HALO TECHNOLOGIES HOLDINGS, INC.
UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On May 25, 2007, the registrant, Halo Technology Holdings, Inc. (the “Company” or “Halo”) completed the transaction contemplated by the Asset Purchase Agreement (the “Empagio Purchase Agreement”) entered into with Empagio Acquisition LLC (the “Buyer”) and the Company’s subsidiary, Empagio, Inc. (the “Seller” or “Empagio”) on May 17, 2007.
Pursuant to this agreement, the Company caused Empagio to sell its assets to the Buyer, in exchange for a purchase price consisting of $16 million, plus certain contingent payments and assumption of Empagio’s business liabilities. The cash portion of the purchase price is payable as follows: (i) $250,000 was paid as a deposit upon the execution of the Empagio Purchase Agreement; (ii) $13,227,160 was paid upon closing; (iii) $250,000 was held in escrow pending resolution of any working capital determinations after the closing, and (iv) $2 million in deferred payments (which shall bear interest of LIBOR plus 4%) to be paid $1 million on September 30, 2008, and the remaining $1 million on June 30, 2009. The contingent payments consist of ten percent of the proceeds of any sale of the Buyer, to the extent such proceeds exceed $1 million, provided that the sale of the Buyer occurs in the next five years.
This unaudited pro forma information should be read in conjunction with the consolidated financial statements of the Company included in our Annual Report filed on Form 10-KSB/A for the year ended June 30, 2006 and our Quarterly Report filed on Form 10-QSB for the nine months ended March 31, 2007.
The following unaudited pro forma balance sheet has been prepared in accordance with accounting principles generally accepted in the United States; gives effect to the sale of Empagio as if the acquisition occurred on March 31, 2007; and removes the balance sheet of Empagio as of March 31, 2007 from the balance sheet of the Company as of March 31, 2007. Pro forma adjustments include: 1) allocation of proceeds from the sale, 2) assumption of liabilities, 3) accrual of a senior note amendment fee, and 4) reduction of deferred financing costs and warrant-related debt discount.
The following unaudited pro forma statement of operations for the year ended June 30, 2006 has been prepared in accordance with accounting principles generally accepted in the United States to give effect to the sale of Empagio as if the transaction occurred on June 30, 2005. The pro forma statement of operations removes the results of operations of Empagio for the year ended June 30, 2006 from the Company’s pro forma statement of operations previously prepared when Halo’s another former subsidiary, Gupta Technologies, LLC (“Gupta”), was sold on November 20, 2006. The resulting pro forma statement effectively removes the results of operations of both Empagio and Gupta from the Company’s results of operations. Pro forma adjustments include 1) reduction of cash interest and 2) reduction of interest expense from accelerated amortization of deferred financing costs and warrant-related debt discount. These adjustments were made to reflect the principal payment of the senior note that would have been made with the proceeds from the sale of Empagio.
The following unaudited pro forma statement of operations for the nine months ended March 31, 2007 has been prepared in accordance with accounting principles generally accepted in the United States to give effect to the sale of Empagio and Gupta as if the transaction occurred on June 30, 2006. Such pro forma statement of operations removes the results of operations of Empagio and Gupta for the nine months ended March 31, 2007 from the results of operations of the Company for the nine months ended March 31, 2007. Pro forma adjustments include 1) reduction of cash interest and 2) reduction of interest expense from accelerated amortization of deferred financing costs and warrant-related debt discount.
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the sale of Empagio and Gupta been completed as of the dates specified above.
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Halo Technology Holdings, Inc.
