabilities.





-15-
 
 INDEX





On
November 9, 2009, the Company entered into a 12 month secured promissory note
with Legacy Texas Bank in the amount of $100,000.  The proceeds of
this note payable were used to fund working capital.  The note bears
interest at 7% per annum with eleven monthly installments and one final balloon
payment due upon maturity in November 2010.  The note is
collateralized by all of the Company’s assets.  As of March 31, 2010,
the note payable balance was $78,603, all of which is included in current
liabilities.





Future
scheduled principal payments as of December 31, 2009 are as
follows:




Years Ending December
      31:2010
              
              $
              194,1292011
              
              
              162,9832012
              
              
              68,7602013
              
              
              37,4072014
              
              
              12,686Total
      scheduled principal payments
              
              $
              475,965




NOTE
10.  SUBORDINATED DEBT





During
January 2010, the Company authorized a $750,000 subordinated debt offering
(Subordinated Offering), which contain the issuance of notes paying a 16% coupon
with a 1% origination fee at the time of closing.  The maturity date
of the notes is January 31, 2013.  Repayment terms of the notes
include interest only payments through July 31, 2010.  Thereafter,
level monthly payments of principal and interest are made as calculated on a 60
month payment amortization schedule with final balloon payment due at
maturity.  The rights of holders of notes issued in the Subordinated
Offering are subordinated to any and all liens granted by the Company to a
commercial bank or other qualified financial institution in connection with
lines of credit or other loans extended to the Company in an amount not to
exceed $2,000,000, and liens granted by the Company in connection with the
purchase of furniture, fixtures or equipment.  This includes the
Legacy Texas Bank debt disclosed in Note 8.  Through March 31, 2010,
the Company has raised $270,000 in the Subordinated Offering.


As part
of the Subordinated Offering, the Company grants to investors common stock
purchase warrants (the “Warrants”) to purchase an aggregate of 200,000 shares of
common stock of the Company at an exercise price of $.01 per
share.  The 200,000 shares of common stock contemplated to be issued
upon exercise of the Warrants are based on an anticipated cumulative debt raise
of $750,000.  The investors are granted the Warrants pro rata based on
their percentage of investment relative to the $750,000 aggregate principal
amount of notes contemplated to be issued in the Subordinated
Offering.  The Warrants shall have a term of seven years, exercisable
from January 31, 2015 to January 31, 2017.  The Company will have a
call option any time prior to maturity, so long as the principal and interest on
the notes are fully paid, to purchase the Warrants for an aggregate of
$150,000.  After the date of maturity until the date the Warrants are
exercisable, Company will have a call option to purchase the Warrants for
$200,000.  The call option purchase prices assume a cumulative debt
raise of $750,000.





The Company adopted the provisions of
FASB ASC 815, “Derivatives and
Hedging” (FASB ASC 815).  FASB ASC 815 requires freestanding
contracts that are settled in a company’s own stock to be designated as an
equity instrument, assets or liability. Under the provisions of FASB ASC 815, a
contract designated as an asset or liability must be initially recorded and
carried at fair value until the contract meets the requirements for
classification as equity, until the contract is exercised or until the contract
expires.  Accordingly, we determined that the warrants should be
accounted for as derivative liabilities. As of March 31, 2010, total Warrants
outstanding totaled 72,000.  As of March 31, 2010, the derivative
liability was $31,825.  The marked to market change was charged to
loss in change in fair value of derivative. This derivative will continue to be
marked to market in accordance with FASB ASC 815.  The warrants were
valued using the Black-Scholes model, which resulted in the fair value of the
warrants at $0.44 per share using the following assumptions.





March 31, 2010Risk-free
      rate
              3.28
              %Expected
      volatility
              39.70
              %Expected
      remaining life (in years)
              6.83Dividend
      yield
              0.00
              %
  -16-
 
 INDEX





NOTE 11.  RELATED PARTY
TRANSACTIONS




For the
three months ended March 31, 2010 and 2009, the Company incurred legal costs
totaling $0 and $5,790, to a law firm owned by a director of the
Company.




For the
three months ended March 31, 2010 and 2009, the Company incurred consulting
costs totaling $17,700 and $9,000, to two separate entities owned each by a
director of the Company.




