UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

þ		Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Quarter Ended March 31, 2006

o		Transition report under Section 13 or 15(d) of the Exchange Act

HALO TECHNOLOGY HOLDINGS, INC.

Nevada		88-0467845
State or other jurisdiction of		I.R.S. Employer
incorporation or organization		Identification Number

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) been subject to such filing requirements for the past ninety (90) days. Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No þ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of May 10, 2006, there were 8,141,962 shares of Common Stock, par value $.00001 per share, outstanding.

Transitional Small Business Disclosure Format (check one): Yes o No þ

 

 

      This Form 10-QSB/A amends our Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2006 as filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2006 (the “Original Filing”). We are filing this amendment to reflect the restatement of our consolidated financial statements and other financial information contained in the Original Filing. The reasons for this restatement are presented in Note 1 to our consolidated financial statements. We have also amended “Note 2. Summary of Significant Accounting Policies,” “Note 3. Stockholders’ Equity,” and “Note 8. Unaudited Pro Forma Financial Information” to our consolidated financial statements in connection with the restatement.

      This Form 10-QSB/A amends and restates “Item 2. Management’s Discussion and Analysis or Plan of Operations” solely as a result of, and to reflect, the restated financial statements and under “Business” solely for purposes of disclosing that we changed our name to Halo Technology Holdings, Inc. as of April 2, 2006. In addition, in accordance with applicable SEC rules, this Form 10-QSB/A includes updated certifications from our Chief Executive Officer and Principal Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.

      Except for the foregoing amended information, this Form 10-QSB/A continues to describe conditions as of the date of the Original Filing, and we have not updated the disclosures contained herein to reflect the events that have occurred subsequent to that date. Other events occurring after the date of the Original Filing or other information necessary to reflect subsequent events have been disclosed in reports filed with the SEC subsequent to the Original Filing.

PART I

FINANCIAL INFORMATION

Forward-Looking Information

     Certain statements in this Form 10-QSB/A of Halo Technology Holdings, Inc. (the “Company”) may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. The safe harbors for forward-looking statements provided by the Reform Act are unavailable to issuers of “penny stock”. Our shares may be considered a penny stock and, as a result, the safe harbors may not be available to us. Such forward-looking statements include those relating to future opportunities, the outlook of customers, the reception of new products and technologies, and the success of new initiatives. In addition, such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Such factors include: (i) demand for the Company’s products; (ii) the actions of current and potential new competitors; (iii) changes in technology; (iv) the nature and amount of the Company’s revenues and expenses; and (v) overall economic conditions and other risks detailed from time to time in the Company’s periodic earnings releases and reports filed with the SEC as well as the risks and uncertainties discussed in the Company’s Annual Report on Form 10-KSB/A filed with the SEC on October 11, 2006.

ITEM 1. Financial Statements.

Table of Contents

		Page
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			9

Halo Technology Holdings, Inc.

Consolidated Balance Sheets

		March 31,				June 30,
		2006				2005
		(Unaudited)				(Audited)
		As Restated (Note 1)
Assets
Current Assets:
Cash and cash equivalents		$	1,749,926			$	1,548,013
Marketable securities			33,800				—
Accounts receivable, net of allowance for doubtful accounts of $176,260 and $30,845 respectively			3,993,731				2,024,699
Due from Platinum Equity, LLC			465,000				—
Prepaid expenses and other current assets			873,006				409,496
Total current assets			7,115,463				3,982,208
Property and equipment, net			288,335				223,025
Deferred financing costs, net			1,653,701				476,876
Intangible assets, net of accumulated amortization of $2,759,621 and $756,064 respectively			24,302,862				15,678,736
Goodwill			34,033,604				7,055,264
Investment and other assets			168,179				884,379
Total assets		$	67,562,144			$	28,300,488
Liabilities and stockholders’ equity
Current liabilities:
Current portion of senior notes payable		$	500,063			$	—
Note payable to Platinum Equity, LLC			1,750,000				—
Notes payable			3,346,870				—
Accounts payable			1,929,685				872,433
Accrued expenses			6,091,890				3,752,731
Deferred revenue			14,085,877				3,392,896
Due to ISIS			1,243,712				1,293,534
Total current liabilities			28,948,097				9,311,594
Subordinate notes payable			1,458,333				2,317,710
Senior notes payable			21,481,806				6,446,750
Other long term liabilities			42,499				43,275
Series C warrants liabilities			15,392,397				—
Senior and Sub warrants liabilities			2,138,230				—
Other warrants liabilities			3,133,874				—
Total liabilities			72,595,236				18,119,329
Commitments and contingencies			—				—
Stockholders’ equity:
Preferred stock (Canadian subsidiary)			2				2
Series C Preferred Stock: $.00001 par value; 16,000,000 shares authorized, 13,362,688 and 14,193,095 issued and outstanding (Liquidation value — $13,362,688 and $14,193,095) respectively			13,362,688				14,193,095
Shares of Common Stock to be issued for accrued dividends on Series C Preferred Stock			412,399				212,897
Series D Preferred Stock: $.00001 par value; 8,863,636 shares authorized, 7,045,454 issued and outstanding (Liquidation value — $7,750,000)			10,356,817				—
Shares of Common Stock to be issued for accrued interest on subordinated debt			104,167				—
Common stock: $.00001 par value; 150,000,000 shares authorized, 8,141,962 and 3,110,800 shares issued and outstanding respectively			81				31
Additional paid-in-capital			62,947,637				59,431,331
Deferred compensation			—				(970,711	)
Accumulated other comprehensive loss			(48,072	)			(105,262	)
Accumulated deficit			(92,168,811	)			(62,580,224	)
Total stockholders’ equity			(5,033,092				10,181,159
Total liabilities and stockholders’ equity		$	67,562,144			$	28,300,488

See accompanying notes to consolidated financial statements.

Halo Technology Holdings, Inc.

Consolidated Statements of Operations
(Unaudited)

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2006				2005				2006				2005
		As Restated (Note 1)				As Restated (Note 1)				As Restated (Note 1)				As Restated (Note 1)
Revenue
Licenses		$	1,737,325			$	1,610,615			$	4,556,387			$	1,822,231
Services			6,470,217				730,427				12,230,196				783,331
Total revenues			8,207,542				2,341,042				16,786,583				2,605,562
Cost of revenue
Cost of licenses			402,848				148,384				925,872				258,809
Cost of services			1,364,526				154,277				2,462,574				154,277
Total cost of revenues			1,767,374				302,661				3,388,446				413,086
Gross Profit			6,440,168				2,038,381				13,398,137				2,192,476
Product development			1,777,543				616,652				4,294,336				729,375
Sales, marketing and business development			1,967,044				1,322,358				5,403,501				1,798,933
General and administrative (including non-cash compensation three months - 2006-$403,600; 2005-$890,206; nine months - 2006-$676,823; 2005-$1,432,948)			4,485,547				1,888,664				9,629,205				3,050,380
Late filing penalty			—				1,033,500				—				1,033,500
Loss before interest			(1,789,966	)			(2,822,793	)			(5,928,905	)			(4,419,712	)
Fair value gain (loss) on warrants			3,181,676				(18,865,264	)			34,853,160				(18,865,264	)
Interest expense			(3,087,665	)			(4,001,754	)			(7,392,896	)			(4,047,433	)
Income (loss) before income taxes			(1,695,956	)			(25,689,811	)			21,531,359				(27,332,409	)
Income taxes			85,298				50,000				171,786				50,000
Net income (loss)		$	(1,781,254	)		$	(25,739,811	)		$	21,359,573			$	(27,382,409	)
Computation of income (loss) applicable to common shareholders
Net income (loss) before beneficial conversion and preferred dividends		$	(1,781,254	)		$	(25,739,811	)		$	21,359,573			$	(27,382,409	)
Beneficial conversion and preferred dividends			(475,604	)			(15,680,325	)			(1,069,162	)			(18,490,789	)
Income (loss) attributable to common stockholders		$	(2,256,858	)		$	(41,420,136	)		$	20,290,411			$	(45,873,198	)
Basic net income (loss) per share attributable to common stockholders		$	(0.32	)		$	(17.38	)		$	4.38			$	(32.04	)
Diluted net income (loss) per share attributable to common stockholders		$	(0.32	)		$	(17.38	)		$	0.77			$	(32.04	)
Weighted-average number common shares — basic			7,147,300				2,383,662				4,637,578				1,431,615
Weighted-average number common shares — diluted			7,147,300				2,383,662				27,860,277				1,431,615

See accompanying notes to consolidated financial statements.

