UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION STATEMENT
(Rule 14c-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information Statement
CYTATION CORP.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules l4c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRELIMINARY AMENDED INFORMATION STATEMENT
DATED: June 2, 2006
CYTATION CORP.
4902 EISENHOWER BLVD., SUITE 185
TAMPA, FL 33634
(813) 885-5998
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement is furnished by the Board of Directors of
Cytation Corp. (the "Company") to provide notice of a special meeting of
stockholders of the Company which will be held on June , 2006 at 2:00 p.m. at
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4902 Eisenhower Blvd., Suite 185 for the purpose of electing directors, amending
the Company's Certificate of Incorporation, increasing the Company's authorized
common and preferred stock, changing the name of the Company, and changing the
domicile of the Company. This special meeting of the stockholders of the Company
is not in lieu of the Company's annual meeting.
The record date for determining stockholders entitled to receive this
Information Statement has been established as the close of business on June 5,
2006 (the "Record Date"). This Information Statement will be first mailed on or
about June , 2006 to stockholders of record at the close of business on the
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Record Date.
ONLY THE COMPANY'S SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON THE
RECORD DATE ARE ENTITLED TO NOTICE OF THE PROPOSALS. PRINCIPAL SHAREHOLDERS WHO,
AS OF THE RECORD DATE, WILL COLLECTIVELY HOLD IN EXCESS OF 50% OF THE COMPANY'S
ISSUED AND OUTSTANDING SHARES ENTITLED TO VOTE ON THE PROPOSALS HAVE INDICATED
THAT THEY WILL VOTE IN FAVOR OF THE PROPOSALS. AS A RESULT, THE PROPOSALS SHOULD
BE APPROVED WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER SHAREHOLDERS OF THE
COMPANY.
This is a fourth amendment to the Preliminary Schedule 14C filed with the
SEC on February 3, 2006 and amended on February 14, 2006, April 6, 2006, and May
9, 2006 . All changes to the third amendment to the Preliminary Schedule 14C are
indicated with revisionmarks, , just as in this paragraph.
BY ORDER OF THE BOARD OF DIRECTORS
/S/CHARLES G. MASTERS
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CHARLES G. MASTERS
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
TAMPA, FLORIDA
June 2, 2006
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PRELIMINARY AMENDED INFORMATION STATEMENT
DATED: June 2, 2006
CYTATION CORP.
4902 EISENHOWER BLVD., SUITE 185
TAMPA, FL 33634
(813) 885-5998
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement contains information related to certain
corporate actions of Cytation Corporation, a Delaware corporation (the
"Company"), and is expected to be mailed to shareholders on or about June ,
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2006. Unless otherwise indicated or the context otherwise requires, all
references below in this Information Statement to "we," "us" and the "Company"
are to Cytation Corporation, a Delaware corporation, together with its
wholly-owned subsidiaries, Deer Valley Acquisitions Corp., a Florida
corporation, and Deer Valley Homebuilders, Inc., an Alabama corporation.
Specific discussions or comments relating to Cytation Corporation will reference
the "Company," those relating to Deer Valley Acquisitions Corp. will reference
"DVA", and those relating to Deer Valley Homebuilders, Inc. will be referred to
as "Deer Valley."
ABOUT THE INFORMATION STATEMENT
WHAT IS THE PURPOSE OF THE INFORMATION STATEMENT?
This Information Statement is being provided pursuant to Section 14 of the
Securities Exchange Act of 1934 to notify the Company's shareholders, as of the
close of business on the Record Date, of corporate action expected to be taken
at the Company's special meeting of shareholders following the acquisition
described in the Summary Term Sheet below. The acquisition of Deer Valley
Homebuilders, Inc. was completed on January 18, 2006. In connection with this
transaction, it is proposed that we amend our Certificate of Incorporation to
authorize more shares of common and preferred stock. This requires the approval
of both the holders of a majority of the issued and outstanding shares of the
Company's common stock and our Board of Directors.
SUMMARY OF TERMS
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ACQUIRER: Deer Valley Acquisitions, Corp., a Florida corporation
and a wholly-owned subsidiary of Cytation Corporation, a
Delaware corporation.
ACQUIRED
COMPANY: Deer Valley Homebuilders, Inc., an Alabama corporation.
FORM OF
ACQUISITION: Acquisition of 100% of the issued and outstanding
capital stock of Deer Valley Homebuilders, Inc.
PURCHASE PRICE: $6,000,000 cash paid at closing. Up to an additional
$6,000,000 may be paid to the former shareholders of Deer
Valley Homebuilders, Inc. pursuant to an earn-out agreement
(the "Deferred Purchase Price"). The Deferred Purchase Price
is paid over a five year term and is based upon the
financial performance of Deer Valley Homebuilders, Inc.
FINANCING: Of the $6,000,000 cash paid at closing, $1,500,000
originated from a promissory note payable by Cytation
Corporation. The remainder of the purchase price originated
from a private placement of Cytation securities, pursuant to
Rule 506 promulgated under Section 4(2) the Securities Act
of 1933, as amended.
MANAGEMENT: Pursuant to long-term Employment Agreements, the
existing management of Deer Valley Homebuilders, Inc. will
continue to manage the day to day operations of Deer Valley
Homebuilders, Inc.
PURCHASE AGREEMENT: The Purchase Agreement provides for standard
representations and warranties as to the condition of Deer
Valley Homebuilders, Inc.
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DESCRIPTION OF
BUSINESS: Deer Valley Homebuilders, Inc. was founded in January,
2004 and is a manufacturer of factory-built homes for the
southeastern and south central housing markets in the United
States. As of the date of the closing, Deer Valley
manufactured all of its factory-built homes from a single
manufacturing facility located in Guin, Alabama. As of the
date of the closing, Deer Valley was selling manufactured
homes in 14 states through its network of independent
dealers and retail centers.
LOCATION: Deer Valley has its business offices located at 205
Carriage Street, P.O. Box 310, Guin, Alabama 33563.
ADDITIONAL
INFORMATION: For more complete information, see below, "DESCRIPTION
OF BUSINESS" and "CHANGE IN CONTROL AND ACQUISITION" in this
Information Statement.
WHEN WILL THE SPECIAL MEETING OCCUR AND WHAT BUSINESS WILL BE CONDUCTED AT THE
MEETING?
Shareholders holding in excess of fifty percent (50%) of the Company's
outstanding capital stock are expected to act upon certain corporate matters
outlined in this Information Statement, which action is expected to take place
at the meeting on June , 2006.
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Notice is hereby given that the Special Meeting of Stockholders (the
"Meeting") of Cytation Corporation, a Delaware corporation, will be held at the
Company's offices, located at 4902 Eisenhower Blvd., Suite 185, Tampa, Florida
33634, on June , 2006 at 2:00 p.m., Eastern Daylight Savings Time, for the
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following purposes:
1. To elect each of Hans Beyer, John Giordano, and Dale Phillips as
directors to serve until the next annual meeting of the shareholders
in the years in which their terms expire and until their successors
are elected and qualified, or until their earlier resignation, removal
from office, or death;
2. To approve an amendment to the Company's Certificate of
Incorporation to increase the authorized preferred stock, par value
$.01 per share, of the Company from 1,140,000 shares to 10,000,000
shares;
3. To approve an amendment to the Company's Certificate of
Incorporation to increase the authorized common stock, par value $.001
per share, of the Company from 2,000,000 shares to 100,000,000 shares;
4. To approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company to Deer Valley
Corporation.;
5. To approve a merger with a Florida corporation, solely for
purposes of establishing the Company's domicile in Florida; and
6. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
WHO IS ENTITLED TO NOTICE?
Each holder of an outstanding share of common or preferred stock of record
on the close of business on the Record Date will be entitled to notice of each
matter to be voted upon.
WHAT CORPORATE MATTERS WILL THE PRINCIPAL SHAREHOLDERS VOTE FOR AND HOW WILL
THEY VOTE?
Shareholders holding a majority of the outstanding capital stock have
indicated that they will vote for the following matters:
FOR the election of each of Hans Beyer, John Giordano, and Dale Phillips to
serve as directors of Cytation Corporation until the next annual meeting of
shareholders in the years in which their terms expire and until their successors
are duly elected and qualified, or until their earlier resignation, removal from
office, or death;
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FOR amending the Company's Certificate of Incorporation to increase the
authorized preferred stock, par value $.01 per share, of the Company from
1,140,000 shares to 10,000,000 shares;
FOR amending the Company's Certificate of Incorporation to increase the
authorized common stock, par value $.001 per share, of the Company from
2,000,000 shares to 100,000,000 shares of common stock;
FOR amending the Certificate of Incorporation to change the name of the
Company to Deer Valley Corporation; and
FOR approving a merger with a Florida corporation, solely for purposes of
establishing the Company's domicile in Florida.
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL?
ELECTION OF HANS BEYER, JOHN GIORDANO, AND DALE PHILLIPS. The election of
Messrs. Beyer, Giordano, and Phillips will require the affirmative vote of a
majority of the shares of capital stock outstanding on the Record Date.
Directors are required to be elected by a majority of the votes cast.
Shareholders holding in excess of fifty percent of the shares have indicated
that they will vote for the election of Messrs. Beyer, Giordano, and Phillips as
directors.
AMENDING THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED PREFERRED STOCK. For approval of the increase in preferred stock, the
affirmative vote of a majority of the shares of capital stock outstanding on the
Record Date will be required for approval.
In addition, the holders of at least fifty percent of our issued Series A
Preferred Stock, as a class, must consent to the increase. Shareholders holding
in excess of fifty percent of the shares have indicated that they will vote for
approval of the increase, and holders of at least fifty percent of our issued
and outstanding Series A Preferred Stock have indicated that they will consent
to the increase.
AMENDING THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED COMMON STOCK. For approval of an amendment to the Company's
Certificate of Incorporation to increase the authorized shares of the Company's
common stock from 2,000,000 shares to 100,000,000 shares, the affirmative vote
of a majority of the shares of capital stock outstanding on the Record Date will
be required for approval. Shareholders holding in excess of fifty percent of
the shares have indicated that they will vote for the amendment.
CHANGING THE NAME OF THE COMPANY. For approval of an amendment to the
Company's Certificate of Incorporation to change the name of the Company to Deer
Valley Corporation, the affirmative vote of a majority of the shares of capital
stock outstanding on the Record Date will be required for approval. Shareholders
holding in excess of fifty percent of the shares have indicated that they will
vote for the amendment.
CHANGING THE DOMICILE OF THE COMPANY.
For approval of a merger with a Florida corporation named Deer Valley
Corporation, solely for the purposes of establishing the Company's domicile in
Florida, the affirmative vote of a majority of the shares of capital stock
outstanding on the Record Date will be required for approval. In addition, the
holders of at least fifty percent of our issued Series A Preferred Stock, as a
class, must consent to the merger. Shareholders holding in excess of fifty
percent of the shares have indicated that they will vote for approval of the
merger, and holders of at least fifty percent of our issued and outstanding
Series A Preferred Stock have indicated that they will consent to the merger.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
There are currently six seats on the Board of Directors, four of which are
currently vacant. The Board is currently divided into three classes of
directors, each class serving staggered three-year terms. Directors hold their
positions until the annual meeting of the shareholders in the year in which
their term expires and until their respective successors are elected and
qualified or until their earlier resignation, removal from office, or death.
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Three directors are to be elected to serve until the next annual meeting of
the shareholders in the year in which their term expires and until their
successors are elected and qualified. The Board of Directors has nominated Hans
Beyer, John Giordano, and Dale Phillips to serve as directors (the "Nominees").
Mr. Christopher Portner is currently serving as a director and will resign
promptly at the special meeting. Messrs. Beyer and Phillips currently have no
role with the Company. Mr. Giordano is a shareholder in Bush Ross, P.A., which
serves as legal counsel to the Company in corporate and securities matters. The
Board of Directors has no reason to believe that any Nominee will be unable to
serve or decline to serve as a director. Any vacancy occurring between
shareholders' meetings, including vacancies resulting from an increase in the
number of directors, may be filled by the Board of Directors. A director elected
to fill a vacancy shall hold office until the next annual shareholders' meeting
in the year in which the term expires.
PROPOSAL NO. 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED PREFERRED STOCK
The Company's directors propose an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of preferred stock,
par value $.01 per share, from 1,140,000 to 10,000,000 shares of preferred
stock, par value $.01 per share.
PURPOSE OF INCREASING THE COMPANY'S AUTHORIZED SHARES OF PREFERRED STOCK
GENERAL CORPORATE PURPOSE
The Company's directors believe that it is desirable to have additional
shares of preferred stock available for other possible future financing,
possible future acquisition transactions, stock dividends, stock splits, and
other general corporate purposes. The Company's directors believe that having
such additional authorized shares of preferred stock available for issuance in
the future should give the Company greater flexibility and may allow such shares
to be issued without the expense and delay of a special shareholders' meeting.
Although such issuance of additional shares with respect to future financing and
acquisitions would dilute existing shareholders, management believes that such
transactions would increase the value of the Company to its shareholders.
The Company has plans to issue additional preferred stock in the future to
institutional or accredited investors in an offering exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) of that 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. A vote to increase the authorized
preferred stock will facilitate the Company's ability to issue additional
capital stock. Such future issuances will likely dilute current shareholders'
ownership interests in the Company.
AMENDMENT TO CERTIFICATE OF INCORPORATION
The amendment to the Company's Certificate of Incorporation provides for
the authorization of 8,860,000 additional shares of the Company's preferred
stock.
The amendment to the Company's Certificate of Incorporation shall be filed
with the Delaware Secretary of State so that Article Fourth of the Certificate
of Incorporation shall be changed as follows. The first sentence of Article
Fourth shall be deleted in its entirety and substituted with the following:
"FOURTH:The total number of shares of stock that the Corporation shall have
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authority to issue shall be 110,000,000 shares, consisting of (i) 100,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
10,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock")."
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ADVANTAGES AND DISADVANTAGES OF INCREASING AUTHORIZED SHARES
There are certain advantages and disadvantages of voting for an increase in
the Company's authorized preferred stock. The advantages include:
- The ability to raise capital by issuing capital stock under the
transactions described above or other financing transactions.
- To have shares of preferred stock available to pursue business
expansion opportunities, if any.
The disadvantages include:
- Dilution to the existing shareholders, including a decrease in
our net income per share in future periods. This could cause the
market price of our stock to decline.
- The issuance of authorized but unissued stock could be used to
deter a potential takeover of the Company which might otherwise be
beneficial to shareholders by diluting the shares held by a potential
suitor or issuing shares to a shareholder who will vote in accordance
with the desires of the Company's Board of Directors at that time. A
takeover may be beneficial to independent shareholders because, among
other reasons, a potential suitor may offer such shareholders a
premium for their shares of stock compared to the then-existing market
price. The Company does not have any plans or proposals to adopt
provisions or enter into agreements which may have material
anti-takeover consequences.
NOTICE OF INTEREST OF SENIOR MANAGEMENT OF DEER VALLEY
If Deer Valley remains profitable, certain members of the senior management
of Deer Valley will receive substantial additional payments from the acquisition
of Deer Valley. Increasing the number of authorized shares of the Company's
preferred stock will facilitate this transaction. For more information, please
see "Certain Relationships And Related Transactions," "Change in Control," and
"Off-Balance Sheet Arrangements" below.
PROPOSAL NO. 3
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED COMMON STOCK
The Company's directors propose an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock,
par value $.001 per share, from 2,000,000 to 100,000,000 shares of common stock,
par value $.001 per share.
PURPOSE OF INCREASING THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK
CONVERSION OR EXERCISE OF DERIVATIVE SECURITIES
The Company's directors believe that it is desirable to have additional
shares of common stock available in order to facilitate the conversion or
exercise of derivative securities which are convertible to common stock, such as
the Company's convertible preferred stock.
The Company does not currently have sufficient common stock to satisfy the
conversion provisions of its outstanding convertible securities. The Company
does not currently have any plans to issue common stock, other than in exchange
for its convertible securities.
GENERAL CORPORATE PURPOSE
The Company's directors believe that it is desirable to have additional
shares of common stock available for other possible future financing, possible
future acquisition transactions, stock dividends, stock splits, and other
general corporate purposes. The Company's directors believe that having such
additional authorized shares of common stock available for issuance in the
future should give the Company greater flexibility and may allow such shares to
be issued without the expense and delay of a special shareholders' meeting.
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Although such issuance of additional shares with respect to future financing and
acquisitions would dilute existing shareholders, management believes that such
transactions would increase the value of the Company to its shareholders.
AMENDMENT TO CERTIFICATE OF INCORPORATION
The amendment to the Company's Certificate of Incorporation provides for
the authorization of 98,000,000 additional shares of the Company's common stock.
The amendment to the Company's Certificate of Incorporation shall be filed
with the Delaware Secretary of State so that Article Fourth of the Certificate
of Incorporation shall be changed as follows. The first sentence of Article
Fourth shall be deleted in its entirety and substituted with the following:
"FOURTH:The total number of shares of stock that the Corporation shall have
-------
authority to issue shall be 110,000,000 shares, consisting of (i) 100,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
10,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock")."
ADVANTAGES AND DISADVANTAGES OF INCREASING AUTHORIZED SHARES
There are certain advantages and disadvantages of voting for an increase in
the Company's authorized common stock. The advantages include:
- The ability to raise capital by issuing capital stock under the
transaction described above or other financing transactions.
- To have shares of common stock available to pursue business
expansion opportunities, if any.
The disadvantages include:
- Dilution to the existing shareholders, including a decrease in
our net income per share in future periods. This could cause the
market price of our stock to decline.
- The issuance of authorized but unissued stock could be used to
deter a potential takeover of the Company which might otherwise be
beneficial to shareholders by diluting the shares held by a potential
suitor or issuing shares to a shareholder who will vote in accordance
with the desires of the Company's Board of Directors at that time. A
takeover may be beneficial to independent shareholders because, among
other reasons, a potential suitor may offer such shareholders a
premium for their shares of stock compared to the then-existing market
price. The Company does not have any plans or proposals to adopt
provisions or enter into agreements which may have material
anti-takeover consequences.
NOTICE OF INTEREST OF SENIOR MANAGEMENT OF DEER VALLEY
If Deer Valley remains profitable, certain members of the senior management
of Deer Valley will receive substantial additional payments from the acquisition
of Deer Valley. Increasing the number of authorized shares of the Company's
common stock will facilitate this transaction. For more information, please see
"Certain Relationships And Related Transactions," "Change in Control," and
"Off-Balance Sheet Arrangements" below.
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PROPOSAL NO. 4
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Company's directors propose an amendment to the Company's Certificate
of Incorporation to change the name of the Company to Deer Valley Corporation.