For the
three months ended March 31, 2010 and 2009, the Company incurred interest
expense to related parties (See Note 8).




For the
three months ended March 31, 2010 and 2009, the Company incurred rent expense
totaling $0 and $4,500, to an entity owned by two directors of the
Company.





NOTE
12.  INCOME TAXES





For the three months ended March 31,
2010 and 2009, the quarterly effective tax rate of 0% varies from the U.S.
federal statutory rate primarily due to certain non-deductible expenses and an
increase in the valuation allowance associated with the net operating loss
carryforwards. Our deferred tax assets related to other state net operating loss
carryforwards remain fully reserved due to uncertainty of utilization of those
assets.





Deferred
tax assets and liabilities are computed by applying the effective U.S. federal
and state income tax rate to the gross amounts of temporary differences and
other tax attributes. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. At March 31, 2010, the Company believed it was more likely than not
that future tax benefits from net operating loss carryforwards and other
deferred tax assets would not be realizable through generation of future taxable
income and are fully reserved.





The Company has net operating loss
(“NOL”) carryforwards of approximately $3,500,000 available for federal income
tax purposes, which expire from 2010 to 2029.  A portion of the NOLs
relating to GVC Venture Corp. are subject to certain annual
limitations.  Certain substantial ownership changes, as defined in
Internal Revenue Code Section 382, limit the utilization of the available NOLs
(the Section 382 Limitation).  The Section 382 Limitation is
calculated by multiplying the fair market value of the loss corporation
immediately preceding the change of ownership by the long-term, tax-exempt rate
prescribed by the IRS.





NOTE
13.  COMMITMENTS AND CONTINGENCIES





The
Company leases its office facilities and various equipment under non-cancelable
operating leases which provide for minimum monthly rental
payments.  Pursuant to an office lease dated November 12, 2007, as
amended on September 14, 2009, Halo Group is required to make monthly lease
payments of $32,663, with an increase in May 2010 to $49,789 per month and in
November 2010 to $61,199 per month.  The lease expires on August 14,
2014. Future minimum rental obligations under leases as of March 31, 2010 are as
follows:


Years Ending December
      31:2010
                
                $
                486,9472011
                
                
                779,6632012
                
                
                774,4462013
                
                
                774,0502014
                
                
                438,607Total Minimum
      lease commitments
                
                $
                3,253,713
  -17-
 
 INDEX





For the
three months ended March 31, 2010 and 2009, the Company incurred facilities rent
expense totaling $128,434 and $90,751.




In the
ordinary course of conducting its business, the Company may be subject to loss
contingencies including possible disputes or lawsuits.  Management
believes that the outcome of such contingencies will not have a material impact
on the Company’s financial position or results of future
operations.




NOTE
14. STOCK OPTIONS





The
Company granted stock options to certain employees under the HGI 2007 Stock
Plan, as amended (the “Plan”).   The Company was authorized to
issue 2,950,000 shares subject to options, or stock purchase rights under the
Plan.  These options vest over a period no greater than two years, are
contingently exercisable upon the occurrence of a specified event as defined by
the option agreements, and expire upon termination of employment or five years
from the date of grant.    At December 31, 2009, pursuant to
the terms of the Merger agreement, all options available for issuance under the
Plan have been forfeited and consequently the Company has no additional shares
subject to options or stock purchase rights available for issuance under the
Plan.  As such, there were no options issued during the three months
ended March 31, 2010.  As of March 31, 2010, 10,050 option shares have
been exercised.  Total stock options outstanding through March 31,
2010 total 2,804,720.  The weighted average remaining contractual life
of the outstanding options at March 31, 2010 is approximately 3.54
years.