Halo Technology Holdings, Inc.

Consolidated Statements of Cash Flows
(Unaudited)

		Nine Months Ended
		March 31,
		2006				2005
		As Restated (Note 1)				As Restated (Note 1)
Operating Activities
Net income (loss)		$	21,359,573			$	(27,382,409	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			2,104,211				464,714
Provision for doubtful accounts			54,464				—
Non cash compensation			676,823				1,432,948
Non cash interest expense			5,123,000				3,233,076
Fair value (gain) loss on warrants			(34,853,160	)			18,865,264
Loss on disposal of property and equipment			3,270				—
Changes in operating assets and liabilities, net of effects of acquired business:
Accounts receivable			316,904				149,510
Prepaid expenses and other current assets			(295,514	)			25,865
Accounts payable and accrued expenses			(70,594	)			413,583
Deferred revenue			6,247,359				831,937
Deferred product cost			—				14,028
Net cash provided by (used in) operating activities			666,336				(1,951,484	)
Investing activities
Purchase of property and equipment			(88,974	)			(24,010	)
Purchase of marketable securities			(40,577	)			—
Gupta acquisition, net of cash acquired $742,915			—				(15,007,085	)
Tesseract, Process and Affiliates acquisition, net of cash acquired of $632,898			(16,048,141	)			—
ECI acquisition, net of cash acquired of $20,871			(557,700	)			—
Kenosia acquisition, net of cash acquired of $6,125			(507,145	)			—
Cash proceeds from Empagio, Inc. seller			36,224				—
Proceeds from sales of property and equipment			1,689				—
Net cash used in investing activities			(17,204,624	)			(15,031,095	)
Financing activities
Deferred financing cost in connection with senior notes			(1,726,486	)			—
Repayment of subordinated notes			(1,500,000	)			—
Repayment of senior notes			(6,825,000	)			—
Repayment of Promissory notes			(550,000	)			—
Repayment of Bristol Technology, Inc. note			(500,000	)			—
Repayment of Platinum Equity, LLC note			(1,000,000	)			—
Proceeds from subordinated notes			—				2,500,000
Proceeds from senior notes			25,000,000				6,075,000
Proceeds from Promissory notes			3,775,000				—
Proceeds from issuance of preferred and common stock, net of issuance costs			—				9,371,500
Net cash provided by financing activities			16,673,514				17,946,500
Effects of exchange rates on cash			66,687				1,109
Net increase in cash and cash equivalents			201,913				965,030
Cash and cash equivalents—beginning of period			1,548,013				115,491
Cash and cash equivalents—end of period		$	1,749,926			$	1,080,521
Supplemental disclosure of cash flow information:
Income tax paid		$	145,008			$	—
Interest paid		$	1,458,993			$	—

Supplemental schedule of non-cash investing and financing activities:

     For the nine months ended March 31, 2006, the Company recorded $1,069,162 in connection with convertible preferred dividends.

     In connection with the acquisition of Tesseract Corporation, the Company gave to Platinum Equity, LLC a Promissory Note and a working capital adjustment for $2,750,000, of which $1,000,000 was paid on March 31, 2006. The Company also issued Series D Preferred Stock of $9,266,000 for this acquisition. Transaction costs of $297,000 were accrued for the acquisitions of Tesseract, Process and Affiliates at March 31, 2006 (see Note 5).

     In connection with the acquisition of Empagio, Inc, the Company issued 1,438,455 shares of the Company’s common stock valued at $1,869,992. Transaction costs of $15,000 were accrued for this acquisition at March 31, 2006 (see Note 6).

     In connection with the acquisition of Executive Consultants, Inc, the Company issued 330,688 shares of the Company’s common stock valued at $558,863. Transaction costs of $15,000 were accrued for this acquisition at March 31, 2006 (see Note 7).

     On July 6, 2005, the Company acquired the stock of Kenosia (see Note 4). The following table summarizes the purchase transaction:

Purchase price:
Cash		$	1,247,175
Transaction costs			67,845
Note Payable			500,000
Total purchase price			1,815,020
Fair Value of:
Assets acquired			(1,611,793	)
Liabilities assumed			386,025
Goodwill		$	589,252

     On October 26, 2005, the Company acquired Tesseract Corporation (see Note 5). The following table summarizes the purchase transaction:

Purchase price:
Cash		$	3,500,000
Advances to Platinum made prior to September 30, 2005			1,000,000
Promissory Note and Working Capital Adjustment			2,750,000
Series D Preferred Stock			9,265,908
Transaction costs			126,500
Total purchase price			16,642,408
Fair Value of:
Assets acquired			(4,600,357	)
Liabilities assumed			2,456,041
Goodwill		$	14,498,092

     Also, on October 26, 2005, the Company acquired Process Software, LLC, David Corporation, ProfitKey International, LLC, and Foresight Software, Inc. (see Note 5). The following table summarizes the purchase transaction:

Purchase price:
Cash		$	12,000,000
Transaction costs			351,500
Total purchase price			12,351,500
Fair Value of:
Assets acquired			(7,855,827	)
Liabilities assumed			4,608,335
Goodwill		$	9,104,008

     On January 13, 2006, the Company acquired Empagio, Inc. (see Note 6). The following table summarizes the purchase transaction:

Purchase price:
1,438,455 Common shares issued		$	1,869,992
Cash received from seller			(36,224	)
Transaction costs			15,000
Total purchase price			1,848,768
Fair Value of:
Assets acquired			(561,236	)
Liabilities assumed			449,057
Goodwill		$	1,736,589

     On March 1, 2006, the Company acquired Executive Consultants, Inc. (see Note 7). The following table summarizes the purchase transaction:

Purchase price:
Cash		$	578,571
330,688 Common shares issued			558,863
Transaction costs			15,000
Total purchase price			1,152,434
Fair Value of:
Assets acquired			(274,765	)
Liabilities assumed			172,731
Goodwill		$	1,050,400

See accompanying notes to consolidated financial statements.

Halo Technology Holdings, Inc.

Notes to Consolidated Financial Statements

Note 1. Organization, Merger, Description of Business and Basis of Presentation

     Halo Technology Holdings, Inc. (collectively with its subsidiaries, the “Company”) is a Nevada corporation with its principal executive office in Greenwich, Connecticut. The Company changed its name to Halo Technology Holdings, Inc. from Warp Technology Holdings, Inc, effective April 2, 2006. As a consequence of the name change, the Company’s ticker symbol quoted on the OTC Bulletin Board changed from WARP to HALO. The new symbol has been effective since the open of business on Monday, April 3, 2006.