GENERAL
The Board of Directors approved a proposal to amend the Company's
Certificate of Incorporation to change the Company's Name to Deer Valley
Corporation. The Board further decreed that the proposal be submitted to the
shareholders.
If Proposal No. 4 is approved, the Company's corporate name will be Deer
Valley Corporation.
PURPOSE OF CHANGING THE COMPANY'S NAME
The Board of Directors has proposed the amendment to change the Company's
corporate name because it believes the new name is more synonymous with the
Company's current operations.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The amendment to the Certificate of Incorporation must be approved by a
majority of the votes cast at the special meeting of the shareholders.
The amendment to the Company's Certificate of Incorporation shall be filed
with the Delaware Secretary of State so that Article First of the Certificate of
Incorporation shall be changed as follows. The first sentence of Article First
shall be deleted in its entirety and substituted with the following:
"FIRST: The name of the corporation (the "Corporation") is: DEER VALLEY
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CORPORATION."
PROPOSAL NO. 5
MERGER WITH FLORIDA CORPORATION SOLELY FOR THE PURPOSE OF CHANGING THE DOMICILE
OF THE COMPANY
The Company's directors propose a merger with a Florida corporation solely
for the purpose of changing the domicile of the Company.
GENERAL
The Board of Directors approved a proposal to merge with a Florida
corporation. The Board further decreed that the proposal be submitted to the
shareholders. If Proposal No. 5 is approved, the Company shall be merged with
and into a Florida corporation in accordance with the applicable laws of the
States of Delaware and Florida. The name of the Florida corporation will be
"Deer Valley Corporation." The separate existence of the Company shall cease,
the Florida corporation shall be the surviving entity, and the Florida
corporation shall be governed by the laws of the State of Florida.
The Articles of Incorporation of the new Florida corporation will be
substantially similar to the current Delaware Certificate of Incorporation and
will include the amendments proposed to our Delaware Certificate of
Incorporation in this Information Statement.
See Exhibit 99.6 for the Articles of Incorporation the Board of Directors
proposes for the Florida corporation. Except for the name of the corporation and
the reference to "Articles of Incorporation" rather than to a "Certificate of
Incorporation," the Bylaws of the new Florida corporation will be identical to
the Company's current Bylaws. The Company's directors and officers elected and
appointed at or pursuant to the special meeting announced by this Information
Statement, as well as current director, Charles G. Masters, shall be the
directors and officers of the surviving Florida corporation.
Upon the effective date of the merger, by virtue of the merger and without
any action on the part of any holder thereof, each share of the Company's Common
Stock outstanding immediately prior thereto shall be changed and converted into
one fully paid and nonassessable share of the common stock of the surviving
Florida corporation, with the same rights and privileges thereto appertaining.
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Likewise, each share of the Company's Preferred Stock outstanding immediately
prior thereto shall be changed and converted into one fully paid and
nonassessable share of the preferred stock of the surviving Florida corporation,
with the same rights and privileges thereto appertaining. The Company's options
and warrants shall also shall be changed and converted into options and warrants
of the surviving Florida corporation, with the same rights and privileges
thereto appertaining.
On the effective date of the merger, the surviving Florida corporation,
without further act, deed, or other transfer, shall retain or succeed to, as the
case may be, and possess and be vested with all the rights, privileges,
immunities, powers, franchises and authority, of a public as well as of a
private nature, of the Company; all property of every description and every
interest therein, and all debts and other obligations of or belonging to or due
to the Company on whatever account shall thereafter be taken and deemed to be
held by or transferred to, as the case may be, or invested in the surviving
Florida corporation without further act or deed; title to any real estate, or
any interest therein vested in the Company, shall not revert or in any way be
impaired by reason of the merger; and all of the rights of creditors of the
Company shall be preserved unimpaired, and all liens upon the property of the
Company shall be preserved unimpaired, and all debts, liabilities, obligations,
and duties of the respective corporations shall thenceforth remain with or be
attached to, as the case may be, the surviving Florida corporation and may be
enforced against the Company to the same extent as if all of said debts,
liabilities, obligations, and duties had been incurred or contracted by the
Company.
PURPOSE OF MERGER WITH FLORIDA CORPORATION
The Board of Directors has proposed the merger solely for the purpose of
changing the domicile of the Company. The Board of Directors deem it advisable
and to the advantage of the shareholders that the Company be merged with and
into a Florida corporation for the purpose of changing the jurisdiction of
incorporation of the Company from the State of Delaware to the State of Florida.
INFORMATION DISCLOSED AS PART OF THIS INFORMATION STATEMENT
MANAGEMENT
OFFICERS AND DIRECTORS
As of June 2, 2006, the directors and executive officers of Cytation
Corporation, Inc., their ages, positions, the dates of initial election or
appointment as directors or executive officers, and the expiration of their
terms are as set forth in the following table. Please note that Joel Logan,
Charles Murphree, and John Lawler are not directors or executive officers of
Cytation Corporation but are included in this table pursuant to Rule 3b-7
because they are executive officers and/or directors of the Company's subsidiary
who perform policy-making functions.
NAME OF AGE POSITION PERIOD SERVED
DIRECTOR/EXECUTIVE
OFFICER
Charles G. Masters 66 President, Chief Executive Officer, January 18, 2006 to Present; term
and Class II Director as Class II Director expires in
2007
Christopher Portner 39 Class I Director July 2001 to Present; term as
Class I Director expires in 2006
Joel Stephen Logan, II 37 Member of the Board of Directors January 2004 to Present; term as
of Deer Valley Homebuilders, Inc., Director expires in 2006
President and General Manager of
Deer Valley Homebuilders, Inc.
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Charles L. Murphree, 44 Member of the Board of Directors April 2004 to Present; term as
Jr. of Deer Valley Homebuilders, Inc., Director expires in 2006
Vice President and Regional Sales
Director of Deer Valley
Homebuilders, Inc.
John Steven Lawler 37 Member of the Board of Directors of January 2004 to Present; term as
Deer Valley Homebuilders, Inc., Director expires in 2006
Director of Finance, Deer Valley
Homebuilders, Inc.
Hans Beyer 40 Proposed Class II Director Nominee; term would expire in
2007
John Giordano 48 Proposed Class III Director Nominee; term would expire in
2008
Dale Phillips 58 Proposed Class I Director Nominee; term would expire in
2009
DUTIES, RESPONSIBILITIES AND EXPERIENCE
CHARLES G. MASTERS, Chief Executive Officer, President and Director of
Cytation Corporation. Mr. Masters was the founder of Deer Valley Acquisitions
Corporation and, since its inception in July 2005, has served as its Chief
Executive Officer. In March 1998, Mr. Masters founded and has since served as
CEO and CFO of Bumgarner Enterprises, Inc., an oil and gas development and a
business consulting firm. Since 2001, Mr. Masters has also served as Director,
CEO and CFO of Ranger Industries, Inc., a public company, which is the sole
shareholder of Bumgarner Enterprises. Ranger Industries engages in business
consulting, due diligence research, and oil and gas exploration and development.
Mr. Masters has founded and served as the CEO and CFO of several private
companies involved in the development of military electronic communications and
test equipment, pioneering the introduction of microprocessors into point of
sale equipment, medical equipment, artificial intelligence devices, and the
development of laser scanners. Mr. Masters received a B.S.E.E. (1961) from Duke
University, a M.S.E.E. (1964) from the University of Pittsburgh and a M.S.M.S.
(1966) from Johns Hopkins University.
CHRISTOPHER PORTNER, Director of Cytation Corporation. Since March 1998,
Mr. Portner has been a certified financial planner and a general securities
principal with PSA Equities and a portfolio manager with PSA Capital Management
of Lutherville, Maryland. From 1995 through February 1998, Mr. Portner was a
financial consultant with Peremel & Company of Baltimore, Maryland. Mr. Portner
is a graduate of the College of Financial Planning's professional education
program, holds a Bachelor of Science degree in both Business and English from
Towson State University.
Mr. Portner plans to resign as director at a special meeting to be held in the
second quarter of 2006.
JOEL STEPHEN LOGAN, II, Director, President, and General Manager of Deer
Valley Homebuilders, Inc. Mr. Logan has extensive experience in the
manufactured home industry. Since 2004, Mr. Logan has served as General Manager
and President for Deer Valley Homebuilders, Inc. From 1996 until 2003, Mr.
Logan worked as President of Pinnacle Homes of Alabama, a manufactured housing
company. Mr. Logan is a graduate of Mississippi State University, from which he
holds a degree in Business Administration.
Mr. Logan is included here as an executive officer because he is an executive
officer of the Company's subsidiary who performs a policy-making function, as
determined by Rule 3b-7.
11
CHARLES L. MURPHREE, JR., Director, Vice President, and Regional Sales
Director of Deer Valley Homebuilders, Inc. Since April of 2004, He has worked as
Regional Sales Director and Vice President of Deer Valley Homebuilders, Inc.
From 2003 until 2004, Mr. Murphree served as Plant Manager for Clayton Homes,
Inc. From 2000 through 2003, Mr. Murphree worked as General Manager of the
Energy and LifeStyle Divisions of Southern Energy Homes, Inc. Clayton Homes,
Inc. and Southern Energy Homes, Inc. are producers of manufactured housing. Mr.
Murphree graduated from the University of Alabama with a Bachelor of Science in
Business Administration. Mr. Murphree is included here as an executive officer
because he is an executive officer of the Company's subsidiary who performs a
policy-making function, as determined by Rule 3b-7.
JOHN STEVEN LAWLER, Director and Director of Finance of Deer Valley
Homebuilders, Inc. Since April 2004, Mr. Lawler, a certified public accountant,
has worked as Director of Finance for Deer Valley Homebuilders, Inc. From 2001
until 2004, he served as ERP and IT Project Manager for Cavalier Homes, Inc.
Cavalier Homes, Inc. is a producer of manufactured housing. From 1999 until
2001, Mr. Lawler worked as the ERP Team Leader for Financial Accounting for
Cavalier Homes, Inc. Mr. Lawler holds a Bachelor of Science in Business
Administration from the University of Alabama. Mr. Lawler is included here as an
executive officer because he is an executive officer of the Company's subsidiary
who performs a policy-making function, as determined by Rule 3b-7.
HANS BEYER, Nominee for Director. Since February of 2005, Mr. Beyer has
served as a partner for Saxon Gilmore Carraway Gibbons Lash & Wilcox, P.A. At
Saxon Gilmore Carraway Gibbons Lash & Wilcox, P.A., he oversees and manages
complex legal matters. Since September 2005, Mr. Beyer has served as the Senior
Vice President of Mirabilis Ventures, Inc. At Mirabilis Ventures, Inc., he
oversees private equity investments. Mirabilis Ventures, Inc. is a diversified,
privately-held holding company with interests in a variety of companies in
industries including construction, business consulting, and software
development. In addition, Mr. Beyer is President and Founder for Daedalus
Consulting, Inc., which provides Internet research and business consulting
services, primarily for start-up and small companies. In connection with his
position at Daedalus Consulting, Inc., Mr. Beyer provides consulting advice on
business matters. From 2003 to February 2005, Mr. Beyer was a partner at
Buchanan Ingersoll, P.C. Prior to 2002, Mr. Beyer was the founder and President
of the Law Firm of Hans Christian Beyer, P.A. Mr. Beyer holds a B.A. from the
University of Michigan and a J.D. from the University of Michigan Law School.
JOHN GIORDANO, Nominee for Director. For the past five years Mr. Giordano
has served as Chair of the Business, Tax and Corporate Finance Practice Group at
Bush Ross, P.A., a Tampa, Florida law firm. He is regularly involved in complex
business-related transactions, has extensive experience in a broad range of
areas, including federal and state securities law, corporate finance, mergers,
acquisitions, and tax law, and has acted as general corporate counsel for
numerous Florida-based public and private corporations. Mr. Giordano attended
the University of Florida, where he received a B.S., a J.D., and an L.L.M. in
taxation.
DALE PHILLIPS, Nominee for Director. For the past five years, Mr. Phillips
has served as a director and Vice President of Finance for RE Purcell
Construction Co., Inc., a paving and utility contractor. He is also a director
and Vice President for Dalmari, Inc. Mr. Phillips holds an A.S. (1968) in
Business Management from Champlain College and a B.A. (1971) in Accounting from
Castleton State College.
SIGNIFICANT EMPLOYEES
Other than the executive officers of Deer Valley named above, no other
employees are required to be disclosed under this item. Because of their
importance to the success of Deer Valley and the Company, Deer Valley maintains
"key man" life insurance policies, with Deer Valley as beneficiary, on the
former owners of Deer Valley, including Joel Stephen Logan II, John Steven
Lawler, and Charles Murphree.
FAMILY RELATIONSHIPS
There are no family relationships among any of our directors and executive
officers.
INVOLVEMENT IN LEGAL PROCEEDINGS
To the best of our knowledge, there is no material proceeding to which any
director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company or any of its subsidiaries.
To the best of our knowledge, during the past five years, none of our
directors or executive officers were involved in any of the following: (1) any
bankruptcy petition filed by or against any property or business of which such
12
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (2) any conviction in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses); (3) being subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending, or otherwise limiting his involvement in any type of business,
securities or banking activities; and (4) being found by a court of competent
jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading
Commission to have violated a federal or state securities or commodities law,
and the judgment has not been reversed, suspended, or vacated.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, officers and holders of more than 10% of the Company's
equity securities to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership. Based solely on a
review of the forms, reports, and certificates filed with the Company by such
persons, all Section 16(a) filing requirements were complied with by such
persons during the last fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth below, there were no transactions during the last two
fiscal years, and there are no proposed transactions to which the Company or
its subsidiary was or is to become a party, in which any director, executive
officer, director nominee, beneficial owner of more than five percent (5%) of
any class of our stock, or members of their immediate families had, or is to
have, a direct or indirect material interest.
Charles G. Masters, the current President of Cytation, and several
potential investors met with the officers and principals of Deer Valley
Homebuilders, Inc. during the fall 2004 for the purpose of exploring a variety
of potential investment relationships in or with Deer Valley Homebuilders, Inc.
Over the course of the next year, numerous possible relationships were discussed
primarily by Mr. Masters and Joel S. Logan II, the President of Deer Valley. The
founders of Deer Valley desired to be bought out by an acquisition company,
preferably public, but also desired to continue to operate the company. Toward
this end, Mr. Masters formed Deer Valley Acquisitions Corp. in July of 2005. The
aforementioned discussions ultimately led to an agreement for Deer Valley
Acquisitions Corp. to purchase 100% of the outstanding shares of Deer Valley.
This agreement was formalized as the Securities Purchase and Share Exchange
Agreement. Subsequent to the signing of the document, DVA negotiated a merger
with Cytation Corporation, and entered into a agreement with Midtown Partners to
raise approximately $7,500,000 from accredited investors to allow the
consolidated Cytation/DVA to fulfill the cash obligations of the Securities
Purchase and Share Exchange Agreement. The entire transaction was completed as a
series of contemporaneous closings which occurred January 18, 2006 and which are
more fully described under "Change in Control and Acquisition" below. During the
past two years, other than the negotiations described above, there were no
negotiations, transactions, or material contracts between Cytation Corporation
and Deer Valley Homebuilders, Inc.
In connection with the Securities Purchase and Share Exchange Agreement, on
January 18, 2006, the Company issued to Vicis Capital Master Fund, Inc. (the
"Lender") an Interest Bearing Non-Convertible Installment Promissory 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 "Promissory Note"). The Lender also owns
Series A Preferred Stock, Series A Common Stock Purchase Warrants, and Series B
Common Stock Purchase Warrants.
13
In March 2006, the Lender agreed to convert the Promissory Note into
150,000 shares of Series A Preferred Stock, Series A Common Stock Purchase
Warrants entitling the holder to purchase 2,000,000 shares of Common Stock at an
exercise price of one dollar and fifty cents ($1.50) per share, and Series B
Common Stock Purchase Warrants entitling the holder to purchase 1,000,000 shares
of Common Stock at an exercise price of two dollars and twenty five cents
($2.25).
In connection with the Capital Stock Purchase Agreement, DVA 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. Joel Stephen Logan,
II, the President and General Manager of Deer Valley Homebuilders, Inc., Charles
L. Murphree, Jr., the Vice President and Regional Sales Director of Deer Valley
Homebuilders, Inc., and John Steven Lawler, Director of Finance of Deer Valley
Homebuilders, Inc., are each a party to the Earnout Agreement.
Pursuant an oral consulting agreement with Ranger Industries, Inc.,
Cytation paid, in two installments on January 30, 2006 and February 8, 2006, a
$100,000 consulting fee to Ranger Industries, Inc., as payment in full, for
services rendered. Ranger Industries, Inc. is controlled by Charles G. Masters,
the Chief Executive Officer & President of Cytation Corp.
On January 25 2006, the Company approved Deer Valley entering into a Sales
Contract with Steve J. Logan to purchase real property located at 7668 Highway
278 in Sulligent, Alabama(the "Sulligent Property"). On April 18, 2006, Deer
Valley purchased the Sulligent Property from Steve J. Logan. The Sulligent
Property consists of a 65,992 square foot manufacturing plant located on
approximately 13 acres of land. The Company paid the purchase price for the
Sulligent Property of $725,000, in cash. Deer Valley obtained the funds for the
purchase price of the Sulligent Property from its revolving line of credit
described below under the heading "Financing." Prior to acquiring the Sulligent
Property, Deer Valley's plant on the Sulligent Property operated, beginning on
February 20, 2006, under a short-term lease. Steven J. Logan is father of Deer
Valley's President and General Manager, Joel Logan. The purchase of the
Sulligent Property was approved by the disinterested members of Deer Valley's
Board of Directors and the Chief Executive Officer of Cytation Corporation.
14
The disinterested members of the board of Deer Valley have approved a
consulting agreement between Deer Valley and Steve J. Logan, the father of Joel
Stephen Logan, II, a Member of the Board of Directors, President, and General
Manager of Deer Valley. Under the consulting agreement, Mr. Logan agreed to
remain as a personal guarantor on a loan on the Guin property and to provide
real estate consulting services from time to time, as requested. Deer Valley, in
return, agreed to pay Mr. Logan $5,000 per month for five years and to assume
the mortgage on the Guin property. Mr. Logan's personal guaranty allowed Deer
Valley to obtain a materially lower interest rate than it would have otherwise
been able to obtain. There are no specific minimum hours which Mr. Logan must
work. There are no enforcement provisions available to Deer Valley, should Mr.