A summary
of stock option activity in the Plan is as follows:







WeightedExercise
            
            
            AverageNumber
      of
            
            
            Price
            
            
            ExerciseOptions
            
            
            Per
      Option
            
            
            PriceOutstanding
      at December 31, 2008
            
            
            1,481,250
            
            
            $
            0.01
      – 0.94
            
            
            $
            0.06Granted
            
            
            1,464,420
            
            
            
            .94
      – 1.59
            
            
            
            1.25Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Canceled
            
            
            (118,200
            )
            
            
            0.01
      – 1.59
            
            
            
            0.44Outstanding
      at December 31, 2009
            
            
            2,827,470
            
            
            $
            0.01
      – 1.59
            
            
            $
            0.66Granted
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            (10,050
            )
            
            
            0.01
            
            
            
            0.01Canceled
            
            
            (12,700
            )
            
            
            0.01
      – 1.59
            
            
            
            0.57Outstanding
      at March 31, 2010
            
            
            2,804,720
            
            
            $
            0.01
      – 1.59
            
            
            $
            0.66




All stock
options granted under the Plan and as of March 31, 2010 are contingently
exercisable upon the occurrence of a specified event as defined in the option
agreements. The specified event (Merger) occurred on September 30,
2009.  As such, equity-based compensation for the contingently
exercisable options will be recognized in earnings from issuance date of the
options over the vesting period of the options effective September 30, 2009 when
the Merger became probable of occurrence.  Total compensation cost to
be expensed over the vesting period of stock options is
$2,299,244.  For the three months ended March 31, 2010, stock
compensation expense totaled $232,049.  For the year ended December
31, 2009, stock compensation expense totaled $1,399,823.  The
remaining $667,372 in future stock compensation expense is scheduled to be
recognized into earnings over the next 18 months.




-18-
 
 INDEX





NOTE
15. SHAREHOLDERS’ EQUITY





Common
Stock




As a
result of the Merger, the Company issued 305,504,813 common shares to former HGI
shareholders and effectuated a 7.57 to 1 reverse stock split.  The
7.57 to 1 reverse stock split resulted in former HGI shareholders retaining
40,355,129 common shares and the Company’s pre-Merger shareholders retaining
1,877,308 common shares of the Company.  The reverse stock split
resulted in the Company having 42,232,437 shares outstanding at December 31,
2009.  As a result of the Merger, the pre-Merger HGI shareholders
retained approximately 96% and the Company’s pre-Merger shareholders retained
approximately 4% of the Company’s common interest on a fully dilutive
basis.  The effect of the Company issuing 305,504,813 common shares to
the pre-Merger HGI shareholders and affecting a 7.57 to 1 reverse split of the
common shares denominated the Company shares in to that of HGI common shares
pre-Merger.  At the effective time of the Merger, the legal existence
of GVC Merger Corp. ceased.





To
facilitate the Merger, the Company exchanged 896,781 Series Z Convertible
preferred shares for 40,355,129 common shares of HGI pre-Merger which were
subsequently exchanged for 40,355,133 common shares of the Company on December
11, 2009 when the Company amended and restated its then existing Certificate of
Incorporation.  The Certificate of Incorporation was amended and
restated to (a) change the Company’s name to Halo Companies, Inc., (b) increase
the number of authorized shares of common stock from 50 million to 375 million,
(c) eliminate the 80% voting threshold requirements for certain corporate
actions and (d) modify certain provisions relating to the terms of
directors.





During
the three months ended March 31, 2010, 10,051 shares of common stock were issued
via the exercise of stock options.  Total common shares outstanding
totaled 42,242,488 as of March 31, 2010.





Preferred
Stock





In
connection with the Merger, the Company authorized 1,000,000 shares of Series Z
Convertible Preferred Stock with a par value of $0.001 per share (the “Series Z
Convertible Preferred”).  The number of shares of Series Z Preferred
Stock may be decreased by resolution of the Board; provided, however, that no
decrease shall reduce the number of Series Z Preferred Shares to less than the
number of shares then issued and outstanding.  In the event any Series
Z Preferred Shares shall be converted, (i) the Series Z Preferred Shares so
converted shall be retired and cancelled and shall not be reissued and (ii) the
authorized number of Series Z Preferred Shares set forth in this section shall
be automatically reduced by the number of Series Z Preferred Shares so converted
and the number of shares of the Corporation’s undesignated Preferred Stock shall
be deemed increased by such number.  The Series Z Convertible
Preferred is convertible into common shares at the rate of 45 shares of common
per one share of Series Z Convertible Preferred.  The Series Z
Convertible Preferred has liquidation and other rights in preference to all
other equity instruments.  Simultaneously upon conversion of the
remaining Preferred Stock A, Preferred Stock B, and Preferred Stock C and
outstanding stock options under the HGI 2007 Stock Plan into Series Z
Convertible Preferred, they will automatically, without any action on the part
of the holders, be converted into common shares of the
Company.  During the three months ended March 31, 2010, in connection
with the exercise of stock options into common stock noted above, 223 shares of
Series Z Convertible Preferred were automatically converted into shares of the
Company’s common stock leaving 897,004 shares of authorized undesignated
preferred stock in the Company in accordance with the Series Z Convertible
Preferred certificate of designation.  As of March 31, 2010 there were
102,996 shares authorized of Series Z Convertible Preferred issued with zero
shares issued and outstanding.