     The Company is a holding company whose subsidiaries operate enterprise software and information technology businesses. In addition to holding its existing subsidiaries, the Company’s strategy is to pursue acquisitions of businesses which either complement the Company’s existing businesses or expand the industries in which the Company operates.

     On January 31, 2005, the Company completed the acquisition of Gupta Technologies, LLC (together with its subsidiaries, “Gupta”). Gupta is now a wholly owned subsidiary of the Company, and Gupta’s wholly owned subsidiaries, Gupta Technologies GmbH, a German corporation, and Gupta Technologies Ltd., a U.K. company, have become indirect subsidiaries of the Company.

     Gupta develops, markets and supports software products that enable software programmers to create enterprise class applications, operating on either the Microsoft Windows or Linux operating systems that are used in large and small businesses and governmental entities around the world. Gupta’s products include a popular database application and a well-known set of application development tools. The relational database product allows companies to manage data closer to the customer, where capturing and organizing information is becoming increasingly critical. This product is designed for applications being deployed in situations where there are little or no technical resources to support and administer databases or applications.

     Gupta recently released its Linux product line. Compatible with its existing Microsoft Windows-based product line, the Linux line of products will enable developers to write one application to run in both Microsoft Windows and Linux operating systems.

     Gupta has headquarters in California, and has a regional office in Munich and sales offices in London and Paris.

     Warp Solutions, Inc. a wholly owned subsidiary of the Company, produces a series of application acceleration products that improve the speed and efficiency of transactions and information requests that are processed over the internet and intranet network systems. The subsidiary’s suite of software products and technologies are designed to accelerate network applications, reduce network congestion, and reduce the cost of expensive server deployments for enterprises engaged in high volume network activities.

     On July 6, 2005 the Company purchased Kenosia Corporation (“Kenosia”). Kenosia is a software company whose products include its DataAlchemy product line. DataAlchemy is a sales and marketing analytics platform that is utilized by global companies to drive retail sales and profits through timely and effective analysis of transactional data. Kenosia’s installed customers span a wide range of industries, including consumer packaged goods, entertainment, pharmaceutical, automotive, spirits, wine and beer, brokers and retailers.

     On October 26, 2005, the Company completed the acquisition of Tesseract and four other software companies, DAVID Corporation, Process Software, ProfitKey International, and Foresight Software, Inc. (collectively “Process and Affiliates”).

     Tesseract, headquartered in San Francisco, is a total HR solutions provider offering an integrated Web-enabled HRMS suite. Tesseract’s Web-based solution suite allows HR users, employees and external service providers to communicate securely and electronically in real time. The integrated nature of the system allows for easy access to data and a higher level of accuracy for internal reporting, assessment and external data interface. Tesseract’s customer base includes corporations operating in a diverse range of industries, including financial services, transportation, utilities, insurance, manufacturing, petroleum, retail, and pharmaceuticals.

     DAVID Corporation is a pioneer in Risk Management Information Systems. DAVID Corporation offers client/server-based products to companies that provide their own workers’ compensation and liability insurance. Many of DAVID Corporation’s clients have been using its products for 10 years or longer.

Halo Technology Holdings, Inc.
Restated Balance Sheets
For the nine months ended March 31, 2006

		As previously				Restatement
		reported March				Adjustment				As Restated
		31, 2006				March 31, 2006				March 31, 2006
Assets
Current assets:
Cash and cash equivalents		$	1,749,926							$	1,749,926
Marketable Securities			33,800								33,800
Accounts receivable, net of allowance			3,993,731								3,993,731
Due from Platinum Equity			465,000								465,000
Prepaid expenses and other current assets			873,006								873,006
Total current assets			7,115,463								7,115,463
Property and equipment, net			288,335								288,335
Deferred financing costs, net			1,653,701								1,653,701
Intangible assets, net of accumulated amortization of $756,064 and $277,083			24,302,862								24,302,862
Goodwill			31,517,696				2,515,908				34,033,604
Investment and other assets			168,179								168,179
Total assets		$	65,046,236			$	2,515,908			$	67,562,144
Liabilities and stockholders equity
Current liabilities:
Current portion of senior notes payable		$	500,063							$	500,063
Note payable to Platinum			1,750,000								1,750,000
Notes payable			3,346,870								3,346,870
Accounts payable			1,929,685								1,929,685
Accrued expenses			6,091,890								6,091,890
Deferred revenue			14,085,877								14,085,877
Due to ISIS			1,243,712								1,243,712
Total current liabilities			28,948,097								28,948,097
Subordinate note			1,695,004				(236,671	)			1,458,333
Senior note			21,481,806								21,481,806
Other long term liabilities			42,499								42,499
Series C warrants liabilities			—				15,392,397				15,392,397
Senior and Sub warrants liabilities			—				2,138,230				2,138,230
Other warrants			—				3,133,875				3,133,875
Total liabilities			52,167,406				20,427,831				72,595,237
Commitments and contingencies
Stockholders equity:
Preferred stock (Canadian subsidiary)			2								2
Cumulative convertible preferred stock, Series B; $.00001 par value; (2,915 shares issued and outstanding with liquidation value of $2,915,100 at June 30, 2004)
Shares to be issued, cumulative, convertible Preferred stock of Series B (393 shares June 30, 2004)
Series C Preferred Stock: $.00001 par value;			13,362,688								13,362,688
Series D Preferred Stock			7,840,909				2,515,908				10,356,817
Shares to be issued for accrued interest on sub note			104,167								104,167
Shares of Common Stock to be issued for accrued dividends on Series C Preferred Stock			412,399								412,399
Common stock, $.00001 par value; 150,000,000 shares authorized, 3,110,800 and 971,115 shares issued and outstanding, respectively			81								81
Additional paid-in capital			67,548,896				(4,601,259	)			62,947,637
Deferred compensation			0								0
Accumulated other comprehensive loss			(48,072	)							(48,072	)
Accumulated deficit			(76,342,240	)			(15,826,572	)			(92,168,812	)
Total stockholders equity			12,878,830				(17,911,923	)			(5,033,093	)
Total liabilities and stockholders equity		$	65,046,236				2,515,908			$	67,562,144

 

Halo Technology Holdings, Inc.
Restated Cash Flow Statements
For the nine months ended March 31, 2006

		As previously				Restatement
		reported March 31,				Adjustment				As Restated
		2006				March 31, 2006				March 31, 2006
Net Loss		$	(12,692,855	)		$	34,052,427			$	21,359,572
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			2,104,211								2,104,211
Provision for doubtful accounts			54,464								54,464
Non cash compensation			676,823								676,823
Non cash interest expense			4,322,268				800,732				5,123,000
Fair value gain on warrants			—				(34,853,159	)			(34,853,159	)
Loss on disposal of property and equipment			3,270								3,270
Changes in operating assets and liabilities, net of effects of acquired business:
Accounts receivable			316,904								316,904
Prepaid expenses and other current assets			(295,514	)							(295,514	)
Accounts payable and accrued expenses			(70,594	)							(70,594	)
Deferred revenue			6,247,359								6,247,359
Net cash provided by (used in) operating activities			666,336								666,336
Investing activities
Purchase of property and equipment			(88,974	)							(88,974	)
Purchase of marketable securities			(40,577	)							(40,577	)
Gupta acquisition, net of cash acquired $742,915
Tesseract, Process and Affiliates acquisition, net of cash acquired of $632,898			(16,048,141	)							(16,048,141	)
ECI acquisition, net of cash acquired of $20,871			(557,700	)							(557,700	)
Kenosia acquisition, net of cash acquired of $6,125			(507,145	)							(507,145	)
Cash proceeds from Empagio, Inc. seller			36,224								36,224
Proceeds from sales of property and equipment			1,689								1,689
Net cash used in investing activities			(17,204,624	)							(17,204,624	)
Financing activities
Deferred financing cost in connection with senior notes			(1,726,486	)							(1,726,486	)
Repayment of subordinated notes			(1,500,000	)							(1,500,000	)
Repayment of senior notes			(6,825,000	)							(6,825,000	)
Repayment of Promissory notes			(550,000	)							(550,000	)
Repayment of Bristol Technology, Inc. note			(500,000	)							(500,000	)
Repayment of Platinum Equity, LLC note			(1,000,000	)							(1,000,000	)
Proceeds from senior notes			25,000,000								25,000,000
Proceeds from Promissory notes			3,775,000								3,775,000
Net cash provided by financing activities			16,673,514								16,673,514
Effects of exchange rates on cash			66,687								66,687
Net increase in cash and cash equivalents			201,913								201,913
Cash and cash equivalents beginning of period			1,548,013								1,548,013
Cash and cash equivalents end of period		$	1,749,926							$	1,749,926
Supplemental disclosure of cash flow information:
Income tax paid		$	145,008							$	145,008
Interest paid		$	1,458,993							$	1,458,993

