EXHIBIT 99.2
DEERVALLEY ACQUISITIONS CORP.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
(AUDITED)
TABLE OF CONTENTS:
AUDIT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS:
BALANCE SHEET AS OF DECEMBER 31, 2005 F-2
STATEMENT OF OPERATIONS FOR THE PERIOD FROM DATE OF INCEPTION
(JUNE 22, 2005) THROUGH DECEMBER 31, 2005 F-3
STATEMENT OF STOCKHOLDERS' DEFICIT FROM DATE OF INCEPTION
(JUNE 22, 2005) THROUGH DECEMBER 31, 2005 F-4
STATEMENT OF CASH FLOWS FROM DATE OF INCEPTION (JUNE 22, 2005)
THROUGH DECEMBER 31, 2005 F-5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-6-F-10
DEERVALLEY ACQUISITIONS CORP.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
(AUDITED)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
DeerValley Acquisitions Corp.
We have audited the accompanying balance sheet of DeerValley Acquisitions Corp.
as of December 31, 2005, and the related statements of operations, stockholders'
deficit and cash flows for the period from the date of inception (June 22, 2005)
through December 31, 2005. 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 the 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. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 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 DeerValley Acquisitions Corp.
as of December 31, 2005 and results of its operations and its cash flows for the
period from the date of inception (June 22, 2005) through December 31, 2005, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Wheeler, Herman, Hopkins & Lagor
Wheeler, Herman, Hopkins & Lagor
Certified Public Accountants
Tampa, Florida
March 24, 2006
F-1
DEERVALLEY ACQUISITIONS CORP.
Balance Sheet
As of December 31, 2005
ASSETS
2005
---------
CURRENT ASSETS:
Cash $ 36
---------
Total Current Assets 36
TOTAL ASSETS $ 36
=========
LIABILITIES AND STOCKHOLDERS'DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 6,446
Loan from stockholder 195
---------
Total Current Liabilities 6,641
STOCKHOLDERS' EQUITY(DEFICIT):
Common stock, no par value, 30,000,000
shares authorized, 7,620,100 -
Additional paid-in capital 44,010
Accumulated deficit (50,615)
---------
TOTAL STOCKHOLDERS'DEFICIT (6,605)
TOTAL LIABILITIES AND STOCKHOLDERS'DEFICIT $ 36
=========
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-2
DEERVALLEY ACQUISITIONS CORP.
Statement of Operations
For The Period From Inception (June 22, 2005) Through December 31, 2005
OPERATING EXPENSES:
Selling, general and administrative $ 50,615
-----------
TOTAL OPERATING EXPENSES (50,615)
-----------
LOSS BEFORE INCOME TAXES (50,615)
INCOME TAX EXPENSE -
NET LOSS $ (50,615)
===========
Net (Loss) Income Per Share (Basic) $ (0.01)
Net (Loss) Income Per Share (Fully Diluted) $ (0.01)
===========
Weighted Average Common Shares Outstanding 7,620,100
Weighted Average Common and Common Equivalent Shares Outstanding 7,620,100
===========
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-3
DEERVALLEY ACQUISITIONS CORP
Statements of Change in Stockholders' Deficit
For The Period From Inception (June 22, 2005) Through December 31, 2005
Common Stock Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
----------------------- --------------- ----------- --------
Balance - June 22, 2005 - $ - $ - $ - $ -
Issuance of common stock 7,620,100 - 44,010 - 44,010
Net loss - - (50,615) (50,615)
-----------------------------------------------------------------
Balance - December 31, 2005 7,620,100 $ - $ 44,010 $ (50,615) $(6,605)
=================================================================
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-4
DEERVALLEY ACQUISITIONS CORP.
Statement of Cash Flows
For The Period From Inception (June 22, 2005) Through December 31, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(50,615)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in accounts payable and accrued expenses 6,446
---------
CASH FLOW USED IN OPERATING ACTIVITIES (44,169)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from stockholder 195
Proceeds from issuance of common stock 44,010
---------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES 44,205
---------
NET INCREASE IN CASH 36
CASH, Beginning of Year -
---------
CASH, End of Year $ 36
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ -
=========
Taxes $ -
=========
SEE REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND NOTES TO
FINANCIAL STATEMENTS
F-5
DeerValley Acquisitions Corp.
Notes to Financial Statements
December 31, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
DeerValley Acquisitions Corp. (the "Company") was incorporated in Florida on
June 22, 2005.
The Company was formed for the sole purpose of acquiring the rights to purchase
Deer Valley Homebuilders, Inc.
On January 18, 2006, the Company was party to a share purchase agreement with
Deer Valley Homebuilders, Inc., a Alabama corporation and a share exchange
agreement with Cytation Corp., a Delaware corporation with executive offices in
Rhode Island. (See Note 6.)
Revenue Recognition
The Company recognizes revenue when services are provided. The Company currently
has no revenue and anticipates no revenue in the near future.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at estimated net realizable value. Accounts
receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts. In determining collectibility, historical
trends are evaluated and specific customer issues are reviewed to arrive at
appropriate allowances.
Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2005. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable and notes payable. Fair values were
assumed to approximate carrying values for these financial instruments because
they are short term in nature and their carrying amounts approximate fair
values.
Long Lived Assets
The carrying value of long-lived assets is reviewed on a regular basis for the
existence of facts and circumstances that suggest impairment. The Company will
measure the amount of any impairment based on the amount that the carrying value
of the impaired assets exceed the undiscounted cash flows expected to result
from the use and eventual disposal of the impaired assets. At December 31, 2005,
no impairment of long-lived assets was deemed appropriate.
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.
F-6
DeerValley Acquisitions Corp.
Notes to Financial Statements
December 31, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
Advertising costs are charged to expense as incurred. Advertising costs are
included in selling, general and administrative expenses were $0 during 2005.