Pro Forma Consolidated Condensed Balance Sheet
March 31, 2007
(Unaudited)
Sale of | Pro Forma | Halo | ||||||||||||||||||||||
Halo (A) | Empagio (B) | Adjustments | Pro Forma | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 848,628 | $ | 477,160 | (C)(D) | $ | 1,325,788 | |||||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 1,748,501 | 1,748,501 | ||||||||||||||||||||||
Due from Platinum Equity, LLC | 330,000 | 330,000 | ||||||||||||||||||||||
Prepaid expenses and other current assets | 409,755 | 250,000 | (C) | 659,755 | ||||||||||||||||||||
Assets held for sale | 22,212,410 | 22,212,410 | — | |||||||||||||||||||||
Total current assets | 25,549,294 | 22,212,410 | 727,160 | 4,064,044 | ||||||||||||||||||||
Property and equipment, net | 490,909 | 490,909 | ||||||||||||||||||||||
Deferred financing costs, net | 468,417 | (126,151 | ) | (F) | 342,266 | |||||||||||||||||||
Intangible assets, net of accumulated amortization | 5,456,461 | 5,456,461 | ||||||||||||||||||||||
Goodwill | 15,290,342 | 15,290,342 | ||||||||||||||||||||||
Due from Empagio buyer | - | 2,000,000 | (C) | 2,000,000 | ||||||||||||||||||||
Other assets | 88,950 | - | 88,950 | |||||||||||||||||||||
Total assets | $ | 47,344,373 | $ | 22,212,410 | $ | 2,601,009 | $ | 27,732,972 | ||||||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Current portion of senior note payable | 16,636,246 | (11,472,311 | ) | (C)(F) | 5,163,935 | |||||||||||||||||||
�� | ||||||||||||||||||||||||
Note payable to Platinum Equity, LLC | 1,750,000 | 1,750,000 | ||||||||||||||||||||||
Notes payable | 467,569 | 467,569 | ||||||||||||||||||||||
Accounts payable | 1,380,381 | 1,380,381 | ||||||||||||||||||||||
Accrued expenses | 5,767,426 | 340,000 | (C)(D) | 6,107,426 | ||||||||||||||||||||
Deferred revenue | 6,046,749 | 6,046,749 | ||||||||||||||||||||||
Due to ISIS | 1,243,749 | 1,243,749 | ||||||||||||||||||||||
Liabilities of discontinued operations | 6,866,969 | 6,866,969 | — | |||||||||||||||||||||
Total current liabilities | 40,159,089 | 6,866,969 | (11,132,311 | ) | 22,159,809 | |||||||||||||||||||
Subordinate notes payable | 2,613,517 | 2,613,517 | ||||||||||||||||||||||
Other long term liabilities | 758,264 | 758,264 | ||||||||||||||||||||||
Series C warrants liabilities | 312,606 | 312,606 | ||||||||||||||||||||||
Senior and Sub warrants liabilities | 776,231 | 776,231 | ||||||||||||||||||||||
Other warrants liabilities | 874,590 | 874,590 | ||||||||||||||||||||||
Total liabilities | 45,494,297 | 6,866,969 | (11,132,311 | ) | 27,495,017 | |||||||||||||||||||
Commitments and contingencies | - | — | ||||||||||||||||||||||
Mandatory redeemable Series D Preferred Stock | 7,750,000 | 7,750,000 | ||||||||||||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||||||||||
Preferred stock (Canadian subsidiary) | 2 | 2 | ||||||||||||||||||||||
Shares of Common Stock to be issued for accrued | ||||||||||||||||||||||||
interest on subordinated debt and accrued dividends on Series D Preferred Stock | 350,325 | 350,325 | ||||||||||||||||||||||
Common stock | ||||||||||||||||||||||||
shares issued and outstanding, respectively | 404 | 404 | ||||||||||||||||||||||
Additional paid-in-capital | 99,388,210 | 99,388,210 | ||||||||||||||||||||||
Treasury Stock | (1,250,000 | ) | (1,250,000 | ) | ||||||||||||||||||||
Accumulated other comprehensive loss | (19,430 | ) | (19,430 | ) | ||||||||||||||||||||
Accumulated deficit | (104,369,435 | ) | (1,612,121 | ) | (D)(E)(F)(G) | (105,981,556 | ) | |||||||||||||||||
Total stockholders’ equity (deficit) | (5,899,924 | ) | - | (1,612,121 | ) | (7,512,045 | ) | |||||||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 47,344,373 | $ | 6,866,969 | $ | (12,744,432 | ) | $ | 27,732,972 | |||||||||||||||
See accompanying notes to unaudited pro forma consolidated condensed financial statements.
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NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) |
(A) | Reflects the historical financial position of the Company at March 31, 2007. |
(B) | To remove the historical financial position of Empagio at March 31, 2007. Empagio’s assets and liabilities were accounted for as ‘Assets held for sale’ and ‘Liabilities of discontinued operations,’ respectively, on the Company’s Consolidated Balance Sheet as of March 31, 2007. |
(C) | Total cash proceeds of $15.7 million from the sale were allocated as follows: |
Senior note principal payment | 12,350,000 | |||
Senior note amendment fee | 100,000 | |||
Senior note amendment fee previously accrued | 300,000 | |||
Cash in escrow | 250,000 | |||
Cash retained | 727,160 | |||
Future installments | 2,000,000 | |||
Total cash proceeds | 15,727,160 |
(D) | Halo assumed certain employee compensation and severance liabilities in connection with the Empagio sale, which amounted to $890,000. $250,000 has been paid on closing of the sale. The remainder of $640,000 has been accrued. |
(E) | As part of this Empagio sale transaction, the Company amended certain terms with the senior debt lender. The Company incurred $100,000 in amendment related fees, which was paid by the proceeds from the sale described in (C). |
(F) | The balance of deferred financing costs incurred in connection with the senior debt was reduced by $126,151. The amortization was accelerated because of the principal payment described in (C). Similarly, the balance of the warrant-related debt discount was reduced by $877,689 because of the principal payment. This increased the book value of the senior note. |
(G) | A gain on discontinued operations of $381,719 has been recognized on the sale of Empagio. |
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Halo Technology Holdings, Inc.