Logan refuse to provide consulting services. To date, the number of consulting
hours Mr. Logan has provided has been nominal
Midtown Partners & Co., LLC ("Midtown Partners"), an SEC and NASD
registered broker dealer, acted as the placement agent for the Company in
connection with the Series A Preferred Stock Offering and was paid commissions
as previously disclosed in the Company's filings. Christopher Phillips and other
Series B Preferred Stockholders have an ownership interest in Midtown Partners.
CORPORATE GOVERNANCE
AUDIT COMMITTEE
With the resignations of Messrs. Richard A. Fisher, Kevin J. High, Richard
Parke, and John J Gilece, Jr. from the Board of Directors, we do not currently
have an audit committee, but one will be appointed as the current year
progresses. The board member who is currently performing the equivalent
functions of an audit committee is Charles G. Masters, who has not been
determined to be an "audit committee financial expert."
AUDIT COMMITTEE FINANCIAL EXPERT
We do not currently have an "audit committee financial expert" as defined
under Item 401(e) of Regulation S-B. As discussed above, our Board of
Directors plans to form an Audit Committee and is actively seeking to appoint an
individual to the Board of Directors and the Audit Committee who would be deemed
an audit committee financial expert and who would be independent as that term
is used in Item 7(d)(3)(iv) of Schedule 14A.
AUDIT COMMITTEE CHARTER
The Board of Directors has not adopted a written audit committee charter.
NOMINATING COMMITTEE
The Company does not currently have a standing Nominating Committee. The
Company feels that it is appropriate not to have a standing Nominating Committee
due to the size of the Company. Currently, the Board of Directors, as a whole,
recommends candidates who will be nominated as management's slate of directors
at each annual or special meeting of the shareholders. In connection with
selecting candidates for nomination to the Board of Directors, including any
nominees recommended by security holders, the Board of Directors (1) reviews
compliance by security holders with the Company's nominating procedures
contained in the Bylaws; (2) reviews information assembled for the purpose of
selecting candidates for nomination to membership on the Board of Directors,
taking into account the skills and characteristics reflected in the then-current
Board members, and identifies any particular qualifications necessary to augment
the skills, expertise and experience represented on the Board; and (3) following
appropriate investigation, ascertains the willingness of selected candidates to
serve and extends invitations to become candidates.
In identifying candidates for membership on the Board of Directors, the
Board takes into consideration all of the factors that it considers appropriate,
which may include diversity, knowledge of the Company's business and other
related industries, skills, and experience of the nominee in the context of the
needs of the Board as a whole. Nominees are selected who have the highest
personal and professional integrity, as well as demonstrated abilities, and whom
the Board believes will best serve the long-term interests of the stockholders.
The Board considers recommendations from stockholders, directors and officers,
in light of upcoming elections and actual or expected Board vacancies. All
15
candidates, including those recommended by shareholders, are evaluated using the
same criteria. The Board of Directors has not adopted a written charter for a
Nominating Committee. Due to the size of the Company, the Board of Directors
does not currently have a formal procedure to be followed by security holders in
submitting recommendations or nominations for candidates for the Board of
Directors. Security holders may submit such recommendations or nominations
directly to the Board of Directors at the Company's address, listed on this
Information Statement.
The Board has determined that none of the current members of the Board of
Directors are independent within the meaning of the listing standards of NASDAQ.
COMPENSATION COMMITTEE
The Company does not have a formal Compensation Committee. The Board of
Directors, acting as a Compensation Committee, meets to discuss and deliberate
on issues surrounding the terms and conditions of executive officer
compensation, including base salaries, bonuses, awards of stock options, and
reimbursement of certain business-related costs and expenses.
BOARD MEETINGS
Directors are expected to attend the Company's Annual Board Meeting, and
all or substantially all Board meetings and meeting of the committees, if any,
on which they serve. Occasionally, unforeseen circumstances may prevent a
director from attending. All Board members attended the most recent annual
meeting.
There were two telephonic board meetings of the Board of Directors in 2005
with all five directors in attendance. The board acted nine times in 2005 by
unanimous consent. No incumbent directors attended fewer than seventy-five
percent of the aggregate of the total number of meetings of the board of
directors (held during the period for which they have been directors) and the
total number of meetings held by all committees of the board on which they
served (during the periods which they served).
SHAREHOLDER COMMUNICATION WITH THE BOARD
At such time as the Company shall appoint a Corporate Secretary,
shareholders and other parties interested in communicating with any director may
do so in care of the Company's Corporate Secretary by phone or written
correspondence pursuant to the contact information contained in this Information
Statement. The Corporate Secretary shall review all correspondence and shall
regularly forward all correspondence to the designated board member or, in the
case of correspondence directed to the Board as a group, to the Chairman of the
Board (except that the Corporate Secretary will not forward commercial
correspondence or duplicative correspondence, except that copies will be
maintained of all such correspondence). A written log of all correspondence
will be maintained by the Corporate Secretary. All correspondence from the
shareholders relating to accounting, internal controls, or auditing matters will
be forwarded to appropriate parties in accordance with procedures developed by
the Board with respect to such matters. Until the Company appoints a Corporate
Secretary, shareholders or other parties interested in communicating with any
director may do so in care of Charles G. Masters, the Company's Chief Executive
Officer, President, and Director, who shall record and forward all
correspondence in the manner described above.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation
earned by our Chief Executive Officer and each of our most highly compensated
executive officers whose aggregate annual salary and bonus exceeded $100,000 for
each of the years indicated with respect to services rendered by such persons.
16
SUMMARY COMPENSATION TABLE (9)
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
---------------------- -----------------------------------
RESTRICTED
STOCK
AWARDS/
SECURITIES PAYOUTS
UNDERLYING
OTHER ANNUAL OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION SARS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) ($) (#) ($) ($)
Charles G. Masters (1) 2005 - - - - - -
2004 - - - - - -
2003 - - - - - -
Joel Stephen Logan, 2005 $52,000 $ 245,161 $143,617(7) - - -
II(2) 2004 $49,000 $ 62,121 $162,120(8) - - -
2003 - - - - - -
Charles L. Murphree, 2005 $52,000 $ 124,353 86,710(7) - - -
Jr.(3) 2004 $48,000 $ 34,389 $ 97,516(8) - - -
2003 - - - - - -
John Steven Lawler (4) 2005 $52,000 $ 118,291 $ 67,021(7) - - -
2004 $47,000 $ 31,494 $ 75,846(8) - - -
2003 - - - - - -
Richard A. Fisher(5) 2005 $0 - $0 $0 - -
2004 $0 - $352,982 $0 - -
2003 $0 - $140,000 $25,000 - -
Kevin J. High (6) 2005 $0 - $0 $0 - -
2004 $0 - $ 95,284 $0 - -
2003 $0 - $375,000 $0 - -
1) On January 18, 2006, Mr. Masters was elected to serve as a Director,
Chief Executive Officer, and President of Cytation Corporation.
17
2) Mr. Logan is President and General Manager of Deer Valley
Homebuilders, Inc., a material operating subsidiary of Cytation
Corporation, acquired on January 18, 2006. Mr. Logan has been included
under Rule 3b-7 of the Exchange Act, as amended, as an executive officer of
a subsidiary who performs certain policy making functions identified in
Rule 3b-7. Mr. Logan's executive compensation above includes historical
compensation paid by Deer Valley Homebuilders, Inc. prior to the
acquisition by Cytation Corporation.
3) Mr. Murphree is Vice President and Regional Sales Director of Deer
Valley Homebuilders, Inc, a material operating subsidiary of Cytation
Corporation acquired on January 18, 2006. Mr. Murphree has been included
under Rule 3b-7 of the Exchange Act, as amended, as an executive officer of
a subsidiary who performs certain policy making functions identified in
Rule 3b-7. Mr. Murphree's executive compensation above includes historical
compensation paid by Deer Valley Homebuilders, Inc. prior to the
acquisition by Cytation Corporation.
4) Mr. Lawler is Director of Finance of Deer Valley Homebuilders, Inc, a
material operating subsidiary of Cytation Corporation, acquired on January
18, 2006. Mr. Lawler has been included under Rule 3b-7 of the Exchange Act,
as amended, as an executive officer of a subsidiary who performs certain
policy making functions identified in Rule 3b-7. Mr. Lawler's executive
compensation above includes historical compensation paid by Deer Valley
Homebuilders, Inc. prior to the acquisition by Cytation Corporation.
5) Mr. Fisher resigned as Chairman and General Counsel, effective as of
January 18, 2006. Mr. Fisher's compensation for 2004 includes (a) $275,000
paid in 2001 but not earned as compensation until 2004, (b) $30,000 book
value of restricted shares of common stock of Cytation Corporation, and (c)
$15,000 book value of 25,000 shares of common stock acquired upon exercise
of stock option. Mr. Fisher's compensation for 2003 includes $100,000 paid
in 2001 but not earned as compensation until 2003.
6) Mr. High resigned as President, effective as of January 18, 2006. Mr.
High's compensation for 2004 includes (a) $30,000 book value of restricted
shares of common stock of Cytation Corporation, and (b) $45,285 from the
cancellation of indebtedness of an affiliate. Mr. High's compensation for
2003 includes $225,000 paid in 2001 but not earned as compensation until
2003.
7) Amount relates to partial reimbursement for payment of taxes accrued
in 2005 and payable by shareholder due to status as a Subchapter S
corporation.
8) Amount relates to partial reimbursement for payment of taxes accrued
in 2004 and payable by shareholder due to status as a Subchapter S
corporation.
9) None of the nominees for director have received any compensation from
Cytation Corporation.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS GRANT TABLE
Neither the Company, DVA, nor Deer Valley Homebuilders, Inc. issued any
common share purchase options or stock appreciation rights during the 2005
fiscal year to its named executive officers.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS EXERCISE AND VALUATION TABLE
With respect to each of our named executive officers, there have not been
any common share purchase options or stock appreciation rights exercised in
fiscal year 2005, and there are not any unexercised common share purchase
options or stock appreciation rights as of December 31, 2005.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
No employment agreements were in effect during 2005. On January 18, 2006,
Deer Valley entered into the following employment agreements with the following
executive officers.
18
On January 18, 2006, Deer Valley Homebuilders, Inc. entered into a seven
year employment agreement with Joel Stephen Logan, II. Under the terms of Mr.
Logan's Employment Agreement, Mr. Logan is (a) entitled to receive a fixed
annual salary of $52,000, (b) entitled to receive a monthly "hitch bonus" of $60
per "floor" produced by the Company, (c) is eligible to participate and receive
4.6% of the net income before taxes of the Company, and (d) entitled to receive
health benefits and coverage, as provided by the Company. By contract, Mr. Logan
is entitled to serve on the Board of Directors of Deer Valley Homebuilders, Inc.
and Deer Valley Acquisitions, Corp. until the earlier of (a) the expiration of
the non-compete clause in his Employment Agreement, or (b) final payment under
the Earnout Agreement.
On January 18, 2006, Deer Valley Homebuilders, Inc. entered into a seven
year employment agreement with Charles L. Murphree, Jr. Under the terms of Mr.
Murphree's Employment Agreement, Mr. Murphree is (a) entitled to receive a fixed
annual salary of $52,000, (b) entitled to receive a monthly "hitch bonus" of
$33.33 per "floor" produced by the Company, (c) is eligible to participate and
receive 2.2% of the net income before taxes of the Company, and (d) entitled to
receive health benefits and coverage, as provided by the Company.
By contract, Mr. Murphree is entitled to serve on the Board of Directors of
Deer Valley Homebuilders, Inc. and Deer Valley Acquisitions, Corp. until the
earlier of (a) the expiration of the non-compete clause in his Employment
Agreement, or (b) final payment under the Earnout Agreement.
On January 18, 2006, Deer Valley Homebuilders, Inc. entered into a seven
year employment agreement with John Steven Lawler. Under the terms of Mr.
Lawler's Employment Agreement, Mr. Lawler is (a) entitled to receive a fixed
annual salary of $52,000, (b) entitled to receive a monthly "hitch bonus" of $35
per "floor" produced by the Company, (c) is eligible to participate and receive
2% of the net income before taxes of the Company, and (d) entitled to receive
health benefits and coverage, as provided by the Company.
By contract, Mr. Lawler is entitled to serve on the Board of Directors of
Deer Valley Homebuilders, Inc. and Deer Valley Acquisitions, Corp. until the
earlier of (a) the expiration of the non-compete clause in his Employment
Agreement, or (b) final payment under the Earnout Agreement.
STOCK OPTION PLANS
During 2005, the Company did not maintain any stock option plans.
COMPENSATION OF DIRECTORS
Except for reimbursement for his or her reasonable expenses for attending
Board and Board Committee meetings, the Company currently does not provide for
compensation to be paid to members of the Board of Directors.
INDEPENDENT PUBLIC ACCOUNTANTS
Following the resignation of Radin, Glass & Co., LLP on January 20, 2006,
the Board of Directors selected Wheeler, Herman, Hopkins & Lagor of Tampa,
Florida as the Company's principal accountant for the current year. No
accountant is expected to be present at the meeting of security holders, to be
available to respond to appropriate questions, or to make a statement at the
meeting of the security holders, although the Company does not intend to oppose
attendance by Wheeler, Herman, Hopkins & Lagor or by its former auditors, Radin,
Glass & Co., LLP, if they should desire to attend, answer questions, or make a
statement.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Effective as of January 20, 2006, Radin, Glass & Co., LLP resigned as the
Company's auditors. The reports of Radin, Glass & Co., LLP on the Company's
consolidated financial statements for the fiscal year ended December 31, 2004
(the "Audit Period") did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles, except for an explanatory paragraph relating to the
Company's ability to continue as a going concern. During the Audit Period, the
interim period through September 30, 2005, and the interim period through the
effective date of resignation (the "Interim Periods"),there were no
disagreements with Radin, Glass & Co., LLP on any matter of accounting
19
principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of
Radin, Glass & Co., LLP, would have caused it to make reference thereto in
its reports on the Company's consolidated financial statements for such
years.
During the Audit Period and Interim Periods, the Company has had no
reportable events as defined in Item 304(a)(1)(iv) of Regulation S-K.
The Company has provided Radin, Glass & Co., LLP with a copy of the
foregoing disclosures and has requested, pursuant to the rules of the
United States Securities and Exchange Commission (the "Commission"), that
Radin, Glass & Co., LLP provide the Company with a letter addressed to the
Commission stating whether Radin, Glass & Co., LLP agrees with the
statements set forth herein and, if not, stating the respects in which it does
not agree. A copy of the letter from Radin, Glass & Co., LLP is attached as
Exhibit 99.5 hereto.
Subsequently, on February 3, 2006, the Company engaged Wheeler, Herman,
Hopkins & Lagor, P.A. as auditors.
AUDIT FEES
The aggregate fees billed by Wheeler, Herman, Hopkins & Lagor for
professional services rendered for the audit of Deer Valley's financial
statements for the fiscal year ended December 31, 2005 and for the review of
Deer Valley's financial statements included in the Company's Form 10-QSB for the
period ended September 30, 2005, were approximately $60,000. The fees for the
same services rendered for comparable audits of the Company and DVA amounted to
approximately $16,000.
The aggregate fees billed by Radin, Glass & Co., LLP for professional
services rendered for the review of the Company's financial statements included
in the Company's Form 10-QSB for the periods ended March 31, 2005 and June 30,
2005 were $6,500. The aggregate fees billed by Radin, Glass & Co., LLP for
professional services rendered for the audit of the Company's financial
statements for the fiscal year ended December 31, 2004 and for a review of the
Company's financial statements included in the Company's Forms 10-QSB for the
periods ended March 31, 2004, June 30, 2004, and September 30, 2004 were
$17,500.
AUDIT-RELATED FEES
There were no fees billed for services reasonably related to the
performance of the audit or review of our financial statements outside of those
fees disclosed above under "Audit Fees" in the last two fiscal years.
TAX FEES
During the last two fiscal years Wheeler, Herman, Hopkins & Lagor did not
render any services for tax compliance, tax advice, or tax planning work. Radin,
Glass & Co., LLP prepared the Company's federal and state income tax returns for
fiscal year 2004, for which the Company paid fees of $1,500.
ALL OTHER FEES
There were no other fees billed by our principal accountants other than
those disclosed above for the last two fiscal years.
PRE-APPROVAL POLICIES AND PROCEDURES
Prior to engaging our accountants to perform a particular service, our
Board of Directors obtains an estimate for the service to be performed. All of
the services described above were approved by the Board of Directors in
accordance with its procedures. At the time the tax services described above
were rendered, the Board of Directors determined that the provision of those
services was compatible with maintaining the principal accountant's
independence.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information with respect to the beneficial
ownership of our capital stock as of April 17, 2006 for (i) any person whom we
know to be the beneficial owner of more than 5% of our outstanding common stock
(ii) each of our directors or those nominated to be directors, and executive
officers and (iii) all of our directors and executive officers as a group.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(1)
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF CLASS(2)
OF BENEFICIAL OWNER OF
BENEFICIAL OWNERSHIP
Common Stock issuable Charles G. Masters, Director 1,713,335 (4) 8.6%
upon conversion of Series B of Cytation Corp., Chief
Preferred Stock; Common Executive Officer & President
Stock issuable upon of Cytation Corp.(3)
conversion of Series A
Preferred Stock, Series A
Common Stock Purchase
Warrants, and Series B
Common Stock Purchase
Warrants.
Common Stock Christopher Portner, Director 38,332 *
of Cytation Corporation(3) Direct Ownership
Common Stock issuable upon Joel Stephen Logan, II, 500,000 2.5%
conversion of Series A Member of the Board of Direct Ownership(6)
Preferred Stock; Common Directors of Deer Valley
Stock issuable upon exercise Homebuilders, Inc., President
of Series A and Series B and General Manager of Deer
Warrants Valley Homebuilders, Inc.(5)
Common Stock issuable upon Charles L. Murphree, Jr., 333,335 1.6%
conversion of Series A Member of the Board of Direct Ownership(7)
Preferred Stock; Common Directors of Deer Valley
Stock issuable upon exercise Homebuilders, Inc., Vice
of Series A and Series B President and Regional Sales
Warrants Director of Deer Valley
Homebuilders, Inc.(5)
Common Stock issuable upon John Steven Lawler, Member 166,668 *
conversion of Series A of the Board of Directors of Direct Ownership(8)
Preferred Stock; Common Deer Valley Homebuilders,
Stock issuable upon exercise Inc., Director of Finance,
of Series A and Series B Deer Valley Homebuilders,
Warrants Inc.(5)
Common Stock issuable upon Christopher Phillips(3) 5,357,700(9) 27.0%
conversion of Series B
Preferred Stock or Series C
Preferred Stock; Common
Stock issuable upon exercise
of Series C Warrants
21
Common Stock issuable upon Hans Beyer, 565,933(10) 2.8%
conversion of Series A and B Director Nominee (3)
Preferred Stock; Common
Stock issuable upon exercise
of Series A and Series B
Warrants
All Officers and Directors as a 3,317,603 16.7%
group (5 persons)
*Less than 1%.