The HGI
Series A Convertible Preferred Stock (the “Preferred Stock A”) has a par value
of $0.001 per share and has a liquidation preference of the greater of (a) the
consideration paid to the Company for such shares plus all accrued but unpaid
dividends, if any or (b) the per share amount the holders of the Preferred Stock
A would be entitled to upon conversion, as defined in the Preferred Stock A
certificate of designation.  The liquidation preference was $782,724,
of which $32,724 is an accrued dividend at March 31, 2010.  Holders of
the Preferred Stock A are entitled to receive, if declared by the board of
directors, dividends at a rate of 8% payable in cash or common stock of the
Company.  Following the Merger, the Preferred Stock A is convertible
into the Company’s common stock at a conversion price of $1.25 per
share.  The Preferred Stock A is convertible, either at the option of
the holder or the Company, into shares of the Company’s Series Z Convertible
Preferred Stock, and immediately, without any action on the part of the holder,
converted into common stock of the Company.  The Preferred Stock A is
redeemable at the option of the Company at $1.80 per share prior to
conversion.  The Preferred Stock A does not have voting
rights.   Preferred Stock A ranks senior to the following capital
stock of the Company: (a) Preferred Stock B and Preferred Stock C.





-19-
 
 INDEX





The HGI
Series B Convertible Preferred Stock (the “Preferred Stock B”) has a par value
of $0.001 per share and has a liquidation preference of the greater of (a) the
consideration paid to the Company for such shares plus all accrued but unpaid
dividends or (b) the per share amount the holders of the Preferred Stock B would
be entitled to upon conversion.  The liquidation preference was
$1,034,668, of which $34,668 is an accrued dividend at March 31,
2010.  Holders of the Preferred Stock B are entitled to receive, if
declared by the board of directors, dividends at a rate of 8% payable in cash or
common stock of the Company.  Following the Merger, the Preferred
Stock B is convertible into the Company’s common stock a conversion price of
$1.74 per share.  The Preferred Stock B is convertible, either at the
option of the holder or the Company, into shares of the Company’s Series Z
Convertible Preferred Stock, and immediately, without any action on the part of
the holder, converted into common stock of the Company.  The Preferred
Stock B is redeemable at the option of the Company at $2.30 per share prior to
conversion.  The Preferred Stock B does not have voting
rights.    Preferred Stock B ranks senior to the following
capital stock of the Company: (a) the Preferred Stock C.





The HGI
Series C Convertible Preferred Stock (the “Preferred Stock C”) has a par value
of $0.001 per share and has a liquidation preference of the greater of (a) the
consideration paid to the Company for such shares plus all accrued but unpaid
dividends or (b) the per share amount the holders of the Preferred Stock C would
be entitled to upon conversion.  The liquidation preference was
$380,000, of which $0 is an accrued dividend at March 31,
2010.  Holders of the Preferred Stock C are entitled to receive, if
declared by the board of directors, dividends at a rate of 8% payable in cash or
common stock of the Company.  Following the Merger, the Preferred
Stock C is convertible into the Company’s common stock at an initial conversion
price of $2.27 per share.  The Preferred Stock C is convertible,
either at the option of the holder or the Company, into shares of the Company’s
Series Z Convertible Preferred Stock, and immediately, without any action on the
part of the holder, converted into common stock of the Company.  The
Preferred Stock C is redeemable at the option of the Company at $2.75 per share
prior to conversion. . The Preferred Stock C does not have voting
rights.   Preferred Stock C ranks senior to the following capital
stock of the Company: None.





