EXHIBIT 99.1
CYTATION CORPORATION
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
TABLE OF CONTENTS:
AUDIT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM - WHEELER, HERMAN, HOPKINS & LAGOR, PA F-1
AUDIT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -
RADIN, GLASS & CO., LLP F-2
FINANCIAL STATEMENTS:
BALANCE SHEET AS OF DECEMBER 31, 2005 AND 2004 F-3
STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005
AND 2004 F-4
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
2005 AND 2004 F-5
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005
AND 2004 F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-7-F-14
CYTATION CORPORATION
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
AUDIT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Cytation Corporation
Tampa, Florida
We have audited the accompanying balance sheets of Cytation Corporation as of
December 31, 2005 and the related statements of operations, changes in
stockholders' deficit, and cash flow for the year then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cytation Corporation at
December 31, 2005, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States.
/s/ Wheeler, Herman, Hopkins & Lagor
Wheeler, Herman, Hopkins & Lagor
Certified Public Accountants
Tampa, Florida
March 24, 2006
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
February 25, 2005
The Board of Directors and Stockholders
Cytation Corporation
Bristol, RI
We have audited the accompanying balance sheets of Cytation Corporation as of
December 31, 2004 and 2003 and the related statements of operations, changes in
stockholders' equity (deficit), and cash flow for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cytation Corporation at
December 31, 2004 and 2003, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements for the year ended December 31, 2004 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has suffered
operating losses and has a net capital deficiency that raise substantial doubt
about its ability to continue as going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result form the outcome of this uncertainty.
/s/ Radin Glass & Co., LLP
Certified Public Accountants
New York, NY
F-2
Cytation Corporation
Balance Sheet
As of December 31, 2005 and 2004
ASSETS
2005 2004
------------- -------------
CURRENT ASSETS:
Cash $ 220 $ 65,644
Notes receivable, stockholder - 10,113
Notes receivable, other - 5,000
Prepaid expenses and other current assets - 8,706
------------- -------------
Total Current Assets 220 89,463
PROPERTY AND EQUIPMENT, Net $ - $ 4,496
OTHER ASSETS:
Security deposit $ - $ 1,800
Investment - 59,718
------------- -------------
Total Other Assets - 61,518
TOTAL ASSETS $ 220 $ 155,477
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 48,416 $ 92,306
Notes payable and accrued interest 90,500 120,228
------------- -------------
Total Current Liabilities 138,916 212,534
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value, 2,000,000 shares
authorized, 982,662 and 436,165 shares issued and
outstanding respectively 982 436
Additional paid-in capital 32,723,371 32,608,451
Shares subscribed (not issued) (23,500) -
Accumulated deficit (32,839,549) (32,665,944)
------------- -------------
Total Stockholders' Deficit (138,696) (57,057)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 220 $ 155,477
============= =============
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS.
F-3
Cytation Corporation
Statements of Operations
For the Years Ended December 31,
2005 2004
---------- ----------
REVENUE
Consulting revenue - cash $ 59,114 $ 86,900
Consulting revenue - non cash - 153,468
---------- ----------
TOTAL REVENUE 59,114 240,368
COST OF REVENUE 1,738 746,896
---------- ----------
GROSS PROFIT 57,376 (506,528)
OPERATING EXPENSES:
Depreciation 1,037 3,857
Selling, general and administrative 246,533 367,007
---------- ----------
TOTAL OPERATING EXPENSES 247,570 370,864
---------- ----------
OPERATING INCOME/(LOSS) (190,194) (877,392)
OTHER INCOME (EXPENSES)
Gain on sale and distribution of investment 31,902 187,976
Loss on sale of property and equipment (4,270) -
Loss on termination of ARE agreement (5,000) -
Interest income (expenses), net (6,043) (5,298)
---------- ----------
TOTAL OTHER INCOME 16,589 182,678
---------- ----------
INCOME/(LOSS) BEFORE INCOME TAXES (173,605) (694,714)
INCOME TAX EXPENSE - 1,975
---------- ----------
NET LOSS $(173,605) $(696,689)
========== ==========
Net (Loss) Income Per Share (Basic) $ (0.18) $ (1.74)
Net (Loss) Income Per Share (Fully Diluted) $ (0.18) $ (1.74)
========== ==========
Weighted Average Common Shares Outstanding 944,306 399,915
Weighted Average Common and Common Equivalent Shares Outstanding 944,306 399,915
========== ==========
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-4
Cytation Corporation
Statements of Changes in Stockholders' Deficit