(1) Nominees for director Dale Phillips and John Giordano own no securities of
Cytation Corporation.
(2) Applicable percentage of ownership is based on (i) 1,000,000 shares of
common stock being issued and outstanding as of April 17, 2006, (ii) an
aggregate of 9,941,620 shares of common stock which are issuable upon the
conversion of 745,622 shares of the Company's Series A Convertible
Preferred Stock currently issued and outstanding, (iii) an aggregate of
4,945,100 shares of common stock which are issuable upon the conversion of
49,451 shares of the Company's Series B Convertible Preferred Stock
currently issued and outstanding, (iv) an aggregate of 2,675,000 shares of
common stock which are issuable upon the conversion of 26,750 shares of the
Company's Series C Convertible Preferred Stock currently issued and
outstanding, and (v) an aggregate of 1,320,810 shares of common stock which
are issuable upon the conversion of 132,081 shares of Series D Preferred
Stock. Calculations do not include outstanding warrants, options, or other
rights issued by the Company, unless the reporting person is the beneficial
owner of the warrant, option, or other right. Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting of investment power with respect to securities. Shares of
common stock subject to securities exercisable or convertible into shares
of common stock that are exercisable or exercisable within 60 days are
deemed to be beneficially owned by the person holding such options for the
purpose of computing the percentage of ownership of such persons, but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Unless otherwise noted, we believe that all
shares are beneficially owned and that all persons named in the table have
sole voting and investment power with respect to all shares of common stock
owned by them.
(3) Unless otherwise indicated, the mailing address of the shareholder is
4902 Eisenhower Blvd., Suite 185, Tampa, FL 33634.
(4) Includes (a) 1,630,000 common shares issuable upon conversion of
16,300 shares of the Company's Series B Preferred Stock directly owned by
Charles G. Masters, (b) 33,334 common shares issuable upon conversion of
2,500 shares of the Company's Series A Preferred Stock owned by Charles
Masters' spouse, (c) 33,334 common shares issuable upon exercise of the
Company's Series A Common Stock Purchase Warrant owned by Charles Masters'
spouse, and (d) 16,667 common shares issuable upon exercise of the
Company's Series B Common Stock Purchase Warrant owned by Charles Masters'
spouse. Charles G. Masters disclaims beneficial ownership of securities
owned by his spouse, except to the extent of his pecuniary interest
therein, and the inclusion of these shares in this filing shall not be
deemed an admission of beneficial ownership of all of the reported shares
for purposes of Section 16 or for any other purpose.
(5) Unless otherwise indicated, the mailing address of the shareholder is 205
Carriage St., Guin, Alabama 35563.
(6) Includes (a) 200,000 common shares issuable upon exercise of the Company's
Series A Preferred Stock; (b) 200,000 common shares issuable upon exercise
of the Company's Series A Common Stock Purchase Warrant, and (c) 100,000
common shares issuable upon exercise of the Company's Series B Common Stock
Purchase Warrant.
22
(7) Includes (a) 133,334 common shares issuable upon exercise of the
Company's Series A Preferred Stock, (b) 133,334 common shares issuable upon
exercise of the Company's Series A Common Stock Purchase Warrant, and (c)
66,667 common shares issuable upon exercise of the Company's Series B
Common Stock Purchase Warrant.
(8) Includes (a) 66,667 common shares issuable upon exercise of the
Company's Series A Preferred Stock, (b) 66,667 common shares issuable upon
exercise of the Company's Series A Common Stock Purchase Warrant, and (c)
33,334 common shares issuable upon exercise of the Company's Series B
Common Stock Purchase Warrant.
(9) Includes (a) 302,500 common shares issuable upon conversion of 303 shares
of the Company's Series B Preferred Stock owned by Famalom, LLC, an entity
for which Christopher Phillips serves as the managing member (b) 2,675,000
common shares issuable upon conversion of 2,675 shares of the Company's
Series C Preferred Stock owned by Total CFO, LLC, an entity for which Mr.
Phillips serves as the managing member, (c) 2,000,000 shares of common
stock which are issuable upon exercise of a Series C Warrant held by Total
CFO, LLC, an entity for which Mr. Phillips serves as the managing member,
and (d) 190,100 common shares issuable upon conversion of 190 shares of the
Company's Series B Preferred Stock indirectly owned by nature of Mr.
Phillip's ownership of Apogee Financial Investments, Inc. The conversion
rights of each holder of outstanding shares of Series C Preferred Stock is
limited in the certificate of designations, preferences and rights of such
stock, and the exercise rights in the Series C Warrant issued to Total CFO,
LLC are limited, so, in each instance, the holder is not entitled to
convert any Series C Preferred Stock, or exercise any Series C Warrants, to
the extent that, after such conversion, the sum of the number of shares of
common stock beneficially owned by such holder and its affiliates, will
result in beneficial ownership of more than 4.99% of the outstanding shares
of common stock. In addition, rights and designation of the Series C
Preferred Stock are restricted so that the holder of the Series C Preferred
Stock does not vote greater then 4.99% of the Company's issued and
outstanding capital stock. The Company has voluntarily elected to disclose
Mr. Phillips' ownership interest on this beneficial ownership table even
though he is not a director, officer, and the Series C Preferred Stock is
subject to such conversion and voting limitations. As a result, the
inclusion of Series C Preferred Stock and the Series C Warrant in this
Filing shall not be deemed an admission of beneficial ownership of all of
registered securities under Section 16 or for any other purpose. In
addition, Christopher Phillips disclaims beneficial ownership of securities
owned by Famalom, LLC, Total CFO, LLC, and Apogee Financial Investments,
Inc., except to the extent of his pecuniary interest therein, and the
inclusion of these shares in this Filing shall not be deemed an admission
of beneficial ownership of all of the reported shares or for any other
purpose.
(10) Includes (a) 13,333 common shares issuable upon exercise of the
Company's Series A Preferred stock, (b) 13,333 common shares issuable upon
exercise of the Company's Series A Common Stock Purchase Warrant, (c) 6,667
common shares issuable upon exercise of the Company's Series B Common Stock
Purchase Warrant, (d) 342,500 shares of common stock issuable upon the
conversion of 342.5 shares of Series B Convertible Preferred Stock owned
indirectly through Daedalus Consulting, Inc., and (3) 190,100 common shares
issuable upon conversion of 190 shares of the Company's Series B Preferred
Stock indirectly owned by nature of Mr. Beyer's indirect ownership of
Apogee Financial Investments, Inc. Mr. Beyer disclaims beneficial ownership
of securities owned by Daedalus Consulting, Inc. and Apogee Financial
Investments, Inc., except to the extent of his pecuniary interest therein,
and the inclusion of these shares in this Filing shall not be deemed an
admission of beneficial ownership of all of the reported shares or for any
other purpose.
CALCULATIONS RELATED TO APPROVALS OF PROPOSALS
For approval of each of the proposals included in this Information
Statement, the affirmative vote of a majority of the shares of capital stock
outstanding on the Record Date will be required for approval. In addition, the
holders of at least fifty percent of our issued Series A Preferred Stock, as a
class, must consent to increasing the authorized preferred stock of the Company
and merging with a Florida corporation for the sole purpose of establishing the
23
Company's domicile in Florida. Shareholders holding in excess of fifty percent
of the shares have indicated that they will vote for all proposals included in
this Information Statement. Furthermore, holders of at least fifty percent of
our issued and outstanding Series A Preferred Stock have indicated that they
will consent to increasing the authorized preferred stock of the Company and
merging with a Florida corporation for the sole purpose of establishing the
Company's domicile in Florida.
MAJORITY VOTE FOR ALL PROPOSALS
In connection with the special meeting the Company has solicited and
received the votes of shareholders holding in excess of fifty percent (50%) of
all shares entitled to vote and the consent of shareholders holding at least
fifty percent (50%) of the Series A Preferred Stock, via an irrevocable proxy
limited in scope to the five proposals detailed above and limited in duration to
July 30, 2006 or the adoption of the proposals listed above, whichever occurs
earlier. The shareholders listed in the following paragraphs and the
accompanying table have signed the limited, irrevocable power of attorney and
proxy.
Pursuant to the restrictions of the Certificates of Designation of the
Company's Series A and Series C convertible preferred stock, and in accordance
with the record date of June 5, 2006, the aggregate shares available to be voted
on the proposals are 8,585,895. Fifty percent of the aggregate shares available
to be voted on the proposals amounts to 4,292,948 shares.
The following shareholders have indicated that they intend to vote for all of
the proposals:
SHAREHOLDER NUMBER OF SHARES TO BE VOTED FOR PROPOSALS
Charles G. Masters 1,430,000
------------------------------- ------------------------------------------
Edwin McGusty 685,000
------------------------------- ------------------------------------------
Deecembra Diamond 675,000
------------------------------- ------------------------------------------
Stacy Bagley 597,500
------------------------------- ------------------------------------------
Daedalus Consulting and Hans Beyer 342,500
------------------------------- ------------------------------------------
Richard Masters 250,000
------------------------------- ------------------------------------------
Robert Christian 100,000
------------------------------- ------------------------------------------
Famalom, LLC and Total CFO, LLC 302,500
------------------------------- ------------------------------------------
Vicis Capital Master Fund 49,900
------------------------------- ------------------------------------------
Apogee Financial Investments, Inc.
(proxy holder) 190,100
------------------------------- ------------------------------------------
TOTAL 4,622,500
------------------------------- ------------------------------------------
APPROVAL OF AT LEAST FIFTY PERCENT OF THE ISSUED AND OUTSTANDING SERIES A
PREFERRED STOCK
The voting restrictions of the Certificate of Designation of the Company's
Series A Preferred Stock apply only if the holders of Series A Preferred Stock
vote with all shareholders. When the consent of at least fifty percent of the
holders of Series A Preferred Stock is required before certain corporate actions
may be taken, no such restrictions apply. Accordingly, the consent of Vicis
Capital Master Fund, which holds approximately 60.6% of the Company's Series A
Preferred Stock, represents the consent required to approve increasing the
authorized preferred stock of the Company and merging with a Florida corporation
for the sole purpose of establishing the Company's domicile in Florida.
24
CHANGE IN CONTROL AND ACQUISITION
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, Kevin J. High, certain
purchasers of the Company's Series A Convertible Preferred Stock, DVA, the
shareholders of DVA, and Vicis Capital Master Fund (the "Lender").
SERIES A PREFERRED STOCK OFFERING AND DEBT FINANCING
On January 18, 2006, the Company closed on a private placement of
approximately $5,202,735 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) 520,274 shares of Series A Preferred Stock, (b) Series A
Common Stock Purchase Warrants entitling the holders to purchase up to an
aggregate of 6,936,980 shares of Common Stock at an exercise price of one dollar
and fifty cents ($1.50) per share, and (c) Series B Common Stock Purchase
Warrants entitling the holders to purchase up to an aggregate of 3,468,490
shares of Common Stock at an exercise price of two dollars and twenty five cents
($2.25) per share (the "Series A Preferred Stock Offering"). See, "CAPITAL
STRUCTURE" below for description of Series A Preferred Stock, Series A Common
Stock Purchase Warrants, and Series B Common Stock Purchase Warrants.
Since January 18, 2006, Cytation Corporation has issued an additional
$2,253,480 (or 225,348 shares) of Series A Preferred Stock, Series A Warrants
exercisable for 3,004,640 shares of common stock, and Series B Warrants
exercisable for 1,502,320 shares of common stock. Such amount includes the
securities issued in connection with the Debt Conversion described in the
immediately following paragraph. Cytation has sold the Series A Preferred Stock
and warrants to institutional, accredited, and a limited number of
non-accredited investors pursuant to Rule 506 promulgated by the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended.
Also, on January 18, 2006, the Company issued its Interest Bearing
Non-Convertible Installment Promissory Note (the "Promissory 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. In March 2006, Vicis Capital Master Fund,
Inc. (the "Lender") agreed to convert the Promissory Note into 150,000 shares of
Series A Preferred Stock, Series A Common Stock Purchase Warrants entitling the
holder to purchase 2,000,000 shares of Common Stock at an exercise price of one
dollar and fifty cents ($1.50) per share, and Series B Common Stock Purchase
Warrants entitling the holder to purchase 1,000,000 shares of Common Stock at an
exercise price of two dollars and twenty five cents ($2.25) (the "Debt
----
Conversion").
----------
The issuance of the Series A Preferred Stock, Series A Warrants, and Series
B Warrants were 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.
Such securities were issued to institutional or accredited investors.
Midtown Partners & Co., LLC ("Midtown Partners"), an SEC and NASD
registered broker dealer, acted as the placement agent for the Company in
connection with the Series A Preferred Stock Offering. Midtown Partners is
located in Tampa, Florida. In connection with the Series A Preferred Stock
Offering, the Company paid Midtown Partners a cash commission equal to $490,274
and issued (a) Series BD-1 Common Stock Purchase Warrants to Midtown Partners
entitling Midtown Partners to purchase 693,980 shares of the Company's common
stock at an exercise price of seventy five cents ($.75) per share, (b) Series
BD-2 Common Stock Purchase Warrants to Midtown Partners entitling Midtown
Partners to purchase 693,980 shares of the Company's common stock at an exercise
price of one dollar and fifty cents ($1.50) per share, and (c) Series BD-3
Common Stock Purchase Warrants to Midtown Partners entitling Midtown Partners to
purchase 346,840 shares of the Company's common stock at an exercise price of
two dollars and twenty five cents ($2.25) per share. See, "CAPITAL STRUCTURE"
below for description of Series BD-1, BD-2, and BD-3 Warrants.
The issuance of the Series BD Warrants to Midtown Partners was 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. Such securities were
issued to institutional or accredited investors.
25
Except for the matters discussed immediately below, to Cytation's
knowledge, no holder of Series A Preferred Stock was an affiliate of, or was a
party to a material contact with, any holder of Series B Preferred Stock, any
holder of Series C Preferred Stock, or the former owners of Deer Valley
Homebuilders, Inc. The former owners of Deer Valley Homebuilders, Inc. acquired
$500,000, in the aggregate, of Series A Preferred Stock using a portion of the
proceeds from the $6,000,000 cash purchase price received upon completion of the
sale of 100% of the issued and outstanding capital stock of Deer Valley
Homebuilders, Inc. In addition, the father of Joel Logan, a former owner and
current officer of Deer Valley Homebuilders, Inc., purchased 15,000 shares of
Series A Preferred Stock (and related Series A and Series B warrants) for
$150,000. Edwin McGusty, an employee of Midtown Partners & Co., LLC, the
placement agent for the Series A Preferred Offering, purchased 10,000 shares of
Series A Preferred Stock (and related Series A and Series B warrants) for
$100,000. Hans Beyer, an owner of Daedalus Consulting, an owner of 3,425 shares
of Series B Preferred Stock, purchased 1,000 shares of Series A Preferred Stock
(and related Series A and Series B warrants) for $10,000. Max Frye, an employee
of Deer Valley Homebuilders, Inc. purchased 3,750 shares of Series A Preferred
Stock (and related Series A and Series B warrants) for $37,500.
The proceeds from the Series A Preferred Stock Offering and the Loan
referenced above were used as follows: (a) $6,000,000 to purchase 100% of the
issued and outstanding capital stock of Deer Valley Homebuilders, Inc., (b)
$636,871 as payment of commissions to Midtown Partners & Co., LLC, and (c)
$294,344 for working capital and payment of accountant, legal, consulting and
miscellaneous offering expenses.
SHARE EXCHANGE
On January 18, 2006, the Company completed a share exchange pursuant to
which the Company acquired 100% of the issued and outstanding capital stock of
Deer Valley Acquisitions, Corp. (the "Share Exchange"). Pursuant to the Share
Exchange Agreement, in exchange for 100% of the issued and outstanding common
stock of Deer Valley Acquisitions, Corp., the Company issued the following
securities to the shareholders of Deer Valley Acquisitions, Corp.: (a) 49,451
shares of the Company's Series B Preferred Stock, (b) 26,750 shares of the
Company's Series C Preferred Stock, and (c) Series C Common Stock Purchase
Warrants to Midtown Partners entitling Midtown Partners to purchase 2,000,000
shares of the Company's common stock at an exercise price of seventy five cents
($.75) per share. See, "CAPITAL STRUCTURE" below for description of Series B
Preferred Stock, Series C Preferred Stock and Series C Common Stock Purchase
Warrants.
The issuance of the Series B Preferred Stock, Series C Preferred Stock and
Series C Common Stock Purchase Warrants to the shareholders of Deer Valley
Acquisitions, Corp. was 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. Such securities were issued to institutional or accredited
investors.
ADDITIONAL WARRANT
In connection with its issuance of an Interest Bearing Non-Convertible
Installment Promissory Note, having an original principal balance of One Million
Five Hundred Thousand and No/100 Dollars ($1,500,000), the Company, pursuant to
the Securities Purchase and Share Exchange Agreement, issued to the Lender a
Series D Common Stock Purchase Warrant to purchase 2,000,000 shares of Common
Stock at an exercise price per share equal to Seventy Five Cents ($.75). See,
"CAPITAL STRUCTURE" below for description of the Series D Common Stock Purchase
Warrants.
The issuance of the Series D Common Stock Purchase Warrants was 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. Such securities were
issued to institutional or accredited investors.
26
ACQUISITION
Pursuant to the Capital Stock Purchase Agreement dated November 1, 2005, as
amended, Deer Valley 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 indirectly wholly-owned subsidiary of Cytation
Corporation. Pursuant to the terms of the Capital Stock Purchase Agreement, DVA
purchased one hundred percent (100%) of the issued and outstanding capital stock
of Deer Valley Homebuilders, Inc. for $6,000,000 cash. An additional portion of
the purchase price is calculated and paid as an earnout to the former owners of
Deer Valley Homebuilders, Inc., pursuant to the Earnout Agreement, based upon
the net income before taxes of Deer Valley Homebuilders, Inc. during the next
five (5) years up to a maximum of an additional $6,000,000. Cytation
Corporation engaged acquired Deer Valley Homebuilders, Inc. in order to acquire
a profitable manufacturing operating subsidiary.
A vote of the shareholders of Cytation Corporation was not required to (a)
acquire one hundred percent (100%) of the issued and outstanding capital stock
of Deer Valley Homebuilders, Inc., or (b) issue the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or related warrants. An
affirmative vote of the holders of a majority of the outstanding voting shares
is required to increase the authorized capital stock. The increase in authorized
capital stock is the subject of Proposal No. 3 above.