The
Company had outstanding at March 31, 2010, 500,000 shares of Preferred Stock A,
500,000 shares of Preferred Stock B, and 152,000 shares of Preferred Stock C,
all with a par value of $0.001.




NOTE
16.  SUBSEQUENT EVENTS




On April
1, 2010, as part of the Subordinated Offering (see Note 10), the Company raised
an additional $150,000 in subordinated debt, bringing to total the subordinated
debt raised equal to $420,000 of the anticipated $750,000 cumulative debt
raise.  Warrants issued associated with this subordinated debt raise
totaled 40,000 warrants.





There
were no other subsequent events to disclose.





-20-
 
 INDEX




Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations




Forward-Looking
Statements




Certain
statements contained in this Quarterly Report on Form 10-Q that are not
statements of historical fact constitute “forward-looking statements” within the
meaning of the safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Words such as “expect,” “estimate,” “project,”
“budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,”
“should,” “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
related statements, 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 include, but are not limited to: the level of
customer demand for and response to products and services offered by the
Company, including demand by the consumer financial services industry,
specifically the credit market and real estate markets, changes in economic
conditions of the various markets the Company serves; adequacy of financing;
reliance on key executive officers; successfully implementing the Company’s
growth strategy; a downturn in market conditions in any industry relating to the
services that we provide; the effects and duration of continuing economic
recession in the U.S. and other markets in which we operate; change in industry
laws and regulations.  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.





The
following discussion of the financial condition and results of operation of the
Company should be read in conjunction with the financial statements and the
notes to those statements included in this Report.





Company
Overview




The
Company, through its subsidiaries, operates primarily in the consumer financial
services industry, providing services related to personal debt, credit,
mortgage, real estate, loan modification and insurance.  The Company
works with its clients, who are consumers who may be in various stages of
financial need, to assist in reducing their debt, correcting their credit
profile, securing a home mortgage, buying or selling a residence, providing
proper insurance for their assets, mitigating potential home loss, and educating
them in financial matters.





Plan
of Operations




It is the
intent of the Company to continue expanding its direct-to-consumer business,
both organically, as well as potentially through acquisition.  The
Company also plans to increase its concentration on the business-to-business
marketing strategy, specifically in the mortgage servicing
industry.  The Company has supplemented its operating cash-flow with
debt and equity financing to support its growth in marketing and business
development. The Company intends to pursue additional funding through debt,
subordinated debt, and equity financing to continue its expansion and growth
efforts.




-21-
 
 INDEX





Results
of Operations for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009





Revenues





Revenue
was down $295,099 or 13% to $2,031,925 for the three months ended March 31, 2010
from $2,327,024 for the three months ended March 31, 2009.  The
difference is due to the overall reduction in revenue primarily due to several
factors including management’s decision to implement a smaller marketing and
customer lead budget, a dropoff of sales staff during the holidays preceding the
three months ended March 31, 2010, which resulted in a smaller customer pipeline
and customers closed during January and February 2010.  Halo continues
to innovate and deploy its overall market strategy and reinvent its ability to
provide increasingly effective and efficient services to consumers.


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.  Sales and marketing expenses increased
$85,565 or 26% to $411,488 for the three months ended March 31, 2010 from
$325,923 for the three months ended March 31.   This increase is
primarily attributable to the increased overall volume of lead generation
purchases in various Halo subsidiaries for the three months ended March 31,
2010.  Further, contract service commissions has increased for the
three months ended March 31, 2010 attributable to the growth in revenues in Halo
Group Realty compared to the three months ended March 31, 2009.
 