Segment Information
The Company follows SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information". Certain information is disclosed, per SFAS 131, based on
the way management organizes financial information for making operating
decisions and assessing performance. The Company currently operates in a single
segment and will evaluate additional segment disclosure requirements as it
expands its operations.
Income Taxes
The Company follows SFAS 109 "Accounting for Income Taxes" for recording the
provision for income taxes. Deferred tax assets and liabilities are computed
based upon the difference between the financial statement and income tax basis
of assets and liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in
the period of change.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment." SFAS
123(R) amends SFAS 123, "Accounting for Stock-Based Compensation," and APB
Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123(R) requires
that the cost of share-based payment transactions (including those with
employees and non-employees) be recognized in the financial statements. SFAS
123(R) applies to all share-based payment transactions in which an entity
acquires goods or services by issuing (or offering to issue) its shares, share
options, or other equity instruments (except for those held by an ESOP) or by
incurring liabilities (1) in amounts based (even in part) on the price of the
entity's shares or other equity instruments, or (2) that require (or may
require) settlement by the issuance of an entity's shares or other equity
instruments. This statement is effective (1) for public companies qualifying as
SEC small business issuers, as of the first fiscal year beginning after December
15, 2005, or (2) for all other public companies, as of the first fiscal year or
interim period beginning after June 15, 2005, or (3) for all nonpublic entities,
as of the first fiscal year beginning after December 15, 2005. Management does
not expect adoption of SFAS 123(R) to have a material impact on the Company's
financial statements.
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets,"
an amendment to Opinion No. 29, "Accounting for Nonmonetary Transactions."
Statement 153 eliminates certain differences in the guidance in Opinion No. 29
as compared to the guidance contained in standards issued by the International
Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair
value exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. Such an exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring
in periods beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in periods beginning after December 16,
2004. Management does not expect adoption of SFAS 153 to have a material
F-7
DeerValley Acquisitions Corp.
Notes to Financial Statements
December 31, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impact on the Company's financial statements.
In December 2004 the Financial Accounting Standards Board issued two FASB
Staff Positions-FSP FAS109-1, 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
NOTE 2. BASIS OF REPORTING
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The Company has had limited operating experienced. Significant losses from
operations are not expected as a result of continued operations. For the year
ended December 31, 2005, the Company incurred a net loss of $50,615 and has a
stockholders' deficit of $6,605 at December 31, 2005.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NOTE 3. LOANS FROM STOCKHOLDERS
Loans from stockholders reflect the net balance due to its affiliates at
December 31, 2005, which amounted to $ 195.
NOTE 4. INCOME TAXES
The Company accounts for income taxes under SFAS 109, which requires use of the
liability method. SFAS 109 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as temporary differences. Deferred tax assets and liabilities at the
end of each period are determined using the currently enacted tax rates applied
to taxable income in the periods in which the deferred tax assets and
liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:
Income tax provision at the federal statutory rate 34%
- --------------------------------------------------------------------
Effect of operating losses (34)%
- --------------------------------------------------------------------
-
- --------------------------------------------------------------------
No benefit from the Company's operating losses has been allocated to the Company
from the consolidated group. No recognition of the future benefit of the
accumulated operating losses has made in connection with the change in ownership
of the Company's assets as described in Note 6.
F-8
DeerValley Acquisitions Corp.
Notes to Financial Statements
December 31, 2005
NOTE 5. COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases:
The Company has never had and currently has no operating or capital leases as of
December 31, 2005.
Litigation:
During the periods covered by these financial statements the Company has not
been involved in litigation resulting from its normal business operations. The
Company does not believe that there is any pending or potential litigation that
could have a material impact on its financial condition or results of operation.
NOTE 6. SUBSEQUENT EVENTS
On January 18, 2006, Cytation Corporation entered into the Securities Purchase
and Share Exchange Agreement, (the "Securities Purchase and Share
Exchange Agreement") by and among Cytation Corporation, Richard A. Fisher,
an individual, and Kevin J. High, certain purchasers of Cytation
Corporation'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, Cytation Corporation entered into the Investor Rights
Agreement (the "Investor Rights Agreement"), by and among Cytation
Corporation, each of the purchasers of Cytation Corporation's Series A
Preferred Stock, each of the shareholders of DVA, and the Lender. Pursuant to
the Investor Rights Agreement, Cytation Corporation (a) has agreed to
register certain securities for resale, including Cytation Corporation'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 Cytation Corporation's Series A
Preferred Stock.
On January 18, 2006, Cytation Corporation'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, Cytation Corporation
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
Cytation Corporation could not agree on an outright purchase price. Such
agreement is described in more detail herein under Capital 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 Cytation Corporation, 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 Cytation Corporation.
In order to effectuate the Capital Stock Purchase Agreement, Cytation
Corporation completed a series of transactions 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,
Cytation Corporation has closed on a private placement of approximately
7,456,215 shares of Series A Preferred Stock. Pursuant to the Securities
F-9
DeerValley Acquisitions Corp.
Notes to Financial Statements
December 31, 2005
NOTE 6. SUBSEQUENT EVENTS (CONTINUED)
Purchase and Share Exchange Agreement, dated as of January 18, 2006, Cytation
Corporation (a) issued and sold to the Purchasers, and the Purchasers purchased
from Cytation Corporation, (a) Series A Preferred Stock, (b) Series A Common
Stock Purchase Warrants, and (c) Series B Common Stock Purchase Warrants. Also
on January 18, 2006, Cytation Corporation completed a share exchange pursuant to
which Cytation Corporation 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., Cytation Corporation 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, Cytation Corporation 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, Cytation
Corporation 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.
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.
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
-----------
F-10
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-11