As a result of the transaction, Cytation Corporation has issued Series A
Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock. See
"CAPITAL STRUCTURE" below for a discussion of the rights, preferences, and
designations of the Series A Preferred Stock, Series B Preferred Stock, and
Series C Preferred Stock.
Upon completion of the acquisition, Deer Valley Homebuilders, Inc. entered
into Employment Agreements with Joel Stephen Logan, II, Charles L. Murphree,
Jr., John Steven Lawler. See "EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE
OFFICERS" for additional information concerning these Employment Agreements. By
contract, Mr. Logan, Mr. Murphree, and Mr. Lawler are entitled to serve on the
Board of Directors of Deer Valley Homebuilders, Inc. and Deer Valley
Acquisitions, Corp. until the earlier of (a) the expiration of the non-compete
clause in his Employment Agreement, or (b) final payment under the Earnout
Agreement.
We have treated the transaction using purchase accounting methods, and we
have not treated the transaction as a "reverse acquisition" or "reverse merger"
for accounting purposes. Deer Valley Homebuilders, Inc. expenses payments under
its Employment Agreements with Messrs. Logan, Murphree, and Lawler as
compensation is earned. If compensation is earned but not paid, then the
compensation is accrued as a liability on Deer Valley's balance sheet. Deer
Valley Homebuilders, Inc. chose this accounting treatment based upon FASB
Concepts Statement No.6, paragraphs 139 through 142. The Company has adopted
SFAS 123R, beginning with on January 1, 2006.
Deer Valley Homebuilders Inc.'s manufactured and modular homes are subject
to local zoning and housing regulations. Installation of homes and utility
connections are subject to state and local regulation, and must be complied with
by the dealer or other person installing the home. Deer Valley does not install
homes or connect utilities to homes. A number of states require manufactured and
modular home producers to post bonds to ensure the satisfaction of consumer
warranty claims. Several states have licensing requirements governing the
delivery of manufactured and modular homes. Deer Valley has complied with these
requirements in Alabama, Mississippi, Louisiana, Arkansas, Georgia, Florida,
North Carolina, South Carolina, Tennessee, Kentucky, Indiana, Illinois,
Missouri, Oklahoma, and Texas. Many of these states require that companies renew
their license applications or notify the state after a change in ownership. Deer
Valley is in the process of notifying states of the change in its ownership and
renewing its licenses, when required. Some of the states which require renewal
of licenses have waived the renewal requirement.
There is no material relationship between Cytation Corporation or its
affiliates, or any director or officer of Cytation Corporation, and any other
party to the Capital Stock Purchase Agreement other than with respect to the
transactions contemplated in the Capital Stock Purchase Agreement, or as
disclosed in this Information Statement. Upon completion of the acquisition, the
former owners of Deer Valley Homebuilders, Inc. acquired less than a five
percent (5%) ownership interest in Cytation Corporation.
There are no existing agreements which may provide for a further change in
control of the Company.
27
DESCRIPTION OF BUSINESS
GENERAL
Until June 20, 2001, Cytation Corporation 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 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 which wished to become reporting companies
under the Securities Exchange Act of 1934, but which lacked the financial
resources for an initial public offering ("IPO") and which did not wish to
become a reporting company via a reverse merger. Specifically, during that
period the Company provided the following services to its clients:
- assisted in the selection of competent corporate and securities
counsel and independent auditors experienced in SEC practice and
procedure;
- developed strategies, assisted in applying, and provided the
stockholder distribution and base necessary, for listing on the OTCBB,
the BBX, NASDAQ, or the American Stock Exchange, including advice with
respect to meeting applicable initial and maintenance listing
requirements;
- assisted client companies' outside legal counsel in the
preparation and filing with the SEC of a registration statement,
generally on Form SB-2;
- assisted client companies' outside legal counsel and auditors
with respect to SEC Staff comments on the registration statement;
- assisted client companies in preparing for an audit of their
financial statements in connection with the registration statement;
- assisted client companies in obtaining market makers;
- assisted client companies with respect to obtaining a "manual
exemption" from filing requirements under state securities laws;
- evaluated opportunities for research on client companies;
- evaluated general client company profile materials;
- advised client company management regarding general private to
public company transition issues and matters; and
- introduced client companies to possible institutional sources of
private financing.
The Company did not provide investor relations or financial public
relations services or assist client companies in selecting investor relations or
a financial public relations services provider. Nor did the Company underwrite
client companies' securities. Management of the Company did not take management
or director positions with any client company, and the Company did not provide
consulting services related to the management or operation of client businesses.
The Company was compensated in cash and client company stock for its services.
All transactions in the securities of client companies were effected by
unaffiliated members of the National Association of Securities Dealers in open
market transactions.
In September of 2004, the Company elected to become a business development
company under the Investment Company Act of 1940. In the first quarter of 2005,
the Company discontinued all business operations except finding an appropriate
private entity with which it could engage in a reverse merger or similar
transaction. In December of 2005, the Company withdrew its election to be
treated as a business development company under the Investment Company Act of
1940. Cytation Corporation's audited balance sheet as of December 31, 2005, and
audited statements of income, cash flows, and changes in stockholders' equity
for the one year periods ending December 31, 2005 and December 31, 2004 are
attached hereto as Exhibit 99.1.
On January 18, 2006, Cytation entered into the Securities Purchase and
Share Exchange Agreement, which, among other matters, (a) resulted in Cytation's
issuance of approximately $5,202,735 (or 520,274 shares) of its Series A
Convertible Preferred Stock, $.001 Par Value ("Series A Preferred Stock"),
Series A Common Stock Purchase Warrants exercisable for 6,936,980 shares of
common stock (the "Series A Warrants"), and Series B Common Stock Purchase
Warrants exercisable for 3,468,490 shares of common stock (the "Series B
Warrants") (the "Series A Preferred Offering"), and (b) resulted in Cytation's
issuance of its Interest Bearing Non-Convertible Installment Promissory Note, in
the original principal amount of One Million Five Hundred Thousand and No/100
Dollars ($1,500,000) (the "Debt Offering").
28
In addition, on January 18, 2006, Cytation acquired 100% of the issued and
outstanding capital stock of DVA, in exchange for the issuance of (a) 49,451
shares of the Company's Series B Preferred Stock, $.001 Par Value ("Series B
Preferred Stock"), (b) 26,750 shares of the Company's Series C Preferred Stock,
$.001 Par Value (the "Series C Preferred Stock"), and (c) Series C Common Stock
Purchase Warrants exercisable for 2,000,000 shares of common stock of Cytation
Corporation. (the "Share Exchange"). Deer Valley Acquisitions, Corp. is a
Florida corporation formed in July 2005. DVA's audited balance sheet as of
December 31, 2005, and audited statements of income, cash flows and changes in
stockholders' equity for the six month period ending December 31, 2005 are
attached hereto as Exhibit 99.2.
Immediately after completion of the Series A Preferred Offering and Share
Exchange, DVA, a wholly owned subsidiary of Cytation, acquired 100% of the
issued and outstanding capital stock of Deer Valley. Deer Valley is an Alabama
corporation formed in January 2004. Deer Valley's audited balance sheet as of
December 31, 2005, and audited statements of income, cash flows, and changes in
stockholders' equity for the years ended December 31, 2005 and December 31, 2004
are attached hereto as Exhibit 99.3. In addition, the Pro Forma condensed
Financial Statements as of December 31, 2005 for Cytation, DVA, and Deer Valley
are attached hereto as Exhibit 99.4. Because Cytation discontinued its prior
operations in the first quarter of 2005, and was a shell company (as defined in
Rule 12b-2 of the Exchange Act) from the first quarter of 2005 through January
18, 2006, the remaining discussion of the Company's business relates to the
operations of Cytation's newly acquired operating subsidiary, Deer Valley.
Deer Valley was launched in January, 2004 and is a manufacturer of
factory-built homes in the southeastern and south central housing markets in the
United States. As of the date of this Information Statement, we manufacture our
factory built homes in two manufacturing facilities located in Guin, Alabama and
Sulligent, Alabama. We rely upon a team of regional sales directors and
approximately 80 independent dealers to market our manufactured homes in over
110 retail locations.
As of the date of this Information Statement, we are selling our
manufactured homes in 15 states through our network of independent dealers and
retail centers.
Deer Valley is an Alabama corporation with its business offices located at
205 Carriage Street, P.O. Box 310, Guin, Alabama 33563 and is engaged in the
production, sale, and marketing of manufactured homes in the southeastern and
south central U.S. housing market.
Each home that we manufacture is built and constructed in accordance with
the federal Manufactured Home Construction and Safety Standards promulgated by
the U.S. Department of Housing and Urban Development, better known as the "HUD
Code." According to the Manufactured Housing Institute, new HUD Code homes that
were shipped in November, 2005, represented an increase of 46.7 percent, as
compared to shipments made in November, 2004. Comparing 2005 to the previous
year, shipments of single-section homes were up 221 percent while shipments of
multi-section homes were down 16.6 percent.
(The terms "multi-section" and "multi-floor" are used interchangeably in
this document. Both terms refer to a house which is constructed by attaching two
or more factory produced "floors" or "sections" together to form a complete
structure.)
The Manufactured Housing Institute estimates that hurricane-related demand
for single-section homes by the Federal Emergency Management Agency ("FEMA")
accounted for roughly 40 percent of all manufactured homes that were shipped in
November.
Our production and marketing efforts have concentrated on multi-section
homes and, as of the date of this Information Statement, we have not delivered
any FEMA-related orders nor have we been contracted to do so.
In recent years, the manufactured housing industry has suffered a downturn
in sales as a result of a tightening of credit standards, restricted
availability of retail and wholesale financing, and excessive inventory levels.
Despite this industry decline, which commenced in calendar year 1999, we have
been able to successfully launch our business through an efficient manufacturing
and production facility, flexible product designs, an experienced and capable
sales team, stringent cost controls, and attention to dealer relations, customer
satisfaction, and service efforts. Our manufactured homes are often sold as
part of a land-home package and may be financed by a conventional mortgage.
Multi-section homes often have an appearance similar to more traditional
site-built homes, which are built according to local building codes, but are
competitively priced when compared to site-built homes.
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MANUFACTURING OPERATIONS
We currently produce all of our manufactured homes at two manufacturing
facilities consisting of an approximately 118,000 square foot facility located
in Guin, Alabama and a 65,992 square foot plant in Sulligent, Alabama. Our
Sulligent plant commenced operations on February 20, 2006. Our manufacturing
facilities normally function on a single-shift five-day work week basis. As of
December 31, 2005, we were producing seven (7) floors per day or approximately
1,680 floors on an annual basis. A "floor" is a section of a manufactured home.
Our manufactured homes are constructed in accordance with the Federal
Manufactured Home Construction and Safety Standards ("HUD Standards"). In 2005,
approximately 100% of the homes we produced were built to HUD Standards.
We plan to continue operating on a single shift, five day work week basis.
During the fiscal year ended December 31, 2005, the Company produced an average
of 28 floor sections per week. This represented an 11.5% increase in floor
section production from the 661 floor sections we produced in the fiscal year
ended December 31, 2004.
Because all of our manufactured homes are constructed in accordance with
HUD Standards, our manufacturing facility is subject to strict oversight and
monitoring by the U.S. Department of Housing and Urban Development, using
independent third-party inspection agencies for enforcement. Each home we
manufacture complies with the HUD Standards and has a special label affixed to
the exterior of the home indicating that the home has been designed,
constructed, tested, and inspected to comply with stringent federal standards
set forth in these HUD Standards. As required by the National Manufactured Home
Construction and Safety Standards Act of 1974, each home that we manufacture may
not be shipped from our factory unless it complies with HUD Standards and
receives a certification label from an independent third-party inspector. Our
manufacturing facility must meet performance standards for heating, plumbing,
air conditioning, thermal and electrical systems, structural design, fire
safety, and energy efficiency.
We also conduct our own in-plant inspection and quality assurance program.
We manufacture homes which are designed as primary residences ready for
immediate occupancy. The homes, many of which are customized at our factory to
the home buyer's specifications, are constructed in one or more sections and
transported by independent trucking companies to dealer locations or to a
customer's site.
Our homes are manufactured under controlled conditions in an indoor
facility located on 25.5 acres in Guin, Alabama, which has approximately 107,516
square feet of floor space, a frame shop with 10,800 square feet, a material
shed with 23,172 square feet of space and an office facility consisting of
11,250 square feet of space. In addition, on February 20 2006, the Company
opened a 65,992 square foot plant in Sulligent, Alabama. Please see "Property"
below for a fuller description of the Guin and Sulligent plants. At the two
plants we employ an average of 350 employees who generally work one shift per
day, five days per week.
Construction of our homes is based upon an assembly line system, commencing
by moving a unit through the plant, stopping at a number of work stations where
various components and sub-assemblies are attached. Each section is permanently
attached to a steel support chassis, and various components are later added,
including floors, interior and exterior walls, roof, cabinets, ceilings, and
windows.
It takes approximately 2 and 1/2 days to complete construction of a home at
our manufacturing facilities. As of December 31, 2005 we had the capacity to
produce an aggregate of approximately seven floors per day.
Once the home has been assembled and quality review testing has been
completed, the home is ready to be transported to a dealer location or for
installation and hookup to a homebuyer's utility systems.
While our manufactured homes are constructed with many of the same
components and building materials used in site-built homes, we utilize a
cost-efficient assembly line manufacturing process which enables us to produce a
quality home at a much lower cost per square foot than a traditional site-built
home. A Deer Valley home is built with residential features, including 1/2 inch
drywall, Thermopane(TM) brand windows, enhanced insulation, oak cabinets,
cultured marble vanities, and two inch by six inch exterior wall construction
standards.
30
The extent of customization of the home performed by Deer Valley varies to
a significant degree with the price of the home. In the higher price range of
the market, the home buyer is often less sensitive to the price increase
associated with significant design modifications. Our experience in producing a
customized home on a cost-effective basis has allowed us to offer customized
homes and provide factory provided trim-out services and walk-through
inspections of the home.
Because the cost of transporting a manufactured home is significant,
substantially all of Deer Valley's homes are sold to dealers within a 500 mile
radius of our manufacturing facility. Deer Valley arranges, at the dealer's
expense, for the transportation of finished homes to dealer locations using
independent trucking companies. Customary sales terms are cash--on-delivery or
guaranteed payment from a floor plan financing source. Dealers or other
independent installers are responsible for placing the home on site and making
utility hook-ups.
BACKLOG OF ORDERS AND SALES POLICIES
Substantially all production is initiated against specific orders. As of
December 31, 2005, our backlog of orders was 11.77 weeks of orders.
Dealer orders are subject to cancellation prior to commencement of
production, and we do not consider our backlog to be firm orders. Because we
operate in an industry where order lead times are extremely short, Deer Valley
does not view backlog at any point in time to be indicative of the level of Deer
Valley's future revenues.
Our sales are made to dealers either through floor plan financing
arrangements with a financial institution or on a cash basis. When a
manufactured home is purchased, we receive payment either directly from the
dealer or from a financial institution which has agreed to finance dealer
purchases of our manufactured homes. As is customary in our industry, many
financial institutions which finance dealer purchases require that we execute a
repurchase agreement which provides that, in the event a dealer defaults on its
repayment of the financing arrangement, we agree to repurchase the manufactured
home from the financing institution, in accordance with a declining repurchase
price schedule that is mutually agreed upon. Because we do not build significant
inventories of either finished goods or raw materials and initiate production
against a specific product order, we do not have significant inventories or a
backlog of product orders.
COMPONENTS
The principal raw materials used in the production of a manufactured home
include wood, wood products, panels, steel, sheetrock, vinyl siding, gypsum
wallboard, fiberglass insulation, carpet, appliances, electrical items, windows,
roofing materials, electrical supplies, roof trusses, and plumbing fixtures. We
believe that the raw materials used in the production of our manufactured homes
are readily available from a wide variety of suppliers and that the loss of any
single supplier would not have a material adverse effect on our business.
Although we rely upon Odyssey Group (sheet rock, plumbing, and other assembly
items), WoodPerfect (lumber supplies), Morris Sales Company (lumber and siding,
panels), General Electric (appliances), and Owens Corning (insulation) in
purchasing materials to assemble our homes, we are not dependent on a single
source or supplier for component purchases.
TRADEMARKS, PATENTS AND INTELLECTUAL PROPERTY RIGHTS
We do not rely upon any significant patent rights, licenses or franchises
under the trademarks or patents of any other person or entity in conducting our
business. While Deer Valley utilizes the mark "Deer Valley" and "Deer Valley
Homebuilders" as Company trademarks in marketing its manufactured homes, we do
not own any trademarks or patents registered with the United States Patent and
Trademark Office. We do offer several models and brand names for our products
to our dealers and customers but have not relied upon trademark protection in
marketing these products.
PRODUCTS
We currently offer 22 different models of manufactured homes, with a
variety of decors that are marketed under our Deer Valley brand name. We
currently manufacture and sell multi-section manufactured homes, with 100% of
the manufactured homes we produced in 2005 consisting of multi-section units.
We offer over 22 different floor plans, ranging in size from approximately 1,560
to 2,580 square feet. Many of our homes are customized to the homebuyer's
specifications. We believe that our willingness to offer factory trim-out
services and customize floor plans and design features to match homebuyer
preferences is a principal factor which differentiates us from our competitors.
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Each home typically includes three to five bedrooms, a great room which
functions as a living room, family room, and dining room, a kitchen, two or
three bathrooms, and features central air conditioning and heating, a water
heater, a dishwasher, a refrigerator, a microwave, a cook top/range, and an
oven. We offer a wide range of colors, moldings, and finishes and provide
optional features including fireplaces, wood floors, and modern kitchen
counter-tops. We continue to modify and improve the design of our manufactured
homes in consultation with our sales representatives and independent dealer
network. We also utilize computer-aided and other design methods in an effort
to continuously improve the design of our manufactured homes and to permit our
customers to customize their purchases.
Deer Valley has traditionally focused on designing manufactured homes with
features comparable to site-built homes. In addition to offering the consumer
options specified in the preceding paragraph, Deer Valley generally offers
extensive customization of floor plan designs and exterior elevations to meet
specific customer preferences.
Once a manufactured home has been completed at our manufacturing facility,
we utilize an independent trucking company to transport the home to either a
retail sales center or a customer's site. All transportation costs are borne by
the independent retailer or other independent installer, who is responsible for
placing the manufactured home on the customer's site, joining the interior and
exterior seams and providing any utility hookups.