For The Years Ended December 31, 2005 and 2004
Common Stock Additional Shares Accumulated
Shares Amount Paid-in Capital Subscribed For Deficit Total
---------------- --------------- -------------- -------------- -----------
Balance - December 31, 2003 291,165 $291 $33,118,901 $ - $(31,969,255) $1,149,937
Exercise of options 25,000 25 - - - 25
Issuance of common stock for services 120,000 120 71,880 - - 72,000
Distributions - non cash - (582,330) - - (582,330)
Net loss - - - (696,689) (696,689)
------------------------------------------------------------------------------
Balance - December 31, 2004 436,165 $436 $32,608,451 $ - $(32,665,944) $ (57,057)
Exercise of options - - - - - -
Issuance of common stock 55,166 55 115,411 - - 115,466
Shares subscribed (not issued) - - - (23,500) - (23,500)
Stock dividend 491,331 491 (491) - - -
Net loss - - - (173,605) (173,605)
------------------------------------------------------------------------------
Balance - December 31, 2005 982,662 $982 $32,723,371 $ (23,500) $(32,839,549) $(138,696)
==============================================================================
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-5
Cytation Corporation
Statements of Cash Flows
For the Years Ended December 31,
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(173,605) $(696,689)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 1,036 3,856
Non-cash consulting income 64,830 (153,468)
Non-cash compensation 49,601 884,750
Gain on sales of marketable securities (31,902) (187,976)
Gain on disposal of equipment 4,270 -
Accrued interest on note payable 9,155 5,544
Write-off of note receivable-other 5,000 55,169
Changes in operating assets and liabilities:
Prepaid expenses and others 10,506 (8,706)
Accounts payable and accrued expenses (38,390) (41,794)
---------- ----------
CASH FLOW USED IN OPERATING ACTIVITIES (99,499) (139,314)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (812) (5,127)
Proceeds from sales of marketable securities - 212,824
Proceeds from disposal of equipment 2 -
Issuance of notes receivable - (5,000)
---------- ----------
CASH FLOW PROVIDED BY INVESTING ACTIVITIES (810) 202,697
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 74,267 25
Repayment of notes payable (39,382) -
---------- ----------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES 34,885 25
---------- ----------
NET INCREASE (DECREASE) IN CASH (65,424) 63,408
CASH, Beginning of Year 65,644 2,236
---------- ----------
CASH, End of Year $ 220 $ 65,644
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 14,345 $ -
========== ==========
Taxes $ - $ 1,975
========== ==========
Non-cash investing and financing activities:
Distributions of Solomon shares $ - $ 582,330
========== ==========
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-6
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
Cytation Corporation was incorporated under the laws of Delaware on November 1,
1999. Until June 20, 2001, the Company provided an extensive range of in-school
and online services directed at high school students and their parents, high
school counselors, college admissions officers and corporations which target
with the teen marketplace. On June 20, 2001, the Company sold all of its assets
associated with these activities to TMP Worldwide Inc. for approximately $7.2
million in cash and debt assumed.
During the period commencing with the fourth quarter of 2002 and ending in
December 2004, the Company engaged in the business of providing consulting and
related services to private companies that wish to become reporting companies
under the Securities Exchange Act of 1934. In the first quarter of 2005, the
Company discontinued all business operations except finding an appropriate
private entity with which it could acquire or enter into a similar transaction
with. On January 18, 2006, the Company entered into the Securities Purchase and
Share Exchange Agreement, which resulted in a change of control of the Company
followed simultaneously with an acquisition of a private company. See
"Subsequent Events".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES- The Company's financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets ranging from three to seven years for equipment, auto and furniture.
Leasehold improvements are amortized over the term of the lease or the estimated
life of the improvement, whichever is shorter. Whenever assets are sold or
retired, their cost and related accumulated depreciation are removed from the
appropriate accounts. Any gains and losses on dispositions are recorded in
current operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts reported in the
balance sheet for cash, short-term loan, accounts payable and accrued expenses
approximate fair value based on the short-term maturity of these instruments.