EPS

Note 2. Summary of Significant Accounting Policies

Reclassification.

     Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Segment

The Company has reviewed the provisions of SFAS 131, “Disclosures about Segments of an Enterprise and Related Information” with respect to the criteria necessary to evaluate the number of operating segments that exist, based on its review the Company has determined that it operates in one segment.

Income (Loss) Per Share

Basic and diluted net loss per share information for all periods is presented under the requirements of SFAS No. 128, Earnings Per Share. Basic loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding and common stock equivalents.

The Company computed its basic and diluted net income (loss) per common share as follows:

		Three Months				Three Months				Nine Months				Nine Months
		ended March 31,				ended March 31,				ended March 31,				ended March 31,
		2006				2005				2006				2005
Net income (loss)		$	(1,781,255	)		$	(25,739,811	)		$	21,359,572			$	(27,382,409	)
Preferred stock dividends on convertible stock			475,604				15,680,325				1,069,162				18,490,789
Net income (loss) available to common stockholders for basic net income (loss) per common share		$	(2,256,859	)		$	(41,420,136	)		$	20,290,410			$	(45,873,198	)
Add back preferred stock dividends on convertible stock			—				—				1,069,162				—
Add back interest expense on convertible debt			—				—				107,375				—
Net income (loss) available to common stockholders for diluted net income (loss) per common share		$	(2,256,859	)		$	(41,420,136	)		$	21,466,947			$	(45,873,198	)
Weighted average common shares outstanding for basic net income (loss) per common share			7,147,300				2,383,662				4,637,578				1,431,615
Impact of dilutive stock options			—				—				499,264				—
Impact of dilutive warrant			—				—				4,331,657				—
Impact of assumed convertible debt conversion			—				—				1,017,810				—
Impact of assumed convertible preferred stock conversion			—				—				17,373,968				—
Total shares for diluted net income (loss) per common share			7,147,300				2,383,662				27,860,277				1,431,615
Basic net income (loss) per common share		$	(0.32	)		$	(17.38	)		$	4.38			$	(32.04	)
Diluted net income (loss) per common share		$	(0.32	)		$	(17.38	)		$	0.77			$	(32.04	)

For the nine months ended March 31, 2006 warrants to purchase 169,576 common shares and stock options to purchase 38,800 common shares, were not included in the diluted earnings per share computation as the exercise prices were above the average market price. Additionally, 1,376,828 stock options to purchase common stock were excluded from the diluted earnings per share computation as they are only exercisable if certain contingencies are met. The dilutive effect of preferred stock, warrants and options convertible into an aggregate of approximately 46,953,305 for the three months ended March 31, 2006 are not included as the inclusion of such would be anti-dilutive for all periods presented.

The dilutive effect of preferred stock warrants and options convertible into an aggregate of approximately 32,597,965 of common shares as of March 31, 2005, are not included as the inclusion of such would be anti-dilutive for the three month and nine months ended March 31, 2005.

Stock-Based Compensation

     Prior to January 1, 2006, the Company used the intrinsic value method to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and had adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). As a result, compensation cost of the Company for the three months ended March 31, 2006 includes compensation expense for unvested portion of all the stock options outstanding and all the stock options granted after the effective date. No restatement has been made to prior periods. We had applied APB 25’s intrinsic value method up to December 31, 2005, and presented pro forma income statements in the footnote to show the effect of FAS123(R) as if it had been implemented in the prior periods. We will continue to do so to show the results of periods for which SFAS 123(R) was not effective in comparison to the results going forward.

     Had compensation costs for the Company’s stock option grants been determined based on the fair value at the grant dates for awards under these plans in accordance with SFAS 123(R), the Company’s net loss and loss per share would have been increased to the pro forma amounts as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2006				2005				2006				2005
Net income (loss), as reported		$	(1,781,254	)		$	(25,739,811	)		$	21,359,573			$	(27,382,409	)
Add: Stock-based employee compensation expense included in reported net loss			331,772				47,500				461,342				406,500
Deduct: Stock-based employee compensation expense determined under fair value method for all awards			(331,772	)			(49,400	)			(1,667,892	)			(419,610	)
Net income (loss), pro forma			(1,781,254	)			(25,741,711	)			20,153,023				(45,886,308	)
Beneficial conversion and preferred dividends			(475,604	)			(15,680,325	)			(1,069,162	)			(18,490,789	)
Net income (loss) attributable to common stockholders—Pro forma		$	(2,256,858	)		$	(41,422,036	)		$	19,083,861			$	(45,886,308	)
Basic net income (loss) per share, as reported		$	(0.32	)		$	(17.38	)		$	4.38			$	(32.04	)
Diluted net income (loss) per share, as reported		$	(0.32	)		$	(17.38	)		$	0.77			$	(32.04	)
Basic net income (loss) per share, pro forma		$	(0.32	)		$	(17.38	)		$	4.12			$	(32.05	)
Diluted net income (loss) per share, Pro forma		$	(0.32	)		$	(17.38	)		$	0.68			$	(32.05	)

     The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model. Option pricing models require the input of highly subjective assumptions. Because the Company’s employee stock has characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

     The company used the following weighted-average assumptions in the three and nine months ended March 31, 2006:

		Three Months Ended				Nine Months Ended
		March 31, 2006				March 31, 2006
Expected volatility			160.88	%			160.72	%
Expected dividend yield			—	%			—	%
Expected risk-free interest rate			4.12	%			4.20	%
Expected term of options		4 years				4 years
Maximum contractual term		7 years				7 years
Range of estimated forfeitures			—	%			—	%

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. For the Company, SFAS No. 123 (R) is effective as of January 1, 2006. The Company did not apply this method to prior periods. The impact on this new standard, if it had been in effect prior to January 1, 2006 is disclosed above in Note 2 – “Summary of Significant Accounting Policies” Stock Based Compensation.

On March 29, 2005, the Staff of the Securities and Exchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 107, “Share-Based Payment” (SAB 107). Although not altering any conclusions reached in SFAS 123(R), SAB 107 provides the views of the Staff regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and, among other things, provide the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The Company will follow the interpretative guidance on share-based payment set forth in SAB 107.

In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” that applies to all voluntary changes in accounting principle. This statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, this statement requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 will be effective for us for the fiscal year ended June 30, 2007. We do not anticipate that the adoption of SFAS No. 154 will have an impact on our overall results of operations or financial position.