 General and administrative expenses
increased $310,087 or 53% to $897,398 for the three months ended March 31, 2010
from $587,311 for the three months ended March 31, 2009.  This
increase is primarily attributable to the additional costs associated with rent
expense to office a growing workforce and variable general and administrative
costs incurred to grow revenues.  Several new subsidiaries began
operations during 2009, including Halo Loan Modification Services, LLC, Halo
Portfolio Advisors, LLC, and Halo Choice Insurance Services, LLC, and as such,
there have been increased general and administrative expenses and costs involved
to get these companies operating. Additionally, as a result of now being a
public company, the Company has incurred increased costs related to its
professional fees that were not incurred for the three months ended March 31,
2009.  These services include legal, accounting, and
auditing.  Finally, the Company has seen a growth in its allowance for
doubtful accounts which is charged to bad debt expense, included within general
and administrative expenses.  See significant accounting policies
contained in Note 2 to the consolidated financial statements.
 
 Salary, wages and benefits increased
$341,430 or 31% to $1,457,123 for the three months ended March 31, 2010 from
$1,115,693 for the three months ended March 31, 2009.  Approximately
$109,381 of the increase is attributable to additional costs associated with
employee head count and more executive and senior management personnel to
accommodate a growing business and Halo’s business plan.  The
remaining increase of $232,049 is stock option compensation expense for any
options that had vested during the three months ended March 31,
2010.  Stock option compensation expense was $0 for the three months
ended March 31, 2009.  As noted the significant accounting policies
contained in Note 2 to the consolidated financial statements, the fair value of
stock options at the date of grant is determined via the Black Scholes model
and, since the options were exercisable upon the occurrence of the Merger
occurring on September 30, 2009, the fair value of such options is recognized in
earnings over the vesting period of the options beginning when the Merger
occurred.  Stock compensation expense is a non-cash expense
item.


-22-
 
 INDEX





Although
overall Sales and Marketing expenses and General and Administrative expenses
have continued to increase, the Company continues to improve operational
efficiencies and effectively manage fixed and variable costs in line with its
business plan of growing Halo Companies, Inc.
 
 The Company experienced losses of
$1,067,949 to a net loss of $800,554 for the three months ended March 31, 2010
from net income of $267,395 for the three months ended March 31, 2009, primarily
attributable to the reasons noted above.


Significant
Accounting Policies





Certain critical accounting policies
affect the more significant judgments and estimates used in the preparation of
the Company’s consolidated financial statements.  These policies are
contained in Note 2 to the consolidated financial statements and included in
Note 2 to the consolidated financial statements contained in our Annual Report
on Form 10-K for the year ended December 31, 2009.  There have been no
significant changes in our significant accounting policies since the last fiscal
year end 2009.





Liquidity
and Capital Resources





As of March 31, 2010, we had cash and
cash equivalents of $207,302.  The increase of $121,212 in cash and
cash equivalents from December 31, 2009 was due to cash provided by financing
activities of $647,186 offset by a decrease in cash used in operating activities
of $496,031 and cash used in investing activities of $29,943.





Net cash used in operating activities
was $496,031 for the three months ended March 31, 2010, compared to $135,594 net
cash used in operating activities for the three months ended March 31,
2009.  The net cash used in operating activities for the three months ended
March 31, 2010 was due to a net loss of $800,554, adjusted primarily by the
following: an increase in depreciation of $29,884, an increase in bad debt
expense of $376,122, an increase in amortization of share-based compensation
expense of $232,049, an increase in accounts payable of $50,839, an increase in
deferred rent of $66,955, an increase in accrued liabilities of $105,172
primarily associated with the timing of payroll expense, offset by an increase
in accounts receivable of $563,384.  The remaining immaterial variance
is related to changes in operating assets and liabilities.





Net accounts receivable increased by
$187,262 or 8.5%.  The increase was a result of the increase in gross
accounts receivable of $563,384 offset by an increase of $376,122 in bad debt
expense.  Allowance for loan loss is discussed in significant
accounting policies above.  The increase in accounts receivable was
primarily related to the increase in growth in overall sales volume of customers
and revenue of Halo Debt Solutions.





The accounts payable increase is
primarily the result of the Company’s increase in general and administrative
costs which has resulted in an increase in monthly vendor commitments and
payables.  The Company pro-actively manages the timing and aging of
vendor payables throughout the year.  Deferred rent increased from
$187,039 at December 31, 2009 to $253,994 at March 31, 2010, and this increase
was related to executed contractual commitment of additional office space in the
Company headquarters for which the Company negotiated deferred rental
payments.