INCOME TAXES - The Company utilizes the liability method of accounting for
income taxes as set forth in SFAS 109, "Accounting for Income Taxes." Under the
liability method, deferred taxes are determined based on the difference between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
F-7
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
REVENUE RECOGNITION - Revenues were recognized when services are performed and
the earnings process is completed.
EMPLOYEE STOCK OPTIONS AND SHARES ISSUED FOR SERVICES - The Company accounts for
employee stock transactions in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has adopted the pro forma disclosure
requirements of SFAS 123, "Accounting for Stock-Based Compensation."
Accordingly, any excess of fair market value of stock issued to employees over
exercise prices has been recorded as compensation expense and additional paid in
capital.
EARNING (LOSS) PER SHARE - The Company adopted the provision of SFAS No. 128,
"Earnings per Share". SFAS No. 128 eliminates the presentation of primary and
fully dilutive earnings per share ("EPS") and requires presentation of basic and
diluted EPS. Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS is based on the weighted-average number of shares of common
stock and common stock equivalents outstanding for the period. Common stock
equivalents.
REPORTING OF SEGMENTS - The Company adopted No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes the criteria
for determining an operating segment and establishes the disclosure requirements
for reporting information about operating segments. The Company had determined
that under SFAS No. 131, it operated in one segment of service.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for NonmonetaryTransactions." The
amendments made by Statement 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The FASB believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the FASB believes
this statement produces financial reporting that more faithfully represents the
economics of the transactions. SFAS 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of SFAS 153 shall
be applied prospectively. The Company has evaluated the impact of the adoption
of SFAS 153, and does not believe the impact will be significant to the
company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". SFAS 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. SFAS 123(R) covers a wide
range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123,
"Accounting for Stock-Based Compensation", and supersedes APB Opinion No. 25,
F-8
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
"Accounting for Stock Issued to Employees". SFAS 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
SFAS 123(R) as of the first interim or annual reporting period that begins after
June 15, 2005. For public entities that file as small business issuers SFAS
123(R) is applicable as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The Company evaluated the
impact of the adoption of SFAS 123(R), and believes that the impact will be
insignificant to the company's overall results of operations and financial
position.
In December 2004 the Financial Accounting Standards Board issued two FASB Staff
Positions-FSP FAS 109-1, Application of FASB Statement 109 "Accounting for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. Neither of these affected the Company as it
does not participate in the related activities.
3. NOTES RECEIVABLE, STOCKHOLDERS AND OTHERS
2005 2004
------ -------
Note receivable from stockholders,
non-interest bearing and due on demand. $ -- $10,113
Note receivable from an unrelated entity, due on demand without -- 5,000
interest. ------ -------
Total $ -- $15,113
====== =======
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2005 and 2004 consist of the following:
Estimated
2005 2004 Useful Lives
----- ------- ------------
Computer and equipment $ -- $47,945 3 years
Leasehold Improvements -- 10,414 7 years
----- -------
Sub-total -- 58,359
Less: accumulated depreciation -- 53,863
----- -------
Property and Equipment, Net $ -- $ 4,496
===== =======
Depreciation expense for the years ended December 31, 2005 and 2004 was $1,037
and $3,857, respectively.
5. STOCKHOLDERS' EQUITY
AUTHORIZED SHARES-The Company's authorized shares consisted of 3,140,000 shares,
divided into 2,000,000 shares of common stock, par value $.001 per share and
1,140,000 shares of preferred stock, par value $.01 per share. As of December
31, 2005 the Company had 982,662 shares of common stock issued and outstanding.
F-9
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
ISSUANCE OF COMMON STOCK - On February 14, 2005, the Company authorized the
issuance for no consideration of 1,666 shares to Bost & Co., an unaffiliated
third party, in settlement of a prior investment.
Also on February 14, 2005, the Company authorized the issuance for nominal
consideration of 15,000 restricted shares of its common stock to Richard Parke
in consideration of his agreement to serve as a director of the Company. The
Company recorded an expense of $20,333 in connection with the issuance of these
shares.