In February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140,” that allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. It also eliminates the exemption from applying Statement 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of SFAS No. 155 will have an impact on the Company’s overall results of operations or financial position.

In March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140,” that applies to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of SFAS No. 156 will have an impact on the Company’s overall results of operations or financial position.

Note 3. Stockholders’ Equity

Common and Preferred Stock

     On September 19, 2005, the Company issued 8,543 shares of Common Stock valued at $8,543 as a dividend to a former Series B preferred stockholder to settle a dispute on an inadvertent conversion.

     On September 23, 2005, the Company issued 47,963 shares of Common Stock to pay $100,000 of interest on its Subordinated Notes, which covers the interest period of May 1, 2005 to July 31, 2005.

     On September 23, 2005, the Company issued 90,973 shares of Common Stock as Series C Preferred Stock dividend. The dividend period was April 1, 2005 to June 30, 2005. The value of Common Stock was $212,897.

     On December 23, 2005, the Company issued 44,665 shares of Common Stock to pay $63,333 of interest on its Subordinated Notes, which covers the interest period of August 1, 2005 to October 31, 2005.

     Also on December 23, 2005, the Company issued 143,769 shares of Common Stock as Series C Preferred Stock dividend. The dividend period was July 1, 2005 to September 30, 2005. The value of Common Stock was $211,636.

     On December 31, 2005, the Company issued an aggregate of 664,577 shares of Common Stock valued at $910,470 to former Senior Noteholders and an aggregate of 1,100,000 shares valued at $1,507,000 to former and existing Subordinated Noteholders in exchange for the rescission of certain warrants as described below in “Warrants” section of Note 3 — “Stockholder’s Equity”.

     On October 26, 2005, the Company issued 7,045,454 shares of Series D Preferred Stock to Platinum Equity, LLC (“Platinum”) pursuant to the Amendment to the Tesseract Merger Agreement. Under the Amendment, Platinum agreed to retain 909,091 of the shares of Series D Preferred Stock delivered as part of the Merger Consideration, and to return such shares for cancellation, without additional consideration from the Company, if the Company repaid the $1,750,000 note on or before March 31, 2006. On March 31, 2006, the Company paid $1,000,000 to Platinum. Since the entire amount of the note was not paid by March 31, 2006, the 909,091 shares of Series D Preferred Stock described above were not returned by Platinum for cancellation and such shares remain outstanding. The details of these agreements are described in Note 5 — “Acquisition of Five Software Companies.”

     On January 13, 2006, the Company issued 1,438,455 shares of the Company’s common stock valued at $1,869,992 in connection with the acquisition of Empagio, Inc.

     On March 1, 2006, the Company issued 330,688 shares of the Company’s common stock valued at $558,863 in connection with the acquisition of Executive Consultants, Inc.

     On March 31, 2006, the Company issued 331,122 shares of Common Stock as Series D Preferred Stock dividend. The dividend period was October 26, 2005 to March 31, 2006. The value of Common Stock was $436,583.

     During the three months and nine months ended March 31, 2006, the holders of respectively 440,149 and 830,407 Series C Preferred Stocks converted their shares into Common Stock. The conversions were made on a one to one (1:1) ratio.

Stock Options

     As more fully described in Note 2 -“Summary of Significant Accounting Policies,” we adopted SFAS 123(R) as of January 1, 2006. The deferred compensation recognized from stock options outstanding from prior periods under the intrinsic value method is reversed as of the same date. The compensation costs for unvested portion of the outstanding options and awards subsequent to this effective date will be expensed as period costs over the service requisite periods of the options based on grant-date fair values.

     On September 13, 2005, the Board of Directors granted 158,000 options to the Company CEO, Rodney A. Bienvenu under the 2002 Plan. Of those options, 39,500 vested on December 31, 2005, and the remainder vest ratably over the next 36 months. Such options have a term of ten years and have an exercise price of $1.08 per share. In connection with the options, the Company recorded a deferred compensation of $42,660. The Company recognized $10,665 of expense for the three months ended December 31, 2005 relating to these options. The remaining balance of $31,995 in deferred compensation related to these options was reversed as of January 1, 2006 in order to adopt SFAS 123(R). The Company recognized $12,701 in compensation expense for these options for the three months ended March 31, 2006, based on a grant-date fair value estimated by the Company.

     At the Annual Meeting of Stockholders of the Company held on October 21, 2005, the stockholders of the Company approved the Halo Technology Holdings 2005 Equity Incentive Plan (the “2005 Plan”) previously approved by the Board of Directors of the

Company. A copy of the 2005 Plan was filed as Appendix A to the Company’s definitive proxy statement filed with the Securities and Exchange Commission on October 7, 2005. Subject to adjustment for stock splits and similar events, the total number of shares of common stock that can be delivered under the 2005 Plan is 8,400,000 shares. No employee may receive options, stock appreciation rights, shares or dividend equivalent rights for more than four million shares during any calendar year.

     Under the 2005 Plan, the Company issued 4,366,000 options to certain employees and directors of the Company and its subsidiaries. Of those options, 3,366,000 were issued to the Company’s senior management 25% of these options vested on December 31, 2005, and the remaining portion have or will vest ratably each month during the 36 months thereafter, provided that the employee remains an employee of the Company. 1,000,0000 of the 4,366,000 options were issued to the management of the Company’s subsidiaries. These options will vest based on each subsidiary’s performance. The vesting conditions are determined by the compensation committee. All the options have an exercise price of $1.08 and the term of ten years except for the options issued to the Company’s CEO, Rodney A. Bienvenu, Jr., and the CLO, Ernest C. Mysogland, which have an exercise price of $1.19 and a term of five years. In connection with the options issued to the corporate senior management, the company recorded a deferred compensation of $95,620. The Company recognized $23,905 of expense for the three months ended December 31, 2005 relating to these options. The remaining balance of $71,715 in deferred compensation related to these options was reversed as of January 1, 2006 in order to adopt SFAS 123(R). The Company recognized $212,871 in compensation expense for these options for the three months ended March 31, 2006, based on a grant-date fair value estimated by the Company. The Company did not recognize compensation cost for the options issued to the subsidiary management because the Company believes the achievement of the performance goals is not probable.

     On January 4, 2006, the Company issued stock options for 600,000 shares of the Company’s Common Stock to its newly appointed Chief Financial Officer, Mark Finkel, in connection with his employment by the Company, and under the Halo Technology Holdings 2005 Equity Incentive Plan. The exercise price for Mr. Finkel’s options is $1.22 per share. The options granted to Mr. Finkel have a ten-year term. 25% of these options vest on the first anniversary of the award, provided Mr. Finkel remains in his position through that date, and the remaining options vest ratably over the following 36 months, provided that Mr. Finkel remains with the Company. For the three months ended March 31, 2006, the Company recognized $46,673 of compensation expense for these options.

     In addition to the stock options listed above, there are awards granted in prior periods under 2002 Stock Incentive plan that are still outstanding and yet to be vested. For the three months ended March 31, 2006, the Company recognized $112,173 in compensation expense for these options.

Warrants

     On August 2, 2005, the Company issued warrants to acquire 843,617 shares of the Company’s Common Stock to Fortress Credit Corp. as part of a Credit Agreement entered into on the same date. The warrants have an exercise price of $.01 per share, have a cashless exercise feature, and are exercisable until December 10, 2010. Additional information related to the issuance of these warrants is in Note 9 – “Credit Agreement”.