The following table sets forth the total factory homes built and sold,
square footage, and retail price range in 2005:
Number of Homes Sold:
-----------------------
Multi-section Homes 1,385 floors or 842 units
Total Homes 1,385 floors or 842 units
Type of Homes Square Feet Retail Price Range (excluding land)
----------------- ------------- ------------------------------------
Multi-floor Homes 1,560 - 2,580 $59,000 to $119,000
----------------- ------------- ------------------------------------
INDEPENDENT DEALER NETWORK
As of the date of this Filing, we had approximately 80 participating
independent dealers marketing our manufactured homes at 110 locations.
Our independent dealers are not required to exclusively sell homes manufactured
by Deer Valley and will typically choose to offer the products of other
manufacturers in addition to those of Deer Valley. We do not have written
exclusive agreements with our independent dealers and do not have any control
over the operations of, or financial interest in, any of our independent
dealers. Deer Valley is not dependent on any single dealer, and in 2005, Deer
Valley's largest dealer location accounted for approximately 10% of our sales.
We believe that our independent dealer network enables us to avoid the
substantial investment in management, capital, and overhead associated with
company-owned sales centers. Although we do not rely upon exclusive dealer
arrangements, we typically rely upon a single dealer within a given geographical
market to distribute our products. We believe our strategy of selling our
manufactured homes through independent dealers helps to ensure that our
manufactured homes are competitive with those of other companies in terms of
quality, consumer acceptability, product design, and price.
32
MARKETS SERVED
During the fiscal year ended December 31, 2005, we estimate that the
percentage of our revenues by region was as follows:
Regions Primary States Percentage of Revenue by Region
Southeast Alabama, Florida, Georgia, Kentucky, 85%
Mississippi, North Carolina, South Carolina and
Tennessee
South Central Louisiana, Oklahoma, Texas, Illinois, Arkansas, 15%
Missouri, and Indiana
Our manufacturing facility currently serves approximately 80 dealers and
our sales staff maintains and monitors our relationships with each independent
retailer in an effort to maintain excellent relationships with our network of
independent dealers.
OUR SALES FORCE
At December 31, 2005, Deer Valley sold manufactured homes through
approximately 80 independent dealers at approximately 110 retail locations in 15
states, principally in the southeastern and south-central United States.
Deer Valley markets its homes through product promotions tailored to
specific dealer needs. In addition, Deer Valley advertises in local media and
participates in regional manufactured housing shows.
CONTINUING OPERATIONS
MANUFACTURED HOMES - INDUSTRY OVERVIEW
Our manufactured homes are built entirely in our factories, in accordance
with national HUD Standards specified by the U.S. Department of Housing and
Urban Development (HUD) through its Federal Manufactured Home Construction and
Safety Standards.
Manufactured homes are constructed in a factory environment, utilizing
assembly line techniques, which allows for volume purchases of materials and
components and more efficient use of labor. The quality of manufactured homes
has increased significantly, as producers generally build with the same
materials as site-built homes. Many features associated with site-built homes
are included in manufactured homes, such as central heating, name-brand
appliances, carpeting, cabinets, walk-in closets, wall coverings, and porches.
Also, many of our independent dealers offer optional features including
central air conditioning, carports, garages, and furniture packages.
With respect to the retail financing of manufactured housing, interest
rates are generally higher and the terms of loans shorter than for site-built
homes. In recent years, some lenders stopped extending loans to finance the
purchase of manufactured homes. This has had the effect of making financing for
manufactured homes even more expensive and more difficult to obtain relative to
financing for site-built homes.
Due to the difficult financing environment for chattel financing
nationwide, the industry has been trending toward more conventional mortgage
financing for land and homes. Chattel financing is personal property financing
secured only by the home and not by the underlying land on which the home is
sited. In contrast, "land and home" financing is real property financing secured
by the home and by the underlying land on which the home is placed.
The manufactured housing market entered into a steep decline that began in
1999 before stabilizing at or near a historical lows in 2003 and 2004. Although
industry wide shipments overall increased in 2005, such overall increase was,
in large part, a result of homes made to FEMA specifications and sold for
disaster relief. In addition, because the FEMA specifications are for
single-wide homes, the percentage of multisection homes being produced relative
to the total number of manufactured homes being produced also has dipped.
Management believes that the dip in the percentage of multisection homes being
produced relative to the total manufactured home industry is likely a temporary
trend, and will reverse as FEMA sales slow-down. Management continues to be
encouraged by its continued back-log, now at over 300 homes, and the excellent
reviews for its regionally designed homes received from dealers and consumers.
33
WARRANTIES, QUALITY CONTROL, AND SERVICE
Deer Valley endeavors to adhere to strict quality standards and
continuously refines its production procedures. In addition, in accordance with
the construction codes promulgated by HUD, an independent HUD-approved,
third-party inspector inspects each manufactured home for compliance during
construction at our manufacturing facilities.
Deer Valley provides initial home buyers with a one-year limited warranty
against manufacturing defects in the home's construction. In addition, direct
warranties are often provided by the manufacturers of components and appliances.
At each of its two manufacturing facilities Deer Valley has experienced
quality assurance personnel who provide on-site service to dealers and home
buyers. Deer Valley continuously works to enhance its quality assurance systems,
placing high emphasis on improving the value and appeal of Deer Valley's homes
and reducing consumer warranty claims. Please see "Property" below for more
information on our manufacturing facilities.
INDEPENDENT DEALER FINANCING
Substantially all of Deer Valley's independent dealers finance their
purchases through "floor plan" arrangements under which a financial institution
provides the dealer with a loan for the purchase price of the home and maintains
a security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires Deer Valley to enter into a separate repurchase
agreement with the financial institution, under which Deer Valley is obligated,
upon default by the independent dealer, to repurchase the home at Deer Valley's
original invoice price less the cost of all damaged/missing items, plus certain
administrative and shipping expenses. The repurchase agreement relates to homes
that are located on an authorized dealer's lot and in new, sellable condition.
As a result, the potential repurchase liability may be offset by the value of
the repurchased house.
The risk of loss which we face under these repurchase agreements is also
lessened by additional factors listed below at "Reserve for Repurchase
Commitments."
As of December 31, 2005, Deer Valley's contingent repurchase liability
under floor plan financing arrangements through independent dealers was
approximately $9,600,519.
While homes repurchased by Deer Valley under floor-plan financing
arrangements are usually sold to other dealers, no assurance can be given that
Deer Valley will be able to sell to other dealers homes which it may be
obligated to repurchase in the future or that Deer Valley will not suffer more
losses with respect to, and as a consequence of, those arrangements than we have
accrued in our financial statements.
COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon numerous factors,
including total price to the dealer, customization to homeowners' preferences,
product features, quality, warranty repair service, and the terms of dealer and
retail customer financing. Deer Valley has many competitors, ranging from very
large, experienced, and well-financed companies to small, specialized
manufacturers. Numerous firms produce manufactured and modular homes in the
southeastern and south central United States, many of which are in direct
competition with us. In addition, certain of Deer Valley's competitors provide
retail customers with financing from captive finance subsidiaries.
Manufactured homes also compete with other forms of housing, including
site-built and prefabricated homes. Historically, manufactured housing has had a
price advantage over these other forms of housing. That advantage has
deteriorated, however, as the credit market in the manufactured housing industry
has, at both the retail and wholesale levels, continued to tighten, while
interest rates for site-built houses in recent years have been at historic lows,
thus increasing the competitive pressures on manufactured housing.
The capital requirements for entry as a producer in the manufactured
housing industry are relatively small. However, Deer Valley believes that the
qualifications for obtaining inventory financing, which are based upon the
financial strength of the manufacturer and each of its dealers, have recently
become more difficult to meet due to the departure of financial institutions
from the market and efforts of our competitors to add dealers to their sales
network.
34
Deer Valley believes that its willingness to customize floor plans and
design features to match customer preferences, offer factory provided trim-out
and installation services, and provide efficient customer service differentiate
it from most of its competitors in the manufactured housing industry.
COMPETITIVE NICHE
We believe that we have certain competitive advantages in our market
as described below:
WE CONCENTRATE OUR EFFORTS ON MANUFACTURING AND MARKETING TOP-QUALITY HUD CODE
HOMES.
By focusing our manufacturing efforts exclusively on HUD Code homes on a
cost-effective basis and by relying upon our strong network of regional
independent dealers within our geographical market, we have been able to
minimize our administrative and marketing expenses while providing our customers
with a competitively priced product which maximizes value for the purchase price
paid for the home.
WE FOCUS UPON PRODUCING A SUPERIOR QUALITY HOME, WITH ATTENTION TO DETAIL,
QUALITY MATERIALS, AND SERVICE TO OUR CUSTOMERS.
By focusing our manufacturing efforts on the fastest growing sector of the
manufactured housing industry, and by paying attention to manufacturing details,
procuring quality components, and raw materials, and offering factory-provided
trim-out options and service capabilities to our customers, we have focused upon
servicing our customers that purchase a manufactured home from us. By providing
factory trim-out services and walk-through services to a customer, we have been
able to respond quickly to customer inquiries to ensure that our retail
customers are satisfied with the quality of our home products.
WE PRODUCE A QUALITY MANUFACTURED HOME PRODUCT WHICH IS COMPETITIVELY PRICED.
By focusing our efforts on controlling costs and maintaining a high quality
manufacturing facility, we have been able to provide a high-quality product at
an attractive value. Our multi-section homes sold for an average retail price
ranging from $59,000 to $119,000 in 2005, excluding land costs.
WE HAVE AN EXPERIENCED MANAGEMENT TEAM WHICH HAS EXTENSIVE EXPERIENCE IN THE
MANUFACTURED HOUSING BUSINESS.
Our management team is made up of seasoned industry veterans in key
leadership positions whose interests are closely aligned with those of our
shareholders. Some of our senior management team members will receive
substantial additional payments from the acquisition of Deer Valley by the
Company, depending upon the future success and profitability of Deer Valley.
WE HAVE A STRONG NETWORK OF INDEPENDENT DEALERS.
We have a strong network of independent dealers who operate in a highly
fragmented industry consisting of approximately 8,000 dealers in the United
States.
We do not own any company retail stores and do not provide any financial or
insurance-related services which could significantly increase Deer Valley's
administrative expenses.
We maintain close relationships with each of our independent dealers and
carefully monitor our service responsibilities to the customers who purchase a
manufactured home from us. We also provide significant volume discounts to our
dealers in an effort to maintain a strong network of independent dealers.
REGULATION
Deer Valley's manufactured homes are subject to a number of federal, state
and local laws. Construction of manufactured housing is governed by the National
Manufactured Housing Construction and Safety Standards Act of 1974 ("1974 Act").
In 1976, HUD issued regulations under the 1974 Act establishing comprehensive
national construction standards. The HUD regulations cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection, plumbing, and electrical work. Such regulations
preempt conflicting state and local regulations. Deer Valley's manufacturing
facilities and the plans and specifications of its manufactured homes have been
approved by a HUD-designated inspection agency. An independent, HUD-approved
third-party inspector checks each of Deer Valley's manufactured homes for
compliance during at least one phase of construction. In 1994, HUD amended
35
manufactured home construction safety standards to improve the wind force
resistance of manufactured homes sold for occupancy in coastal areas prone to
hurricanes. Failure to comply with the HUD regulations could expose Deer Valley
to a wide variety of sanctions, including closing Deer Valley's plants. Deer
Valley believes its manufactured homes meet or surpass all present HUD
requirements.
Manufactured, modular, and site-built homes are all built with
particleboard, paneling, and other products which contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and requires
manufacturers to warn purchasers concerning formaldehyde-associated risks. Deer
Valley currently uses materials in its manufactured homes which meet HUD
standards for formaldehyde emissions and which otherwise comply with HUD
regulations in this regard. In addition, certain components of manufactured
homes are subject to regulation by the Consumer Product Safety Commission
("CPSC") which is empowered to ban the use of component materials believed to be
hazardous to health and to require the manufacturer to repair defects in
components of its homes. The CPSC, the Environmental Protection Agency, and
other governmental agencies are evaluating the effects of formaldehyde. In
February 1983, the Federal Trade Commission adopted regulations requiring
disclosure of manufactured home's insulation specifications.
Deer Valley Homebuilders Inc.'s manufactured and modular homes are subject
to local zoning and housing regulations. Installation of homes and utility
connections are subject to state and local regulation, and must be complied with
by the dealer or other person installing the home. Deer Valley does not install
homes or connect utilities to homes. A number of states require manufactured and
modular home producers to post bonds to ensure the satisfaction of consumer
warranty claims. Several states have licensing requirements governing the
delivery of manufactured and modular homes. Deer Valley has complied with these
requirements in Alabama, Mississippi, Louisiana, Arkansas, Georgia, Florida,
North Carolina, South Carolina, Tennessee, Kentucky, Indiana, Illinois,
Missouri, Oklahoma, and Texas. Many of these states require that companies renew
their license applications or notify the state after a change in ownership. Deer
Valley is in the process of notifying states of the change in its ownership and
renewing its licenses, when required. Some of the states which require renewal
of licenses have waived the renewal requirement.
REGULATORY APPROVAL
Other than the regulations described above, no federal or state regulatory
approvals are required for our principal products and services.
LEGAL PROCEEDINGS
Although the Company in the normal course of business is subject to claims
and litigation, the Company is not a party to any material legal proceeding nor
is the Company aware of any circumstance which may reasonably lead a third party
to initiate legal proceeding against the Company.
As of the date of this filing, there are no material pending legal or
governmental proceedings relating to our Company or properties to which we are a
party, and to our knowledge there are no material proceedings to which any of
our directors, executive officers, or affiliates are a party adverse to us or
which have a material interest adverse to us.
CAPITAL STRUCTURE
Our authorized capital consists of 2,000,000 shares of common stock, par
value $.001 per share (these shares are referred to herein as "common shares" or
"common stock"), and 1,140,000 shares of preferred stock, par value $.01 per
share (these shares are referred to herein as "preferred shares or "preferred
stock"), having such rights, preferences, privileges and restrictions as may be
designated from time-to-time by our board of directors. On January 18, 2006, our
board of directors designated (a) 750,000 of the preferred shares as Series A
Convertible Preferred Stock (these shares are referred to herein as "Series A
Preferred Stock"), with the rights, preferences, privileges and restrictions
described below, (b) 49,451 of the preferred shares as Series B Convertible
Preferred Stock (these shares are referred to herein as "Series B Preferred
Stock"), with the rights, preferences, privileges and restrictions described
below, and (c) 26,750 of the preferred shares as Series C Convertible Preferred
Stock (these shares are referred to herein as "Series C Preferred Stock"), with
the rights, preferences, privileges and restrictions described below. Our board
of directors designated 300,000 of the preferred shares as Series D Convertible
Preferred Stock (these shares are referred to herein as "Series D Preferred
Stock"), with the rights, preferences, privileges and restrictions described
below. As of June 2, 2006 there were issued and outstanding 1,000,000 shares of
Common Stock, 745,622 shares of Series A Preferred Stock, 49,451 shares of
Series B Preferred Stock, 26,750 shares of Series C Preferred Stock, and 132,081
shares of Series D Preferred Stock. Our shares of Common Stock were held by
approximately 350 stockholders of record as of that date.
36
On April 17, 2006, the Company completed a private placement of $1,320,810
of its Series D Convertible Preferred Stock (the "Series D Offering"). In
connection with the Series D Offering, the Company issued (a) 132,081 shares of
its Series D Convertible Preferred Stock and (b) Series E Common Stock Purchase
Warrants entitling the holder to purchase up to an aggregate of 880,540 shares
of its Common Stock at an exercise price of three dollars ($3.00) per share.
The issuance of the Series D Convertible Preferred Stock and Series E
Warrants were 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.
Such securities were issued only to institutional, accredited investors, and a
limited number of non-accredited investors.
Midtown Partners & Co., LLC ("Midtown Partners"), an SEC and NASD
registered broker dealer, acted as the placement agent for the Company in
connection with the issuance of Series D Convertible Preferred Stock. Midtown
Partners is located in Tampa, Florida. In connection with the Series D
Offering, Midtown Partners is entitled to receive cash commissions equal of
$99,181, plus payment of $19,836 as reimbursement of non-accountable expenses.
Midtown Partners & Co., LLC is also entitled to receive (a) a Series BD-4 Common
Stock Purchase Warrant entitling Midtown Partners to purchase 66,121 shares of
the Company's common stock at an exercise price of one dollar and fifty cents
($1.50) per share, and (c) a Series BD-5 Common Stock Purchase Warrants
entitling Midtown Partners to purchase 66,121 shares of the Company's common
stock at an exercise price of three dollars ($3.00) per share.
The issuance of the Series BD Warrants to Midtown Partners was 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. Such securities were
issued only to institutional or accredited investors.
We currently do not have enough common stock to issue upon the conversion
of all or a material portion of our issued and outstanding Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and the issued and outstanding Series A Warrants, Series B Warrants,
Series C Warrants, Series D Warrant, Series E Warrants, and Series BD Warrants
described below. Although we currently do not have enough stock to issue upon
the conversion or exercise of such securities, management currently intends to
record such securities as equity on our balance sheet as of March 31, 2006 for
the following reasons:
(1) A shareholder holding proxies to vote no less than 50.01% of the
voting capital stock of the Company has acknowledged and agreed to
vote their shares to increase our authorized common stock from
2,000,000 shares to 100,000,000 share at our shareholder meeting
currently scheduled to occur on May 15, 2006. Upon the occurrence of
such proposed increase, we will have sufficient common stock to issue
upon conversion or exercise, as applicable, of all issued Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series A Warrants, Series B Warrants, Series
C Warrants, Series D Warrant, Series E Warrants, and Series BD
Warrants
(2) No Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, or Series D Preferred Stock is convertible before the
earlier of (a) the effective date of our registration statement, or
(b) one (1) year from the date of issuance. In addition, no Series A
Warrants, Series B Warrants, Series C Warrants, Series D Warrant,
Series E Warrants, or Series BD Warrants are exercisable before the
effective date of our registration statement. Upon conversion of each
Series of Preferred Stock, or upon exercise of each Series of
Warrants, by the holder, the Company can settle its obligations upon
such conversion or exercise, as applicable, by delivering registered
or unregistered common stock. Pursuant to the Investor Rights
Agreement dated January 18, 2006, if the Company does not file a
registration statement by certain target dates, registering the common
shares issuable upon conversion of the Series A Convertible Preferred
Stock, and issuable upon exercise of the Series A Warrants and Series
B Warrants, and such registration statement is not declared effective
by certain additional target dates, then the Company is required to
issue, as a penalty, its unregistered Series A Warrants to the holders
of the Series A Convertible Preferred Stock. Under the Investor Rights
Agreement, the maximum aggregate penalty incurred by the Company for
37
failure to timely have the registration statement declared effective,
is the issuance of Series A Warrants exercisable for the number of
common shares equal to nine ( 9 %) percent of the sum of (a) the
number of shares issuable upon conversion of the Series A Convertible
Preferred Stock, and (b) the number of shares issuable upon conversion
of the Series A Warrants (the "Penalty Warrants"). The Penalty
Warrants may be unregistered securities, and, as liquidated damages,
is the sole penalty available upon failure to have the registration
statement declared effective.