On March 4, 2005, the Company agreed to issue 23,500 of its common shares to an
unaffiliated third party for $23,500 in cash and a warrant to purchase 20,000
shares of the common stock of Solomon Technologies, Inc ("Solomon Warrant"). All
of these shares were issued on June 30, 2005 when the market price of the
Company's common stock was $1.22 per share. On September 1, 2005, the Solomon
Warrant was issued and $2,634 was recorded as a reduction of paid-in capital
based on the Black-Scholes option valuation model.
On November 14, 2005, the Company issued 10,000 restricted shares of its common
stock for $1.00 a share to an unaffiliated third party and issued 5,000
restricted shares of its common stock to Foley Hoag LLP in reduction of
approximately $45,000 of indebtedness. Foley Hoag agreed to reduce its then
outstanding liability to $85,000 with scheduled payments of $14,167 on February
1, February 15, March 15, April 15, May 15, and June 15, 2006. The agreement
was verbally agreed to in November 2005 and subsequently signed on January 4,
2006.
The Board of Directors of the Company declared a 2-for-1 stock dividend for
stockholders of record on November 14, 2005. The "payment" date for this
dividend is November 23, 2005. All shares and per share amounts have been
retroactively restated to reflect this stock dividend.
In November 2005, the Company entered into a letter of intent to acquire an
unrelated private company. The Company will be the surviving corporation, but
the business, ownership and management of the Company will change. In connection
with the proposed acquisition, the Company will authorize additional shares of
common stock and preferred stock expected to be issued in the transaction,
declare a 2-or-1stock dividend, and issue to third party's stockholders newly
issued shares of its preferred stock. The third party paid the Company $10,000
upon completion of due diligence and agreed to assume and to pay approximately
$120,000 of the Company's liabilities at the closing of the transaction. After
the transaction, stockholders of the third party will own approximately 94% of
the total issued and outstanding securities of the Company.
WARRANTS-The following table summarizes the changes in warrants outstanding and
related price ranges are as follows:
Weighted Average
Shares Exercise Price
------- ---------------
Outstanding at December 31, 2004 1,466 990.00
Granted --
Exercised --
Expired or cancelled (1,466) (990.00)
-------
Outstanding at December 31, 2005 --
=======
F-10
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
No options have been granted to employees during the year ended December 31,
2005 and 2004. Therefore, if the Company had recognized compensation cost for
the employee stock options in accordance with SFAS No. 123, the Company's pro
forma net income (loss) and earning (loss) per share would have been the same as
the net income (loss) and earning (loss) per share as reported on the
accompanying statements of operations.
6. COMMITMENTS AND CONTINGENCIES
The Company rented its office on a month-to-month basis. Rent expense was
approximately $11,592 and $11,000 for the years ended December 31, 2005 and
2004, respectively.
During the first quarter of 2005, the Company reviewed business opportunities
resulting from its status as a Business Development Company under the Investment
Company Act of 1940 and evaluated other courses of action. On April 8, 2005, the
Company entered into a letter of intent with Evolve Oncology, Inc. ("Evolve") to
effect a reverse merger with Evolve. The Company terminated this letter of
intent on August 4, 2004.
7. INCOME TAXES
At December 31, 2005 and 2004, the Company had net operating loss carryforwards
of approximately $19,700,000 and $19,500,000, expiring 2011 through 2025. SFAS
No. 109 additionally requires the establishment of a valuation allowance to
reflect the likelihood of realization of deferred tax assets. At December 31,
2005 and 2004, a valuation allowance for the full amount of the deferred tax
asset was recorded because of operating losses incurred and the uncertainties as
to the amount of taxable income that would be generated in the future years. In
addition, the utilization of such net operating losses is subject to certain
limitations under Federal income tax laws.
The components of the net deferred tax asset consist of the following at
December 31, 2005 and 2004:
2005 2004
------------------ ------------
Net operating loss carryforwards $ 6,895,000 $ 6,825,000
Valuation allowance (6,895,000) (6,825,000)
------------------ ------------
$ -- $ --
================== ============
The provision for income taxes differs from the amount computed applying the
statutory federal income tax rate to income before income taxes as follows as of
December 31, 2005 and 2004:
2005 2004
-------------- ----------
Income tax (benefit) computed at statutory rate at 35% $ (70,000) $(240,000)
Utilization of NOL -
Tax benefit not recognized 70,000 240,000
-------------- ----------
Provision for income taxes $ - $ -
=============== ==========
8. INVESTMENT/NON-CASH INCOME:
By agreement of the majority board of directors, on September 1, 2005, the
Company entered into a settlement agreement with HTA whereby HTA issued to the
Company an additional 196,456 shares of its common stock and an additional
49,114 warrants. The HTA common stock was valued at $0.25 per share, and
accordingly the Company recorded non-cash income in the amount of $49,114.