     On September 20, 2005, the Company issued to DCI Master LDC a warrant to Purchase 181,818 Shares of Common Stock, par value $0.00001 per share of the Company. The warrant was issued in connection with a Promissory Note issued to DCI Master LDC. Additional information related to the issuance of this warrant is in Note 10 – “Short-term Borrowings.” The exercise price for the warrant shares is $1.375, subject to adjustment as provided in the warrant. The warrant is exercisable until September 20, 2010. The warrant contains an automatic exercise provision in the event that the warrant has not been exercised but the fair market value of the warrant shares is greater than the exercise price per share on the expiration date. The warrant also contains a cashless exercise provision. The warrant also contains a limitation on exercise which limits the number of shares of Common Stock that may be acquired by the Holder on exercise to that number of shares as will insure that, following such exercise, the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates will not exceed 9.99% of the total number of issued and outstanding shares of Common Stock. This provision is waivable by the Holder on 60 days notice.

     On October 21, 2005, the Company issued warrants (the “Warrants”) to purchase an aggregate of 363,636 Shares of Common Stock, par value $0.00001 per share of the Company. The Warrants were issued in connection with the Convertible Promissory Notes described in Note 10 — (“Short-term Borrowings”). The exercise price for the Warrant Shares is $1.375, subject to adjustment as provided in the Warrant. The Warrants are exercisable for five years after the date of the Warrants. The Warrants contain an automatic exercise provision in the event that the warrant has not been exercised but the Fair Market Value of the Warrant Shares (as defined in the Warrant) is greater than the exercise price per share on the expiration date. The Warrants also contain a cashless exercise

provision. The Warrants also contain a limitation on exercise which limits the number of shares of Common Stock that may be acquired by the Holder on exercise to that number of shares as will insure that, following such exercise, the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates will not exceed 9.99% of the total number of issued and outstanding shares of Common Stock. This provision is waivable by the Holder on 60 days notice.

     On October 26, 2005, the Company issued warrants to acquire 1,265,425 shares of the Company’s Common Stock to Fortress Credit Corp. as part of a Credit Agreement entered into on August 2, 2005. This issuance relates to the Company’s utilization of the Tranche B of the credit facility under the agreement. The warrants have an exercise price of $.01 per share, have a cashless exercise feature, and are exercisable until December 10, 2010. Additional information related to the issuance of these warrants is in Note 9 – “Credit Agreement”.

     On December 31, 2005, the Company has rescinded certain warrants (the “Senior Lender Warrants”) previously issued pursuant to that certain Senior Note and Warrant Purchase Agreement (the “Senior Note Agreement”), as of January 31, 2005, by and among the Company and the Purchasers (the “Senior Noteholders”) identified therein and certain warrants (the “Subordinated Lender Warrants”) issued pursuant to that certain Subordinated Note and Warrant Purchase Agreement (the “Subordinated Note Agreement”), as of January 31, 2005, by and among the Company and the Purchasers (the “Subordinated Noteholders”) identified therein. As originally issued, the Senior Lender Warrants were for an aggregate of 2,670,000 shares of Common Stock. Senior Lender Warrants to acquire 1,208,321 shares of Common Stock were rescinded. As originally issued, the Subordinated Lender Warrants were for an aggregate of 2,500,000 shares of Common Stock. Subordinated Lender Warrants to acquire 2,000,000 shares of Common Stock were rescinded. The Company issued an aggregate of 664,577 shares of Common Stock valued at $910,470 to former Senior Noteholders and an aggregate of 1,100,000 shares valued at $1,507,000 to former and existing Subordinated Noteholders in exchange for the rescission of these warrants described above. The fair market value of the remaining senior and subordinated warrants was $2,138,230 as of March 31, 2006. The three and nine months ended March 31, 2006 resulted in a fair market value gain of $353,000 and $8,676,000, respectively.

The warrants related to Fortress, DCI Master LDC, and the Convertible Note were valued at $4,281,327 based on the Black-Scholes model as of March 31, 2006. The discounts to the debt will be amortized over the term of the agreements. For the three and nine months ended March 31, 2006, $304,788 and $1,139,928, respectively, were amortized and charged to interest expense. In addition, all of the warrants related to Fortress, DCI Master LDC and the Convertible Note has a cashless exercise feature and as such are treated as a derivative in accordance with EITF 00-19. The Company recognized a gain on the fair value of these warrants totalling $1,147,452 for the period ended March 31, 2006.

As of March 31, 2006 all of the warrants issued with the Series C Preferred Stock have the right to require the Company to settle the warrants on a net-cash basis and the Company was required to register the common stock underlying the warrants by a certain date as the contracts must be settled by the delivery of registered shares and the delivery of the registered shares are not controlled by the Company and the rights of the warrant holders to settle in cash potentially in preference to other shareholders receiving other forms of consideration, pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, the fair value of the warrants was calculated using Black-Scholes pricing model. The Warrant liability amount from the Series C Preferred Stock was revalued at $15,392,397 as of March 31, 2006. A fair value gain of $2,378,825 and $25,047,627, respectively for the three and nine months ended March 31, 2006 in the statement of operations and a corresponding decrease on the balance sheet in the warrant liability.

Note 4. Kenosia Acquisition

     On July 6, 2005 the Company purchased all of the stock of Kenosia Corporation (“Kenosia”) from Bristol Technology, Inc. for an aggregate purchase price of $1,800,000, subject to certain adjustments. Prior to the Closing, $800,000 of the Purchase Price was deposited into an escrow account, and subsequently released to Bristol at the Closing. The remainder of the Purchase Price is to be paid in two equal payments of $500,000 each, in cash. The first payment $447,175 (net of working capital adjustment) was made on September 1, 2005 and the second payment was made on January 31, 2006. The results of Kenosia acquisition are reflected in the combined statement of operations as of the date of acquisition.

     The Company’s management and the Board of directors believes that the purchase of Kenosia that resulted in approximately $589,000 of goodwill is justified because of Kenosia’s position in the marketplace and “Track record of positive cash flow”. The tax deductibility of the acquired goodwill is to be determined.

     The net purchase price for Kenosia was $1,815,020, after certain transaction costs and net working capital adjustments. The preliminary purchase price allocation, which is subject to adjustment, is as follows:

Cash		$	6,125
Accounts receivables			312,750
Other current assets			15,000
Fixed assets			7,635
Intangibles			1,270,283
Goodwill			589,252
Accounts payable and accrued expenses			(10,979	)
Deferred revenues			(375,046	)
		$	1,815,020

For the period from July 1, 2005 through July 5, 2005, Kenosia had no significant operations.

Note 5. Acquisition of Five Software Companies

     Foresight, Milgo, ProfitKey International and David Corporation Purchase Agreement

     On October 26, 2005, the Company purchased the transactions contemplated by that certain Purchase Agreement (the “Purchase Agreement”) dated as of September 12, 2005 by and among Halo Technology Holdings, Inc. operating under the name Halo Technology Holdings (“Company”) and Platinum Equity, LLC (“Platinum”), EnergyTRACS Acquisition Corp. (the “ Foresight Seller”) and Milgo Holdings, LLC (the “Process Seller” and together with Platinum and the Foresight Seller, the “Sellers”) for the acquisition of 100% of the Equity Interests in David Corporation (“David”), ProfitKey International, LLC (“Profitkey”), Foresight Software, Inc.(“Foresight”) and Process Software, LLC (“Process”). Pursuant to the Purchase Agreement, Platinum sold, assigned and delivered 100% of the common stock, no par value per share of the David Corporation, a California Corporation and a 100% membership interest in ProfitKey International LLC, a Delaware limited liability company, the Foresight Seller sold, assigned and delivered 100% of the common stock, par value $0.01 per share of the Foresight Software, Inc., a Delaware corporation and the Process Seller sold, assigned and delivered a 100% membership interest in Process Software, LLC, a Delaware limited liability company to the Company in exchange for the payment of an aggregate of twelve million dollars ($12,000,000) in cash. These four companies are collectively referred to as “Process and Affiliates”. The Purchase Agreement has previously been filed as Exhibit 10.86 of the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 16, 2005 and is incorporated herein by reference.