Pro Forma Consolidated Condensed Statements of Operations
Year ended June 30, 2006
(Unaudited)
Gupta | Sale of | Pro Forma | Halo | |||||||||||||||||
Pro Forma (1) | Empagio (2) | Adjustments | Pro Forma | |||||||||||||||||
Revenue | ||||||||||||||||||||
Licenses | $ | 1,672,606 | $ | 76,125 | $ | 1,596,481 | ||||||||||||||
Services | 12,078,419 | 5,753,934 | 6,324,485 | |||||||||||||||||
Total revenues | 13,751,025 | 5,830,059 | 7,920,966 | |||||||||||||||||
Cost of revenue | ||||||||||||||||||||
Cost of licenses | 683,860 | 186,783 | 497,077 | |||||||||||||||||
Cost of services | 3,196,749 | 1,654,860 | 1,541,889 | |||||||||||||||||
Total cost of revenues | 3,880,609 | 1,841,643 | 2,038,966 | |||||||||||||||||
Gross Profit | 9,870,416 | 3,988,416 | 5,882,000 | |||||||||||||||||
Product development | 2,992,468 | 819,405 | 2,173,063 | |||||||||||||||||
Sales, marketing and business development | 2,630,999 | 406,359 | 2,224,640 | |||||||||||||||||
General and administrative | 11,246,703 | 2,673,260 | 8,573,443 | |||||||||||||||||
Late filing penalty | (1,033,500 | ) | — | (1,033,500 | ) | |||||||||||||||
Loss before interest and fair value gain on warrants | (5,966,254 | ) | 89,392 | (6,055,646 | ) | |||||||||||||||
Fair value gain on warrants | 41,962,169 | 41,962,169 | ||||||||||||||||||
Interest expense and other | (8,710,330 | ) | (100,322 | ) | 1,999,761 | (3 | )(4) | (6,610,247 | ) | |||||||||||
Income (loss) from operations before income taxes | 27,285,585 | (10,930 | ) | 1,999,761 | 29,296,276 | |||||||||||||||
Income taxes | 11,186 | (787 | ) | — | (8 | ) | 11,973 | |||||||||||||
Net Income (loss) | $ | 27,274,399 | $ | (10,143 | ) | $ | 1,999,761 | $ | 29,284,303 | |||||||||||
Computation of income (loss) applicable | ||||||||||||||||||||
to common shareholders | ||||||||||||||||||||
Net income (loss) before preferred dividends | $ | 27,274,399 | $ | (10,143 | ) | $ | 1,999,761 | $ | 29,284,303 | |||||||||||
Preferred dividends | (1,521,477 | ) | — | — | (1,521,477 | ) | ||||||||||||||
Net income (loss) attributable to common stockholders | $ | 25,752,922 | $ | (10,143 | ) | $ | 1,999,761 | $ | 27,762,826 | |||||||||||
Net income per share attributable to common stock: | ||||||||||||||||||||
Net income per share — basic | $ | 4.63 | $ | 4.99 | ||||||||||||||||
Net income per share — diluted | $ | 1.84 | $ | 1.98 | ||||||||||||||||
Weighted-average number common shares — basic | 5,566,364 | 5,566,364 | ||||||||||||||||||
Weighted-average number common shares — diluted | 14,887,182 | 14,887,182 |
See accompanying notes to unaudited pro forma consolidated condensed financial statement
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Halo Technology Holdings, Inc.