Net cash used in investing activities
was $29,943 for the three months ended March 31, 2010, compared to net cash used
in investing activities of $30,037 for the three months ended March 31,
2009.  Our investing activities for the three months ended March 31, 2010
consisted primarily of purchasing property and equipment of $5,443 and an
investment by Halo Group Mortgage, LLC, in a joint venture of $24,500 related to
our business plan of increasing revenues in our mortgage brokerage
subsidiary.  Halo contributed $24,500, equal to a 49% opening equity
balance, in the joint venture.  Under a qualitative and quantitative
analysis performed in accordance with ASC 810 “Consolidation,” Halo does not
meet the requirements of a variable interest entity for which Halo is the
primary beneficiary.  As such, the equity method investment is
included on the balance sheet in Deposits and Other Assets.





Net cash provided by financing
activities was $647,186 for the three months ended March 31, 2010, compared to
net cash provided by financing activities of $176,020 for the three months ended
March 31, 2009.  Our financing activities for the three months ended March
31, 2010 consisted primarily of the proceeds of $473,355 received from notes
payable to related parties, proceeds from subordinated debt of $270,000, offset
by $96,270 in payment of principal on notes payable, related party notes
payable, and net payments on the line of credit.  The Company did
receive proceeds of $101from the exercise of stock options during the three
months ended March 31, 2010.




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 INDEX




As shown
below, at March 31, 2010, our contractual cash obligations totaled approximately
$4,432,325, all of which consisted of operating lease obligations and debt
principal repayment.




Payments
      due by December 31,Contractual
      Obligations
            
            2010
            
            
            
            2011-2012
            
            
            
            2013-2014
            
            
            2015
      & Thereafter
            
            
            TotalDebt
      Obligations
            
            $
            1,391,781
            
            
            $
            385,884
            
            
            $
            189,593
            
            
            $
            0
            
            
            $
            1,967,258Operating
      Lease Obligations
            
            $
            486,947
            
            
            $
            1,554,109
            
            
            $
            1,212,657
            
            
            $
            0
            
            
            $
            3,253,713Total
      Contractual Cash Obligations
            
            $
            1,878,728
            
            
            $
            1,939,993
            
            
            $
            1,402,250
            
            
            $
            0
            
            
            $
            5,220,971





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





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
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 Company operations.  Management is trying
to raise additional capital through sales of common stock as well as seeking
financing from third parties, via both debt and equity, to balance the Company’s
cash requirements and to finance specific capital projects.





Off
Balance Sheet Transactions and Related Matters


Other than operating leases discussed
in Note 13 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.




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 INDEX





Item 3.
Quantitative and Qualitative Disclosures About Market
Risk.




Interest Rate
Risk.  Our business is highly leveraged and, accordingly, is
highly sensitive to fluctuations in interest rates. Any significant increase in
interest rates could have a material adverse affect on our financial condition
and ability to continue as a going concern.




Item
4T. 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.




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.




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Part II
- Other Information




Item 1.  Legal
Proceedings




None




Item 1A. Risk
Factors




Not
required for Smaller Reporting Companies.




Item 2.  Unregistered Sales of Equity
Securities and Use of Proceeds




During the quarter ended
March 31, 2010, except as included in our Current Reports on Form 8-K, we have
not sold any equity securities not registered under the Securities
Act.




Item 3.  Defaults Upon Senior
Securities




None




Item 4.  Submission of Matters to a
Vote of Security Holders




None




Item 5.  Other
Information




None




Item 6.  Exhibits




31.1 Rule 13a-14(a) Certification of
the Principal Executive Officer.




31.2 Rule 13a-14(a) Certification of
the Principal Financial Officer.




32    Section 1350
Certifications.




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SIGNATURES




In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.















Date:
      May 14, 2010
            By:
            /s/
      Brandon Cade ThompsonBrandon
      Cade ThompsonChief
      Executive Officer(Principal
      Executive Officer)Date:
      May 14, 2010
            By:
            /s/
      Paul WilliamsPaul
      WilliamsChief
      Financial Officer(Principal
      Financial and Accounting Officer)













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