COMMON SHARES
Our common shareholders are entitled to one vote per share on all matters
to be voted upon by those shareholders and are not entitled to cumulative voting
for the election of directors. Subject to the rights of our Series A Preferred
Stock to receive preferential dividends, our common shareholders are entitled to
receive ratably, with the holders of Series B Preferred Stock, Series C
Preferred Stock, and Series D Preferred Stock in dividends as they may be
declared by our board of directors out of funds legally available for that
purpose. Subject to (a) the rights of our Series A Preferred Stock to receive a
preferential payment, in an amount equal to stated value plus accrued dividends,
upon liquidation, dissolution, or winding up of the Company, (b) the rights of
our Series B Preferred Stock to receive a preferential payment, in an aggregate
amount of $100,000, upon liquidation, dissolution, or winding up of the Company,
(c) the rights of our Series C Preferred Stock to receive a preferential
payment, in an aggregate amount of $100,000, upon liquidation, dissolution, or
winding up of the Company, and (d) the rights of our Series D Preferred Stock to
receive a preferential payment, in an aggregate amount of $30,000, upon
liquidation, dissolution, or winding up of the Company, our common shareholders
will be entitled to share ratably, with the holders of Series B Preferred Stock
and Series C Preferred Stock on an as-converted basis, in all of the assets
which are legally available for distribution, after payment of all debts and
other liabilities. Our common shareholders have no preemptive, subscription,
redemption or conversion rights. All of our currently outstanding common shares
are validly issued, fully paid and non-assessable.
PREFERRED SHARES
We may issue our preferred shares from time to time in one or more series
as determined by our board of directors. The voting powers and preferences, the
relative rights of each series, and the qualifications, limitations and
38
restrictions thereof may be established by our board of directors without any
further vote or action by our shareholders. None of our preferred stock has a
redemption date. All of our preferred stock converts to common stock on a
post-dividend basis.
SERIES A PREFERRED STOCK
Our Series A Preferred Stock has the following rights, preferences,
privileges and restrictions:
- RANK-Our Series A Preferred Stock ranks senior to our Common Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
any other securities we may issue.
- STATED VALUE - $10.00 per shares of Series A Preferred Stock.
- CONVERSION-Each share of Series A Preferred Stock, at its stated value
of $10 per share, together with any accrued and unpaid dividends, is
convertible at the option of the holder at any time after the Conversion
Date (as defined below) into Common Stock at a price of Seventy Five Cents
($.75) per share of Common Stock. "Conversion Date" shall mean either (1)
the date on which the United States Securities and Exchange Commission
declares effective the Company's registration statement registering the
Series A Preferred Stock for resale, or (2) the date that the holder of the
Series A Convertible Preferred Stock has satisfied the minimum one (1) year
holding requirements set forth in Rule 144(d) promulgated by the United
States Securities and Exchange Commission under the Securities Act, as
amended.
- LIMITATION ON CONVERSION - The conversion rights of each holder of
Series A Preferred Stock is limited in the certificate of designations,
preferences and rights of such stock, so that the holder is not entitled to
convert any Series A Preferred Stock to the extent that, after such
conversion, the sum of the number of shares of common stock beneficially
owned by such holder and its affiliates, will result in beneficial
ownership of more than 4.99% of the outstanding shares of common stock.
- DIVIDENDS - A holder of Series A Preferred Stock are entitled to receive a
dividend at a rate per annum equal to seven percent (7%), payable
semi-annually, at the option of the Company, (i) in cash, to the extent
funds are legally available therefor, or (ii) in shares of registered
Common Stock at a ten percent (10%) discount to the "Market Price" (as such
term is defined in the designations for the Series A Preferred Stock.) The
Series A Preferred Stock ceases to accrue the seven percent (7%) fixed
dividend on the earliest of (a) the payment of the liquidation preference
on each share of Series A Preferred Stock upon the liquidation, dissolution
or winding-up of the Corporation, (b) the conversion of the Series A
Preferred Stock in common stock, or (c) the date two (2) years from the
date of issuance of the share of Series A Preferred Stock. After the date
two (2) years from the date of issuance of a share of Series A Preferred
Stock, the holders of such Series A Preferred Stock participates ratably,
on an as-converted basis, with our common stock as to the payment of
dividends.
- LIQUIDATION RIGHTS - In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, our series 'A'
preferred shareholders are entitled to receive an amount per share equal to
the greater of $10 for each outstanding share plus accrued and unpaid
dividends, as adjusted for stock dividends, stock distributions, splits,
combinations or recapitalizations, or the amount such shareholders would be
entitled to receive had they converted their series 'A' preferred shares
into common shares. These rights are prior and in preference to any
distribution of any of our assets to our common shareholders, holders of
Series B Preferred Stock, holders of Series C Preferred Stock, or holders
of any other series or class of preferred shares.
- VOTING RIGHTS - The holders of Series A Preferred stock have the right
to vote on an as-converted basis, with our common shareholders on all
matters submitted to a vote of our shareholders.
In addition, we cannot, without the prior approval of the holders of
at least fifty percent (50%) of our then issued and Series A Preferred
Stock voting as a separate class:
o liquidate, dissolve, or wind-up the business and affairs of the
Company, or consent to any of the foregoing;
39
o effectuate any merger, reorganization, or recapitalization of the
Company, or enter into any agreement to do any of the foregoing;
o purchase or redeem or pay or declare any dividend or make any
distribution on, any shares of stock other than the Series A Preferred
Stock so long as an accrued dividend on the Series A Preferred Stock
is unpaid, or permit any subsidiary of the Company to take any such
action, except for certain securities repurchased from former
employees, officers, directors, consultants;
o increase the authorized number of shares of Preferred Stock or
Series A Preferred Stock;
o alter or change the voting or other powers, preferences, or other
rights, privileges, or restrictions of the Series A Preferred Stock
contained herein (by merger, consolidation, or otherwise); and
o issue any securities senior to the Series A Preferred Stock,
except certain Qualified Financings (as defined below), or incur any
new debt, except certain Permitted Debt (as defined below). "Qualified
Financing" means an equity offering that (a) the gross aggregate
proceeds raised and liquidation preferences is no more than
$3,000,000; (b) the dividend rate does not exceed ten percent (10%);
and (c) the holders of the new securities do not have voting rights
more favorable than voting rights granted to the Series A Preferred
Stock. "Permitted Debt" means (w) trade payables, inventory financing,
and the accounts receivable factoring, all incurred in the ordinary
course of business; (x) surety bonds and letters of credit issued or
obtained in the ordinary course of business; (y) refinancings of the
Company's existing debt facilities (including a $1,500,000 loan
incurred on January 18, 2006); and (z) up to $3,000,000 of new
indebtedness.
- LIMITATION ON VOTING - The voting rights of each holder of Series A
Preferred Stock is limited in the certificate of designations, preferences
and rights of such stock, so that the holder is not entitled to vote any
Series A Preferred Stock to the extent that such voting will allow such
holder to vote more than 4.99% of the outstanding voting securities of the
Company.
SERIES B PREFERRED STOCK
Our Series B Preferred Stock has the following rights, preferences,
privileges and restrictions:
- RANK - Our Series B Preferred Stock ranks junior to our Series A Preferred
Stock, ranks pari passu with our Series C Preferred Stock and Series D
Preferred Stock as to an initial aggregate liquidation preference of
$100,000, and ranks pari passu, on an as converted basis, with our common
stock, as to all other matters, including voting rights, payment of
dividends, and liquidation, after payment of the initial liquidation
preference of $100,000.
- CONVERSION - Each share of Series B Preferred Stock automatically
converts into one hundred (100) shares of Common Stock upon the
shareholders approval of an increase in the authorized shares of common
stock of the Company.
- DIVIDENDS - Holders of Series B Preferred Stock participate ratably,
on an as-converted basis, with our Common Stock as to the payment of
dividends.
- LIQUIDATION RIGHTS - In the event of any liquidation, dissolution or
winding-up of the Company, either voluntary or involuntary, after payment
of any liquidation preference to the holders of Series A Preferred Stock,
the holders of Series B Preferred Stock are entitled to receive an initial
aggregate liquidation preference of $100,000, and then the holders of
Series B Preferred Stock are entitled to participate ratably, on an
as-converted basis, with our common stock as to any distribution of assets.
- VOTING RIGHTS - The holders of Series B Preferred stock have the right
to vote on an as-converted basis, with our common shareholders on all
matters submitted to a vote of our shareholders.
40
SERIES C PREFERRED STOCK
Our Series C Preferred Stock has the following rights, preferences,
privileges and restrictions:
- RANK - Our Series C Preferred Stock ranks junior to our Series A Preferred
Stock, ranks pari passu with our Series B Preferred Stock and Series D
Preferred Stock as to an initial aggregate liquidation preference of
$100,000, and ranks pari passu, on an as converted basis, with our common
stock, as to all other matters, including voting rights, payment of
dividends, and liquidation, after payment of the initial liquidation
preference of $100,000.
- CONVERSION - Each share of Series C Preferred Stock converts into one
hundred (100) shares of Common Stock, at the option of the holder.
- LIMITATION ON CONVERSION - The conversion rights of each holder of
Series C Preferred Stock is limited in the certificate of designations,
preferences and rights of such stock, so that the holder is not entitled to
convert any Series C Preferred Stock to the extent that, after such
conversion, the sum of the number of shares of common stock beneficially
owned by such holder and its affiliates, will result in beneficial
ownership of more than 4.99% of the outstanding shares of common stock.
- DIVIDENDS - Holders of Series C Preferred Stock participate ratably,
on an as-converted basis, with our Common Stock as to the payment of
dividends.
- LIQUIDATION RIGHTS - In the event of any liquidation, dissolution or
winding-up of the Company, either voluntary or involuntary, after payment
of any liquidation preference to the holders of Series A Preferred Stock,
the holders of Series C Preferred Stock are entitled to receive an initial
aggregate liquidation preference of $100,000, and then the holders of
Series C Preferred Stock are entitled to participate ratably, on an
as-converted basis, with our common stock as to any distribution of assets.
- VOTING RIGHTS - The holders of Series C Preferred stock have the right
to vote on an as-converted basis, with our common shareholders on all
matters submitted to a vote of our shareholders.
- LIMITATION ON VOTING - The voting rights of each holder of Series C
Preferred Stock is limited in the certificate of designations, preferences
and rights of such stock, so that the holder is not entitled to vote any
Series C Preferred Stock to the extent that such voting will allow such
holder to vote more than 4.99% of the outstanding voting securities of the
Company.
41
SERIES D PREFERRED STOCK
Our Series D Preferred Stock has the following rights, preferences,
privileges and restrictions:
- RANK- Our Series D Preferred Stock ranks junior to our Series A Preferred
Stock, ranks pari passu with our Series B Preferred Stock and Series C
Preferred Stock as to an initial aggregate liquidation preference, and
ranks pari passu, on an as converted basis, with our common stock, as to
all other matters, including voting rights, payment of dividends, and
liquidation, after payment of the initial liquidation preference of
$100,000 to the holders of Series B Preferred Stock and Series C Preferred
Stock and of $30,000 to holders of Series D Preferred Stock.
- CONVERSION-Each 1.5 outstanding shares of Series D Convertible Preferred
Stock shall automatically be converted into ten (10) shares of Common Stock
upon the shareholders' approval of an increase in the authorized shares of
common stock of the Company.
- DIVIDENDS-Holders of Series D Preferred Stock participate ratably, on an
as-converted basis, with our Common Stock as to the payment of dividends.
- LIQUIDATION RIGHTS-In the event of any liquidation, dissolution or
winding-up of the Company, either voluntary or involuntary, after payment
of any liquidation preference to the holders of Series A Preferred Stock,
the holders of Series D Preferred Stock are entitled to receive an initial
aggregate liquidation preference of $30,000, and then the holders of Series
D Preferred Stock are entitled to participate ratably, on an as-converted
basis, with our common stock as to any distribution of assets.
- VOTING RIGHTS-The holders of Series D Preferred stock have the right to
vote on an as-converted basis, with our common shareholders on all matters
submitted to a vote of our shareholders.
42
OPTIONS AND WARRANTS CONVERTIBLE INTO COMMON SHARES
As of June 2, 2006, there were outstanding Series A Common Stock Purchase
Warrants entitling the holders to purchase up to an aggregate of 9,941,641
shares of Common Stock at an exercise price of one dollar and fifty cents
($1.50) per share. A Series A warrant is exercisable, in whole or in part, at
any time after the earlier of (a) the date a registration statement covering
such Series A warrants and underlying warrant shares is declared effective, or
(b) twelve (12) months from the date of grant and before the close of business
on the date five (5) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series B Common Stock Purchase
Warrants entitling the holders to purchase up to an aggregate of 4,970,827
shares of Common Stock at an exercise price of two dollars and twenty five cents
($2.25) per share. A Series B warrant is exercisable, in whole or in part, at
any time after the earlier of (a) the date a registration statement covering
such Series B warrants and underlying warrant shares is declared effective, or
(b) twelve (12) months from the date of grant and before the close of business
on the date seven (7) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series C Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of
2,000,000 shares of Common Stock at an exercise price of seventy five cents
43
($.75) per share. The Series C warrant is exercisable, in whole or in part, at
any time after the earlier of (a) the date a registration statement covering
such Series C warrants and underlying warrant shares is declared effective, or
(b) twelve (12) months from the date of grant and before the close of business
on the date five (5) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series D Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of
2,000,000 shares of Common Stock at an exercise price of seventy five cents
($.75) per share. The Series D warrant is exercisable, in whole or in part, at
any time after the earlier of (a) the date a registration statement covering
such Series D warrants and underlying warrant shares is declared effective, or
(b) twelve (12) months from the date of grant and before the close of business
on the date seven (7) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series E Common Stock Purchase
Warrants entitling the holders to purchase up to an aggregate of 880,544 shares
of Common Stock at an exercise price of three dollars ($3.00) per share. The
Series E warrant is exercisable, in whole or in part, at any time after the
earlier of (a) the date a registration statement covering such Series E warrants
and underlying warrant shares is declared effective, or (b) twelve (12) months
from the date of grant and before the close of business on the date three (3)
years from the initial exercise date.
As of June 2, 2006, there were outstanding Series BD-1 Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of
899,162 shares of Common Stock at an exercise price of seventy five cents ($.75)
per share. A Series BD-1 warrant is exercisable, in whole or in part, at any
time after the earlier of (a) the date a registration statement covering such
Series BD-1 warrants and underlying warrant shares is declared effective, or (b)
twelve (12) months from the date of grant and before the close of business on
the date five (5) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series BD-2 Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of
899,162 shares of Common Stock at an exercise price of one dollar and fifty
cents ($1.50) per share. A Series BD-2 warrant is exercisable, in whole or in
part, at any time after the earlier of (a) the date a registration statement
covering such Series BD-2 warrants and underlying warrant shares is declared
effective, or (b) twelve (12) months from the date of grant and before the close
of business on the date five (5) years from the initial exercise date.
44
As of June 2, 2006, there were outstanding Series BD-3 Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of
449,581 shares of Common Stock at an exercise price of two dollars and twenty
five cents ($2.25) per share. A Series BD-3 warrant is exercisable, in whole or
in part, at any time after the earlier of (a) the date a registration statement
covering such Series BD-3 warrants and underlying warrant shares is declared
effective, or (b) twelve (12) months from the date of grant and before the close
of business on the date seven (7) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series BD-4 Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of 61,120
shares of Common Stock at an exercise price of one dollar and fifty cents
($1.50) per share. A Series BD-4 warrant is exercisable, in whole or in part,
at any time after the earlier of (a) the date a registration statement covering
such Series BD-4 warrants and underlying warrant shares is declared effective,
or (b) twelve (12) months from the date of grant and before the close of
business on the date five (5) years from the initial exercise date.
As of June 2, 2006, there were outstanding Series BD-5 Common Stock
Purchase Warrants entitling the holders to purchase up to an aggregate of 61,120
shares of Common Stock at an exercise price of three dollars ($3.00) per share.
A Series BD-5 warrant is exercisable, in whole or in part, at any time after the
earlier of (a) the date a registration statement covering such Series BD-5
warrants and underlying warrant shares is declared effective, or (b) twelve (12)
months from the date of grant and before the close of business on the date five
(5) years from the initial exercise date.
LIMITATION ON EXERCISE OF WARRANTS
The exercise rights of the Series A, B, C, D, E, and BD Warrants are
limited so that the holder is not entitled to exercise such warrant to the
extent that, after such exercise, the sum of the number of shares of common
stock beneficially owned by such holder and its affiliates, will result in
beneficial ownership of more than 4.99% of the outstanding shares of common
stock.
45
The Company issued the warrants described above in connection with the
issuance of the Company's Series A Preferred Stock. We have valued our warrants,
according to the Black-Scholes Option Pricing Model, as follows:
WARRANTS NUMBER YEARS VOLATILITY STRIKE $ STOCK $ RISK FAIR VALUE TOTAL
FREE PER FAIR VALUE
RATE WARRANT $
Class A Warrants 9,941,639 5 32% $ 1.50 $ 2.48 4.82% $ 1.39 13,818,878
years
Class B Warrants 4,970,824 7 32% $ 2.25 $ 2.48 4.84% $ 1.19 5,915,281
years
Class C Warrants 2,000,000 5 32% $ 0.75 $ 2.48 4.82% $ 1.90 3,800,000
years
Class D Warrants 2,000,000 7 32% $ 0.75 $ 2.48 4.82% $ 1.96 3,920,000
years
Class E Warrants 880,540 3 32% $ 3.00 $ 2.48 4.82% $ 0.50 438,421
years
Class BD-1 Warrants 919,162 5 32% $ 0.75 $ 2.48 4.82% $ 1.90 1,746,408
years
Class BD-2 Warrants 919,162 5 32% $ 1.50 $ 2.48 4.82% $ 1.39 1,277,635
years
Class BD-3 Warrants 459,581 7 32% $ 2.25 $ 2.48 4.84% $ 1.19 546,901
years
Class BD-4 Warrants 66,121 5 32% $ 1.50 $ 2.48 4.84% $ 1.39 91,908
years
Class BD-5 Warrants 66,121 3 32% $ 3.00 $ 2.48 4.84% $ 0.50 32,922
years
Total Fair Value of Warrants 31,463,524
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Our common stock trades on the OTC Bulletin Board under the trading symbol
"CYON." The prices set forth below reflect the quarterly high and low bid
information for shares of our common stock during the last two fiscal years, as
reported by the OTC Bulletin Board. These prices reflect inter-dealer prices
without retail markup, markdown, or commission, and may not represent actual
transactions. Please note that the board of directors approved a two-for-one
stock dividend on November 4, 2005, which doubled the numbers of shares
outstanding. This stock dividend did not include our preferred stock. The prices
listed for the quarter which ended on December 31, 2005, reflect post-dividend
sales. The remaining prices, for quarters preceding the dividend, have been
adjusted to retroactively reflect post-dividend sales.