F-11
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
Based on the Black-Scholes option valuation model, the HTA warrants have zero
value with volatility of 0.01%. Therefore, the Company recorded no non-cash
income with respect to these warrants.
On September 1, 2005 the Company distributed 196,456 shares of HTA common stock
and 197,582 HTA warrants to its two officers. The Company recorded compensation
expense on the distribution of the HTA shares in the amount of $49,114 and,
based the zero value of the HTA warrants under the Black-Scholes valuation
model, no compensation expense for the HTA warrants was recorded.
9. SUBSEQUENT EVENTS
On January 18, 2006, the Company entered into the Securities Purchase and
Share Exchange Agreement, (the "Securities Purchase and Share Exchange
Agreement") by and among the Company, Richard A. Fisher, an individual, and
Kevin J. High, certain purchasers of the Company's Series A Convertible
Preferred Stock (as defined below), DVA, the shareholders of DVA, and Vicis
Capital Master Fund (the "Lender").
On January 18, 2006, the Company entered into the Investor Rights Agreement (the
"Investor Rights Agreement"), by and among the Company, each of the purchasers
of the Company's Series A Preferred Stock, each of the shareholders of DVA, and
the Lender. Pursuant to the Investor Rights Agreement, the Company (a) has
agreed to register certain securities for resale, including the Company's shares
related to the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series A Common Stock Purchase Warrants, and the
Series B Common Stock Purchase Warrants, and (b) granted pre-emptive rights to
the holders of the Company's Series A Preferred Stock.
On January 18, 2006, the Company's wholly-owned subsidiary, DeerValley
Acquisitions Corp., entered into an Earnout Agreement (the "Earnout Agreement"),
between Deer Valley Homebuilders, Inc., Deer Valley Acquisitions Corp., and
the former owners of Deer Valley Homebuilders, Inc. In connection with
the Capital Stock Purchase Agreement, the Company entered into the Earnout
Agreement, pursuant to which, additional payments may be paid to the former
owners of Deer Valley Homebuilders, Inc., as an earnout, based upon the Net
Income Before Taxes of Deer Valley Homebuilders, Inc. during the next five (5)
years up to a maximum of $6,000,000. The business purpose of executing the
Earnout Agreement was to set the purchase price of Deer Valley Homebuilders,
Inc. by an objective standard, given that the owners of DVH and the Company
could not agree on an outright purchase price. Such agreement is described in
more detail herein under Common Stock Purchase Agreement.
Pursuant to the Capital Stock Purchase Agreement dated November 1, 2005, as
amended (the "Capital Stock Purchase Agreement"), DeerValley Acquisitions
Corp., a wholly owned subsidiary of the Company, acquired, immediately after
completion of the Series A Financing and the Share Exchange, one hundred percent
(100%) of the issued and outstanding capital stock of Deer Valley Homebuilders,
Inc. Upon completion of the acquisition of the capital stock of Deer Valley
Homebuilders, Inc., Deer Valley Homebuilders, Inc. became an indirect wholly
owned subsidiary of the Company. See discussion below for description of Deer
Valley Homebuilders, Inc.'s business, operations, assets, and financial
information.