Pro Forma Consolidated Condensed Statements of Operations
Nine months ended March 31, 2007
(Unaudited)
Pro Forma | Halo | |||||||||||||||
Halo (5) | Adjustments | Pro Forma | ||||||||||||||
Revenue | ||||||||||||||||
Licenses | $ | 2,173,216 | $ | 2,173,216 | ||||||||||||
Services | 8,907,601 | 8,907,601 | ||||||||||||||
Total revenues | 11,080,817 | 11,080,817 | ||||||||||||||
Cost of revenue | ||||||||||||||||
Cost of licenses | 528,500 | 528,500 | ||||||||||||||
Cost of services | 2,051,665 | 2,051,665 | ||||||||||||||
Total cost of revenues | 2,580,165 | 2,580,165 | ||||||||||||||
Gross Profit | 8,500,652 | 8,500,652 | ||||||||||||||
Product development | 2,993,302 | 2,993,302 | ||||||||||||||
Sales, marketing and business development | 2,222,351 | 2,222,351 | ||||||||||||||
General and administrative | 7,631,428 | 7,631,428 | ||||||||||||||
Gain on extinguishment of debt | (200,000 | ) | (200,000 | ) | ||||||||||||
Late filing penalty | 110,000 | 110,000 | ||||||||||||||
Loss before interest and fair value gain on warrants | (4,256,429 | ) | (4,256,429 | ) | ||||||||||||
Fair value gain on warrants | 7,534,884 | 7,534,884 | ||||||||||||||
Interest expense and other | (10,819,681 | ) | 2,816,227 | (6 | )(7) | (8,003,454 | ) | |||||||||
(Loss) income from continuing operations before income taxes | (7,541,226 | ) | 2,816,227 | (4,724,999 | ) | |||||||||||
Income taxes | 32,106 | — | (8 | ) | 32,106 | |||||||||||
(Loss) income from continuing operations | (7,573,332 | ) | 2,816,227 | (4,757,105 | ) | |||||||||||
Computation of (loss) income applicable to common shareholders | ||||||||||||||||
Net (loss) income from continuing operations before preferred dividends | $ | (7,573,332 | ) | $ | 2,816,227 | $ | (4,757,105 | ) | ||||||||
Preferred dividends | — | -- | — | |||||||||||||
(Loss) income from continuing operations | ||||||||||||||||
attributable to common stockholders | $ | (7,573,332 | ) | $ | 2,816,227 | $ | (4,757,105 | ) | ||||||||
Basic and diluted net loss per share | $ | (0.24 | ) | $ | (0.16 | ) | ||||||||||
Weighted-average number of common shares outstanding | 31,461,350 | 29,403,325 |
See accompanying notes to unaudited pro forma consolidated condensed financial statements.
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NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) |
(1) | Reflects the Company’s pro forma statement of operations, previously prepared when Gupta was sold on November 20, 2006 (“Gupta Pro Forma”). This Gupta Pro Forma removes the results of operations of Gupta from the Company’s results of operations for the twelve months ended June 30, 2006. Please see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on November 27, 2006. |
(2) | To remove Empagio’s historical statement of operations for the year ended June 30, 2006. |
(3) | To record the reduced interest expense for the twelve months ended June 30, 2006. The decrease in the interest expense results from the principal payment of the senior note described in the note (C) of NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET. The principal payment lowered cash interest by $1,183,441. It also results in accelerated amortization of deferred financing costs and warrant-related debt discount.. The acceleration for the deferred financing costs would have caused the previous period interest expense to increase, and the current period interest expense to decrease by $181,298. Similarly, the acceleration for the warrant-related debt discount would have caused the current period interest expense to decrease by $448,622. |
(4) | The interest expense is offset by the interest income from the installment payments due from the Buyer, which is $2,000,000. $186,400 is recorded as interest income for the twelve months ended June 30, 2006. |
(5) | Reflects the Company’s historical statement of operations as reported on 10-QSB for the nine months ended March 31, 2007, excluding the discontinued operations of Gupta and Empagio. |
(6) | To record the reduced interest expense for the nine months ended March 31, 2007. The decrease in the interest expense results from the principal payment of the senior note described in the note (C) of NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET. The principal payment lowered cash interest by $1,628,322. It also results in accelerated amortization of deferred financing costs and warrant-related debt discount. The acceleration for the deferred financing costs would have caused the previous period interest expense to increase, and the current period interest expense to decrease by $403,214. Similarly, the acceleration for the warrant-related debt discount would have caused the current period interest expense to decrease by $644,891. |
(7) | The interest expense is offset by the interest income from the installment payments due from the Buyer, which is $2,000,000. $139,800 is recorded as interest income for the nine months ended June 30, 2006. |
(8) | The Company did not record an income tax benefit because the company provided a full valuation allowance against the deferred tax asset. |
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