Halo Companies, Inc.

The Company’s corporate offices are located at 7800 N. Dallas Parkway, Suite 320, Plano, Texas 75024, where Halo has 3,818 square feet of office space under lease. On August 1, 2016, the Company moved from its previous office location at 18451 N. Dallas Parkway, Suite 100, Dallas, Texas 75287. Pursuant to an office lease dated June 24, 2016, the Company is required to make monthly lease payments of $9,385 per month. Currently, the lease is set to expire on December 31, 2019.

Salaries, wages and benefits decreased $1,239,360 and 60% to $836,742 for the year ended December 31, 2016 from $2,076,102 for the year ended December 31, 2015. The decrease is primarily attributable to a decrease in overall wages primarily in HAM and HPA associated with decreasing staff and labor costs associated with the wind down of those services, offset by an increase in staff and wages associated with the technology sand software development business lines. Looking forward to 2017, the Company will continue to gauge its headcount and manage it in association with new software development opportunities. As salaries, wages and benefits are the most significant cost to the Company, management actively monitors this cost to ensure it is in line with our business plan.

Net cash used in operating activities was $535,402 for the year ended December 31, 2016, compared to $28,745 net cash provided by operating activities for the year ended December 31, 2015.  The net cash used in operating activities for the year ended December 31, 2016 was due to net loss of $1,471,220 adjusted primarily by the following: (1) an increase in accounts payable of $136,088, (2) an increase in accrued and other liabilities of $456,675 (includes long term accrued interest) and offset by a reduction in deferred revenue of $20,000, (3) the capitalization of interest of $329,811, (4) the increase in the amortization of loan costs of $25,000, (5) an increase in depreciation of $22,271 offset by a decrease in other assets of $43,158, (6) an increase in deferred rent of $18,655, (7) a decrease in gross trade accounts receivable of $12,390, and (8) a gain in the fair value of derivatives of $1,914.

There is substantial doubt about the Company’s ability to continue as a going concern within the next year and, as such, these financial statements have been prepared accordingly. The Company has sustained recurring operating losses over the last several years and continues to have negative operating cash flow. Also, the Company will need to restructure or modify its current liabilities in order to avoid default including the promissory note that matured in 2016, further discussed in Note 10 below.

The Company leases its office facilities under a non-cancelable operating sub-lease which provides for a minimum monthly rental payment. Pursuant to an office sub-lease dated June 24, 2016 the Company is obligated to make $9,386 monthly cash payments commencing October 1, 2016, escalating up to $9,704 on March 1, 2017, and again to $10,022 on March 1, 2018 through the termination date of December 31, 2019.