In order to effectuate the Capital Stock Purchase Agreement, Cytation
Corporation completed a series of tranactions exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of the Act for transactions not involving a public offering and Rule 506
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended. As of the date of these financials, the
Company has closed on a private placement of approximately 7,456,215 shares of
Series A Preferred Stock. Pursuant to the Securities Purchase and Share
Exchange Agreement, dated as of January 18, 2006, the Company (a) issued and
sold to the Purchasers, and the Purchasers purchased from the Company, (a)
Series A Preferred Stock, (b) Series A Common Stock Purchase
F-12
CYTATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004
(AUDITED)
Warrants, and (c) Series B Common Stock Purchase Warrants. Also on January 18,
2006, the Company completed a share exchange pursuant to which the Company
acquired 100% of the issued and outstanding capital stock of Deer Valley
Acquisitions, Corp. Pursuant to the Share Exchange Agreement, in exchange for
100% of the issued and outstanding common stock of Deer Valley Acquisitions,
Corp., the Company issued the following securities to the shareholders of Deer
Valley Acquisitions, Corp.: (a) Series B Preferred Stock, (b) Series C Preferred
Stock, and (c) Series C Common Stock Purchase Warrants.
In connection with the Securities Purchase and Share Exchange Agreement, on
January 18, 2006, the Company issued to the Lender an Interest Bearing
Non-Convertible Installment Promissory Note ("the Note"), in the original
principal amount of One Million Five Hundred Thousand and No/100 Dollars
($1,500,000), together with interest accruing thereon at an annual rate of
twelve percent (12%) per annum. The business purpose of executing the Note was
to fund the acquisition of Deer Valley Homebuilders, Inc. On March 17, 2006 the
Lender decided to convert its $1,500,000 promissory note that was issued in
January 2006.
Pursuant to the terms of the Debt Exchange Agreement, the Company issued the
Lender its Series A Convertible Preferred Stock, Series A Warrants, and Series B
Warrants to the investor, in exchange for the retirement of its obligations to
repay such promissory note.
The company no longer has any office lease obligations on a month by month
basis.
In January 2006, the Company issued 17,338 to Sequence Advisors Corporation, an
affiliate of two former directors.
On November 14, 2005, the Company issued 5,000 (pre-split) restricted shares of
its common stock to Foley Hoag LLP in reduction of approximately $45,000 of
indebtedness. Foley Hoag agreed to reduce its then outstanding liability to
$85,000 with scheduled payments of $14,167 on February 1, February 15, March 15,
April 15, May 15, and June 15, 2006. The agreement was verbally agreed to in
November 2005 and subsequently signed on January 4, 2006. As of the date of
these statements all required payments under such obligation have been made.
On January 18, 2006, DeerValley Acquisitions, Corp., a wholly-owned subsidiary
of Cytation Corporation, acquired 100% of the issued and outstanding capital
stock of Deer Valley Homebuilders, Inc. The results of Deer Valley Homebuilders,
Inc. will be included in consolidated financial statements for periods after
January 18, 2006. Deer Valley Homebuilders, Inc. is an Alabama corporation with
its business offices located at 205 Carriage Street, P.O. Box 310, Guin, Alabama
35563 and is engaged in the production, sale and marketing of manufactured homes
in the southeastern and south central U.S. housing market. Cytation Corporation
purchased Deer Valley Homebuilders, Inc. to serve as its primary operating
company and to gain entry into the manufactured home market. Deer Valley
Homebuilders, Inc. comprises substantially all of Cytation Corporation's
operations.
The aggregate purchase price for Deer Valley Homebuilders, Inc. was $6,000,000,
including $5,500,000 cash and $500,000 of Cytation Corporation's Series A
Convertible Preferred Stock, Series A Common Stock Purchase Warrants, and Series
B Common Stock Purchase Warrants. In addition, an Earnout Agreement was entered
into, pursuant to which additional payments may be paid to the former owners of
Deer Valley Homebuilders, Inc., as an earnout, based upon the Net Income Before
Taxes of Deer Valley Homebuilders, Inc. during the next five (5) years, up to a
maximum of $6,000,000. The value of the Series A Convertible Preferred Stock,
Series A Common Stock Purchase Warrants, and Series B Common Stock Purchase
Warrants were determined in a private offering also completed on January 18,
2006.
F-13
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.
AT DECEMBER 31, 2005
Current assets $ 6,398,562
Property, plant, and equipment 1,611,531
Goodwill 3,236,994
---------
Total assets acquired $11,247,087
-----------
Current liabilities (3,879,939)
Long-term debt (1,367,148)
------------
Total liabilities assumed ($ 5,247,087)
-------------
Net assets acquired $ 6,000,000
=============
The $3,236,994 of goodwill is expected to be deductible for tax purposes.
F-14