     The Company’s management and the Board of directors believes that the purchase of Process and Affiliates that resulted in approximately $9,517,000 of goodwill is justified because of these companies’ positions in the marketplace and their record of positive cash flow. The tax deductibility of the acquired goodwill is to be determined.

     The net purchase price for Process and Affiliates was $12,351,500, after certain transaction costs. The preliminary purchase price allocation, which is subject to adjustment, is as follows:

Cash and cash equivalents		$	378,141
Accounts receivable			1,723,231
Other current assets			726,478
Fixed assets			73,023
Intangibles			4,843,800
Goodwill			9,104,008
Other assets			111,154
Accounts payable and accrued expenses			(2,003,805	)
Deferred revenue			(2,604,530	)
		$	12,351,500

Tesseract Merger Agreement and Amendment

     On October 26, 2005, the Company completed the transactions contemplated by that certain Merger Agreement (the “Merger Agreement”) dated as of September 12, 2005 by and among the Company and TAC/Halo, Inc., a wholly owned subsidiary of the Company (the “Merger Sub”), Tesseract Corporation (“Tesseract”) and Platinum Equity, LLC (“Platinum”), as amended by Amendment No. 1 to Merger Agreement (the “Amendment”) dated October 26, 2005 by and among such parties and TAC/Halo, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“New Merger Sub”). Pursuant to the Merger Agreement, Tesseract was merged with and into the New Merger Sub (the “Merger”) which survived as a wholly-owned subsidiary of the Company. The Amendment provided that the Merger Consideration shall consist of (i) $4,500,000 in cash payable at Closing, (ii) (6,136,363) shares of Series D Preferred Stock of the Company valued at $9,265,908 based on the average market price of the Company’s stock 2 days prior and after the transaction closing date, and (iii) $1,750,000 payable no later than March 31, 2006 and evidenced by a Promissory Note. The Amendment provided for a Working Capital Adjustment of $1,000,000 to be paid no later than November 30, 2005. If not paid by such date, at the option of the Seller, the Working Capital Adjustment may be converted into up to 1,818,181 shares of Series D Preferred Stock. Additionally, if the Working Capital Adjustment is not paid on or before November 30, 2005, the Company must pay Platinum a monthly transaction advisory fee of $50,000 per month, commencing December 1, 2005. As of March 31, 2006, the Working Capital Adjustment has not been paid or converted to Series D Preferred Stock. As such, the Company has accrued $200,000 for the advisory fee as of March 31, 2006. Under the Amendment, Platinum agrees to retain 909,091 shares of Series D Preferred Stock delivered as collateral for the Promissory Note. If the Promissory Note is paid on or before March 31, 2006, Platinum will return for cancellation, without additional consideration from the Company, 909,091 shares of Series D Preferred Stock to the Company. The Amendment further provides that the rights, preferences and privileges of the Series D Preferred Stock will adjust to equal the rights, preferences and privileges of the next round of financing if such financing is a Qualified Equity Offering (as defined in the Amendment). If the next round is not a Qualified Equity Offering, the rights, preferences and privileges of the Series D Preferred Stock will adjust to equal the rights, preferences and privileges of the next round of financing at the option of the holder.

     In connection with the issuance of Series D Preferred Stock, on October 26, 2005, the Company and Platinum entered into an Investor’s Agreement in order to provide Platinum with certain rights to register Conversion Shares (as defined in the Investor’s Agreement) issuable upon conversion of Series D Stock or as dividends or other distributions with respect to the Series D Stock or the Common Stock issuable upon conversion thereof. The Company has agreed to file a registration statement registering the Conversion Shares for resale within eighty (80) days after the closing of the transaction contemplated by the Merger Agreement, and to use its best efforts to cause such registration statement to be declared effective by the Securities and Exchange Commission (the “SEC”) at the earliest practicable date thereafter and to remain effective until the earlier of: (i) twenty-four (24) months after the date that the Registration Statement is declared effective by the SEC; (ii) the date when all the Conversion Shares are sold or (iii) the date when Rule 144(k) is available with respect to all of the securities covered by such Registration Statement.

     The Series D Stock has the following material terms:

     • The Series D Stock will be convertible into Common Stock, at the option of the holder, at a conversion price (the “Applicable Conversion Price”) that will initially be equal to $1.10. Accordingly, the Series D Stock is convertible into Common Stock at a ratio equal to the quotient obtained by dividing the sum of the Series D Face Amount plus any accrued but unpaid dividends by the applicable Conversion Price, in effect at the time of conversion. However, the ratio is subject to adjustment pursuant to the anti-dilution protections extended to the holders of Series D Stock. Under the anti-dilution provisions, in the event the Company issues, at any time while shares of Series D Stock are still outstanding, shares of Common Stock or any type of securities convertible or exchangeable for, or otherwise giving a right to acquire, shares of Common Stock, at a price below the Applicable Conversion Price, then the Applicable Conversion Price will be adjusted to the price per share equal to the price per share paid for such Common Stock in such subsequent financing. In addition to the full-ratchet protection, the Applicable Conversion Price will be equitably adjusted in the event of any stock split, stock dividend or similar change in the Company’s capital structure.

     • If the Company’s market capitalization based on the shares of Common Stock outstanding (including all shares of Common Stock underlying the Shares of Series D Stock on an as converted basis) exceeds $50,000,000, the shares of Common Stock underlying the Series D Stock are registered, and the Company has an average daily trading volume for 20 consecutive trading days of 100,000 shares per day, then the Company may require the holders of Series D Stock to convert the Series D Stock into Common Stock at the then Applicable Conversion Price.

     • The holders of shares of Series D Stock will be entitled to receive dividends, at a 13% annual rate, payable quarterly in arrears beginning on March 21, 2006, either in cash, or at the election of the Company, in shares of Common Stock. The dividends are preferred dividends, payable in preference to any dividends which may be declared on the Series A 8% Cumulative Convertible Preferred Stock, the Series B 10% Cumulative Convertible Preferred Stock, the Series C Convertible Preferred Stock and the Common Stock. Common Stock delivered in payment of dividends will be valued at 90% of the average of the volume weighted average price for the 20 trading day period ending on the trading day immediately prior to the date set for payment of the dividend.

     • Any unconverted and non-redeemed Shares of Series D Stock outstanding on the third anniversary of the initial issuance of the Series D Stock, will be automatically redeemed on that date, in cash, at an amount per share equal to the sum of the Series D Face Amount, as adjusted, plus all accrued but unpaid dividends thereon (subject to equitable adjustment for all stock splits, stock dividends, or similar events involving a change in the capital structure of the Company).

     • In the event of any liquidation of the Company, the Series D Stock will receive an amount equal to the Series D Face Amount, plus all accrued but unpaid dividends thereon, prior to any amounts being distributed to any other series of Preferred Stock or to the Common Stock holders. After payment of all liquidation preferences to all holders of Preferred Stock, including the Series D Stock, the entire remaining available assets, if any, shall be distributed among the holders of Common Stock, the holders of Series D Stock, and any other class or series of Preferred Stock entitled to participate with the Common Stock in a liquidating distribution, in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of such shares of Preferred Stock held by them.

     The Company’s management and the Board of directors believes that the purchase of Tesseract that resulted in approximately $14,498,000 of goodwill is justified because of Tesseract position in the marketplace and its record of positive cash flow. The tax deductibility of the acquired goodwill is to be determined.

     The net purchase price for Tesseract was $16,642,408 after certain transaction costs. The preliminary purchase price allocation, which is subject to adjustment, is as follows:

Cash and cash equivalents		$	254,757
Accounts receivable			1,299
Other current assets			333,871
Fixed assets			3,830
Intangibles			4,006,600
Goodwill			14,498,092
Accounts payable and accrued expenses			(1,015,350	)
Deferred revenue			(1,422,282	)
Other long term liabilities			(18,409	)
		$	16,642,408

     The Company financed the purchase price under the Purchase Agreement and the Merger Agreement in part with borrowings under its $50,000,000 credit facility with Fortress Credit Opportunities I LP and Fortress Credit Corp. On October 26, 2005, in connection with the closings of the above described transactions, the Company entered into Amendment Agreement No. 1 (“Amendment Agreement”) between the Company, Fortress Credit Opportunities I LP (“Lender”) and Fortress Credit Corp., as Agent (the “Agent”) relating to the Credit Agreement dated August 2, 2005 between the Company, the Subsidiaries of the Company listed in Schedule 1 thereto (the “Subsidiaries”), Fortress Credit Corp., as original lender (together with any additional lenders, the “Original Lenders”), and the Agent under which the Lender made an additional loan of $15,000,000 under Tranche B of the credit facility under the Credit Agreement, as more fully described below in Note 9 “Credit Agreement.”

     The Company’s results of operations include results of operations of Tesseract, Process and Affiliates since October 27, 2005.

     On March 31, 2006, the Company and Platinum entered into an Amendment and Consent (the “Amendment”). Pursuant to the Amendment, the maturity of the $1,750,000 Promissory Note was modified such that the aggregate principal amount of the Note and all accrued interest thereon shall be due and payable as follows: (i) $1,000,000 on March 31, 2006; and (ii) the remaining $750,000 in principal, plus all accrued but unpaid interest on the earliest of (a) the second business day following the closing of the acquisition of Unify Corporation (“Unify”) by the Company, (b) the second business day following termination of the merger agreement pursuant to which Unify is to be acquired by the Company, (c) the second business day after the Company closes an equity financing of at least $2.0 million subsequent to the date of the Amendment or (d) July 31, 2006. In accordance with the Amendment, $1,000,000 was paid to Platinum on March 31, 2006. Since the entire amount of the Note was not paid on or before March 31, 2006, Platinum retained 909,091 shares of Series D Preferred Stock of the Company, which had been previously issued to Platinum under the Merger Agreement. In connection with the issuance of the 909,091 shares of Series D Preferred Stock, the Company recorded $1,090,909 of interest expense for the period ended March 31, 2006.

Note 6. Acquisition of Empagio

     On January 13, 2006, the Company purchased Empagio, Inc. (“Empagio”), a human resources management software company whose signature product is its SymphonyHR hosted software solution which automates HR procedures and reduces paperwork, ranging from payroll to benefits administration. The Company issued 1,438,455 shares of its Common Stock valued at $1,869,992 to the shareholders of Empagio. Of the 1,438,455 shares, 107,884 shares were retained by the Company as security for Empagio Stockholder indemnification obligations under the Merger Agreement (the “Indemnity Holdback Shares”). The Indemnity Holdback Shares shall be released to the Empagio Stockholders on the later of (i) the first anniversary of the Closing Date and (ii) the date any indemnification issues pending on the first anniversary of the Closing Date are finally resolved. The total purchase price was $1,848,768 after net working capital adjustments and transaction costs.

     The purchase of Empagio resulted in approximately $1,737,000 of goodwill. The Company agreed to a transaction that resulted in a significant amount of goodwill for a number of reasons including: Empagio’s market position and brand; Empagio’s business model which complements the business models of certain of the Company’s other businesses; and growth opportunities in the markets in which Empagio operates. Empagio was acquired with the plan of merging with the Company’s other related businesses into Empagio. The Company’s Tesseract and ECI subsidiaries have been merged into Empagio. The predominant portion of the consideration paid for Empagio was based on the expected financial performance of Empagio and the combined business after the merger. The tax deductibility of the acquired goodwill is to be determined.

     The preliminary purchase price allocation, which is subject to adjustment, is as follows:

Accounts receivable		$	163,706
Prepaid			2,530
Intangibles			395,000
Goodwill			1,736,589
Accounts payable and accrued expenses			(338,842	)
Notes payable			(66,452	)
Deferred revenue			(43,763	)
		$	1,848,768

     The Company’s results include operations of Empagio as of January 14, 2006.

Note 7. Acquisition of Executive Consultants, Inc.

     On March 1, 2006, the Company completed the acquisition of Executive Consultants, Inc. (“ECI”). ECI is an HR professional services firm providing implementation and consulting services for HR, payroll and payroll systems. The Company issued 330,688 shares of its Common Stock valued $558,863 to the shareholders of ECI. The Company also paid $ 578,571 in cash. The total purchase price was $1,152,434, including transaction costs.

     The purchase of ECI resulted in approximately $1,050,000 of goodwill. The Company agreed to this transaction which resulted in a significant amount of goodwill for a number of reasons including: ECI’s market position and brand; ECI’s business model which complements the business models of certain of the Company’s other businesses; and growth opportunities in the markets in which ECI operates. ECI was acquired with the plan of merging ECI with the Company’s other related businesses. ECI has been merged into the Company’s Empagio subsidiary. The predominant portion of the consideration paid for ECI was based on the expected financial performance of ECI and the combined business after the merger. The tax deductibility of the acquired goodwill is to be determined.

     The preliminary purchase price allocation, which is subject to adjustment, is as follows:

Cash and cash equivalents		$	20,871
Accounts receivable			139,414
Prepaid			2,480
Intangibles			112,000
Goodwill			1,050,400
Accounts payable and accrued expenses			(172,731	)
		$	1,152,434

     The Company’s results include operations of ECI as of March 2, 2006.

Note 8. Unaudited Pro Forma Financial Information

     The following unaudited pro forma financial information includes Gupta, Kenosia, Tesseract, David, Profitkey, Foresight, Process, Empagio and ECI. The pro forma consolidated operations of the Company for the three months ended March 31, 2006 and March 31, 2005 assume that the acquisitions had occurred as of January 1, 2006 and January 1, 2005, respectively. Similarly, the pro forma consolidated operations of the Company for the nine months ended March 31, 2006 and March 31, 2005 assume that the acquisitions had occurred as of July 1, 2005 and July 1, 2004, respectively.

     This financial information is provided for informational purposes only and should not be construed to be indicative of the Company’s consolidated results of operations had the acquisitions of Gupta, Kenosia, Tesseract, David, ProfitKey, Foresight, Process. Empagio and ECI been consummated on the dates assumed and does not project the Company’s results of operations for any future period:

		Three Months Ended March 31,								Nine Months Ended March 31,
		2006				2005				2006				2005
Revenues		$	8,718,184			$	11,030,586			$	27,698,275			$	35,901,761
Net income (loss)			(1,888,249	)			(24,869,843	)			23,033,654				(25,416,873	)
Beneficial Conversion and preferred dividends			(475,604	)			(15,680,325	)			(1,069,162	)			(18,490,789	)