2005 QUARTER ENDED HIGH LOW
December 31, 2005 $4.25 $0.60
September 30, 2005 $0.75 $0.25
June 30, 2005 $0.875 $0.175
March 31, 2005 $0.50 $0.125
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2004 QUARTER ENDED
December 31, 2004 $1.50 $0.895
September 30, 2004 $2.50 $1.15
June 30, 2004 $5.125 $0.30
March 31, 2004 $0.30 $0.30
Our common stock is covered by an SEC rule imposing additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors, which are generally
institutions with assets in excess of $5,000,000, or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly
with a spouse. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to
sell our securities, and also may affect the ability of purchasers of our stock
to sell their shares in the secondary market. The rule may also cause fewer
broker-dealers to be willing to make a market in our common stock, and it may
affect the level of news coverage we receive.
We have not declared or paid any cash dividends on our common stock since
our inception, and our Board of Directors currently intends to retain all
earnings for use in the business for the foreseeable future. Any future payment
of dividends will depend upon our results of operations, financial condition,
cash requirements, and other factors deemed relevant by our Board of Directors.
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
At the end of 2005, Cytation had nominal operations and was a shell company
(as defined in Rule 12b-2 of the Exchange Act). As a result of the acquisition
of Deer Valley Homebuilders, Inc. on January 18, 2006, Cytation now has
significant assets and gross revenues in excess of $3,000,000 per month. To
facilitate understanding of the financial effect of this acquisition and for
clarity of presentation, the following financial statements are attached as
exhibits to this Information Statement:
EXHIBIT
99.1 Financial Statements of Cytation Corporation: audited statements
of income, cash flows and changes in stockholders' equity for the one
year periods ending December 31, 2005 and December 31, 2004.
99.2 Financial Statements of Deer Valley Acquisitions Corp.: audited
balance sheet as of December 31, 2005, and audited statements of
income, cash flows and changes in stockholders' equity for the six
month period ending December 31, 2005.
99.3 Financial Statements of Deer Valley Homebuilders, Inc.: audited
balance sheet as of December 31, 2005, and audited statements of
income, cash flows and changes in stockholders' equity for the years
ended December 31, 2005 and December 31, 2004.
99.4 Pro Forma Financial Statements as of December 31, 2005
(unaudited) for Cytation Corporation, Deer Valley Acquisitions Corp.
and Deer Valley Homebuilders, Inc.
99.5 Consolidated Balance Sheets as of April 1, 2006 (unaudited)
99.6 Consolidated Statements of Operations Three Months ended April 1,
2006 (unaudited) and Three Months ended March 31, 2005 (unaudited)
99.7 Consolidated Statements of Cash Flows Three Months ended April 1,
2006 (unaudited) and Three Months ended March 31, 2005 (unaudited)
It is imperative that investors read the footnotes to the financial
statements attached to this filing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. This filing contains a number of
forward-looking statements which reflect management's current views and
expectations with respect to our business, strategies, products, future results
and events, and financial performance. All statements made in this filing other
47
than statements of historical fact, including statements addressing operating
performance, events, or developments which management expects or anticipates
will or may occur in the future, including statements related to distributor
channels, volume growth, revenues, profitability, new products, adequacy of
funds from operations, statements expressing general optimism about future
operating results, and non-historical information, are forward looking
statements. In particular, the words "believe," "expect," "intend,"
"anticipate," "estimate," "may," variations of such words, and similar
expressions identify forward-looking statements, but are not the exclusive means
of identifying such statements, and their absence does not mean that the
statement is not forward-looking. These forward-looking statements are subject
to certain risks and uncertainties, including those discussed below. Our actual
results, performance or achievements could differ materially from historical
results as well as those expressed in, anticipated, or implied by these
forward-looking statements. We do not undertake any obligation to revise these
forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking
statements, which are based on management's current expectations and projections
about future events, are not guarantees of future performance, are subject to
risks, uncertainties and assumptions (including those described below), and
apply only as of the date of this filing. Our actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors which could cause or contribute to
such differences include, but are not limited to, the risks to be discussed in
our Annual Report on form 10-KSB and in the press releases and other
communications to shareholders issued by us from time to time which attempt to
advise interested parties of the risks and factors which may affect our
business. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
OVERVIEW
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 which wished to become reporting companies
under the Securities Exchange Act of 1934, but which lacked the financial
resources for an initial public offering ("IPO"). Cytation discontinued these
operations in the first quarter of 2005 and was a shell company (as defined in
Rule 12b-2 of the Exchange Act) from the first quarter of 2005 through January
18, 2006.
At the end of 2005, Cytation had nominal operations. The Company had
revenues of $59,114 in fiscal year 2005, as compared to $240,368 in fiscal year
2004. The Company had a net loss of $173,605 in fiscal year 2005, as compared to
a net loss of $696,689 in fiscal year 2004. The differences in the foregoing
figures are the result of Cytation's discontinuation of operations in
contemplation of a reverse merger, which did not occur, and of the purchase of
Deer Valley. As a result of the acquisition of Deer Valley Homebuilders, Inc. on
January 18, 2006, Cytation now has gross revenues in excess of $3,000,000 per
month and significant assets.
Deer Valley is a wholly-owned subsidiary of DVA, which is a wholly-owned
subsidiary of the Company. Deer Valley was formed in January, 2004, and its
offices and principal manufacturing plant are located in Guin, Alabama. Deer
Valley manufactures and designs manufactured homes which are sold to a network
of independent dealers located primarily in the southeastern and south central
regions of the United States. For more information on Deer Valley's lines of
business and principal products and services, please see the section of this
filing entitled "Description of Business."
Deer Valley maintains its business offices in Guin, Alabama and operates
manufacturing facilities in Guin, Alabama and in Sulligent, Alabama. As of the
date of this filing, Deer Valley's plant on the Sulligent Property is producing
approximately 12 floors per week. For more information on Deer Valley's plants,
floors and rates of production, please see the section of this filing entitled
"Property" below.
When evaluating the Company's financial condition and operating
performance, the most important matters on which the Company's executives are
currently focused are increasing daily production at Deer Valley's manufacturing
facilities and evaluating other growth opportunities. Management is currently
evaluating additional plant sites and new product offerings to sustain the
Company's growth rate. The key performance indicators management examines are
(1) Deer Valley's production rate, in "floors" produced per day, (2) the cost of
sales, (3) product gross margins, and (4) the size of Deer Valley's sales
backlog. For more information on these performance indicators, please see the
attached financial statements and notes thereto and the section of this document
entitled "Description of Business."
48
Management feels that the following areas present significant opportunities
or risks for the Company:
1) Securities Compliance
Deer Valley has been operated as a private company which is not subject to
federal securities laws and, therefore, may lack the internal or financial
control infrastructure and procedures necessary for public companies to comply
with the provisions of the Securities Exchange Act and Sarbanes-Oxley
regulations. Deer Valley, DVA, and the Company are coordinating with legal
counsel and auditors to put in place proper financial controls and procedures to
insure full compliance with and disclosure under all relevant securities laws.
Of course, there can be no guarantee that there will be no significant
deficiencies or material weaknesses in the quality of Deer Valley's financial
controls. The greatest challenge Management foresees in implementing proper
controls and procedures is that the cost to Deer Valley of such compliance could
be substantial and could have a material adverse effect on our results of
operations.
2) Downturn in the Manufactured Housing Industry
In recent years, the manufactured housing industry experienced a prolonged
and significant downturn as consumer lenders began to tighten underwriting
standards and curtail credit availability in response to higher than anticipated
rates of loan defaults and significant losses upon the repossession and resale
of homes securing defaulted loans. According to the Manufactured Housing
Institute, domestic shipments of manufactured homes peaked in calendar year 1998
with the shipment of 372,843 homes, before declining to a total of 130,802
manufactured homes in calendar year 2004. The manufactured housing industry's
share of new single-family housing starts also increased to 24% in calendar year
1997 before declining to 7.5% of all new single-family housing starts in
calendar year 2004. Other causes of the downturn include a reduced number of
consumer lenders in the traditional chattel (home-only) lending sector and
higher interest rates on home-only loans. These factors have resulted in
declining wholesale shipments, excess manufacturing and retail locations and
surplus inventory.
Despite the industry decline, which commenced in calendar year 1999, we
have been able to successfully launch our business through an efficient
manufacturing and production facility, flexible product designs, an experienced
and capable sales team, stringent cost controls, and attention to dealer
relations, customer satisfaction and service efforts. Additionally, our
affiliated dealers often endeavor to distinguish Deer Valley by selling our
manufactured homes as part of a land-home package which may be financed by a
conventional mortgage. Finally, Deer Valley focuses on the multi-section sector
of the manufactured housing market, which Management feels offers the greatest
potential for growth because multi-section homes often have an appearance
similar to more traditional site-built homes but are competitively priced when
compared to a site-built home. For more information on multi-section homes,
please see the section of this document entitled "Description of Business."
3) Rising Interest Rates and Residual Effects of Hurricane Katrina
Two important factors could affect our sales: the residual effects of
Hurricane Katrina and rising interest rates. Interest rates have a marked
effect upon the manufactured housing market. Management feels that rising
49
interest rates will drive buyers from traditional "site built" homes toward the
upper end of the manufactured housing market, where our products are positioned.
However, additional increases in interest rates could eventually adversely
affect buyers of Deer Valley products and could cause dealers to reduce
inventories because of "Floor-Plan" expenses.
Hurricane Katrina created a huge need for the rapid replacement of houses
in the Gulf Coast Region. The lure of lucrative "FEMA" contracts caused
suppliers to disrupt or delay normal shipments to their dealers. This created a
rush by dealers to establish new relationships or increase orders with Deer
Valley, which did not interrupt its service in this way. However, because FEMA
has ceased ordering manufactured homes for persons displaced by Katrina, Deer
Valley will face increased competition in our market segment as other producers
return to the commercial supply market.
4) Increased Competition from Other Producers
Recently, large producers of single section homes have focused on either
entering the multi-section home market or expanding their presence in that
market. Accordingly, Deer Valley will likely face increased competition in our
market segment.
5) "Floor Plan" Credit Available to Manufactured Home Dealers
Reduced availability of floor plan financing for manufactured home dealers
could negatively impact Deer Valley's business. A major floor plan financer for
manufactured housing was recently purchased. If this financer or its acquirer
were to discontinue floor plan financing programs for manufactured home dealers,
approximately one-third of the floor plan financing available to manufactured
home dealers would disappear. An occurrence of this type could have a material,
adverse impact upon Deer Valley's business, since dealers would have additional
difficulty in procuring funds to inventory homes based on floor plan financing.
RESULTS OF OPERATIONS - FISCAL YEAR ENDED DECEMBER 31, 2005
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements, included
herewith. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment by our management. Historical financial information presented for the
year ended December 31, 2005 and the year ended December 31, 2004, is that of
the Company on a consolidated versus combined basis with Deer Valley
Homebuilders, Inc., which reflects the Company's acquisition of Deer Valley
Homebuilders, Inc. on January 18, 2006, pursuant to the terms of the Securities
Purchase and Share Exchange Agreement.
Because Cytation discontinued its prior operations in the first quarter of
2005 and was a shell company (as defined in Rule 12b-2 of the Exchange Act) from
the first quarter of 2005 through January 18, 2006, because Deer Valley
constitutes all of the Company's operations, and because management does not
believe that it is informative or useful to compare the results of operations
for the year ended December 31, 2005 on an unaudited pro forma condensed
combined consolidated basis, giving effect to the acquisition of Deer Valley, as
compared to fiscal year 2004, the remainder of this discussion on the fiscal
year ended December 31, 2005 relates to the operations of Cytation's newly
acquired operating subsidiary, Deer Valley. In conjunction with this discussion
it is imperative that investors read the footnotes to the financial statements
attached to this filing.
HISTORICAL RESULTS - FISCAL YEAR ENDED DECEMBER 31, 2005; COMPARISON OF FISCAL
YEAR ENDED DECEMBER 31, 2004.
REVENUES. Overall net revenues for the year ended December 31, 2005 were
$35,717,073. In addition, overall net revenues for the year ended December 31,
2004 were $15,394,215. The increase of $20,322,858 is a direct result of
increased sales and production of homes which increased from 655 floors in 2004
to 1,385 floors in 2005.
50
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consisted of payroll and related expenses for executive, accounting,
and administrative personnel, professional fees, and other general corporate
expenses. Selling, general, and administrative expenses for the year ended
December 31, 2005 were $2,996,023. In addition, general and administrative
expenses for the year ended December 31, 2004 were $1,559,333. These general and
administrative costs have increased primarily due to increased production,
sales, and operating expenses. The production direct cost of goods was generally
in the same ratio to sales for both periods with increased quantity discounts
being offset by a rise in material cost. The remainder of the increase was due
to salary expenses, which increased from $894,722 in 2004 to $1,423,298 in 2005.
NET INCOME (LOSS). The net income for the year ended December 31, 2005 was
$3,366,658. The net income for the year ended December 31, 2004 was $1,010,506.
The increase in net income is primarily due to increased production and sales of
Deer Valley's operations. Because of this and because fixed expenses were spread
over a significantly larger number of units produced with no reduction in price
per unit, the gross profit margin was greater in 2005 than in 2004. The increase
in production can be seen in a comparison of daily output. As of December 31,
2004, Deer Valley produced 4 floors per day, whereas as of December 31, 2005,
Deer Valley produced 7 floors per day.
RESULTS OF OPERATIONS - QUARTER ENDED APRIL 1, 2006
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements, included
herewith. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment by our management. Historical financial information presented for
the quarter ended April 1, 2006 is that of the Company on a consolidated basis
with Deer Valley Homebuilders, Inc. and Deer Valley Acquisitions Corp., which
reflects the Company's acquisition of Deer Valley Homebuilders, Inc. on January
18, 2006.
As of January 1, 2006, the Company has elected to change its fiscal year
ending period from a calendar year ending December 31, with quarters ending
March 31, June 30, and September 30, to a 52-53 week year ending on the Saturday
closest to December 31. Under either system the end of the most recent fiscal
year was December 31, 2005, and the commencement of the first quarter of 2006
was January 1. Accordingly, there were no days which fell under one system but
which were excluded from a period under the other system. Under the 52-53 week
year end, the quarter beginning January 1, 2006 ended April 1, 2006.
Because Cytation discontinued its prior operations in the first quarter of
2005 and was a shell company (as defined in Rule 12b-2 of the Exchange Act) from
the first quarter of 2005 through January 18, 2006 and because Cytation now has
significant revenues from a subsidiary operating in an entirely different
industry, management does not believe that it is informative or useful to
compare the results of operations for the quarter ended April 1, 2006 to the
quarter ended March 31, 2005. As a result, the remainder of this discussion on
the quarter ended April 1, 2006 relates only to the quarter ended April 1, 2006.
In conjunction with this discussion it is imperative that investors read the
footnotes to the financial statements attached to this filing.
HISTORICAL RESULTS - QUARTER ENDED APRIL 1, 2006
REVENUES. Overall gross revenue for the quarter ended April 1, 2006 was
$12,913,079. Deer Valley's second plant in Sulligent Alabama (the "Sulligent
Plant") began operations on or about February 20, 2006, and the first home
manufactured at the Sulligent Plant was delivered on March 1, 2006. Revenues
for the quarter ended April 1, 2006 reflect a full quarter of operations at Deer
Valley's original plant in Guin, Alabama and approximately one month of
operations at the Sulligent Plant. The full impact of the Sulligent Plant on
revenues and earnings will likely not be realized until the second quarter of
2006.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consisted of payroll and related expenses for executive, accounting,
and administrative personnel, professional fees, and other general corporate
expenses. Selling, general, and administrative expenses for the quarter ended
April 1, 2006 were $1,249,327. These general and administrative costs have
increased at our operating subsidiary, Deer Valley, primarily due to increased
production, sales, and operating expenses. At Deer Valley, the production
direct cost of goods has remained generally in the same ratio to sales, with
increased quantity discounts being offset by a rise in material cost. In
addition, profit margins for this quarter were reduced by one-time start-up
costs of approximately $250,000 associated with the opening of the Sulligent
Plant.
51
NET INCOME (LOSS).The net income for the quarter ended April 1, 2006 was
$463,502. After accounting for the dividend payable to preferred shareholders,
the net income available for common stockholders for the quarter ended April 1,
2006 was $350,416. Increased production and sales of Deer Valley's operations
have bolstered net income.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company currently has sufficient cash flow
from operations, available bank borrowings, cash, and cash equivalents to meet
its short-term working capital requirements for the next 12 months. As of April
1, 2006, the Company had approximately $3,555,528 in cash and cash equivalents.
Should our costs and expenses prove to be greater than we currently anticipate,
or should we change our current business plan in a manner which will increase or
accelerate our anticipated costs or capital demand, such as through the
acquisition of new products, our working capital could be depleted at an
accelerated rate.
The Company spends its cash to fund increases in production capacity at its
operating subsidiary, Deer Valley, for special legal, accounting, and audit
services necessary to meet SEC reporting requirements, and to pay expenses. To
the extent that it becomes necessary to raise additional cash in the future as
our current cash and working capital resources are depleted, we will seek to
raise it through the public or private sale of debt or equity securities, the
procurement of advances on contracts or licenses, funding from joint-venture or
strategic partners, debt financing or short-term loans, or a combination of the
foregoing. We also may seek to satisfy indebtedness without any cash outlay
through the private issuance of debt or equity securities.
The net cash provided by operating activities as of December 31, 2005 and
December 31, 2004 was $3,376,520 and $787,139, respectively. The increase was
due to an increase in sales from 655 floors to 1,385 floors from 2004 to 2005.
In particular the net income increased by $2,356,152 from 2004 to 2005 due to an
increase in sales and due to the fact that Deer Valley operated for all of 2005,
unlike 2004. The net cash used in investing activities as of December 31, 2005
and December 31, 2004 was $260,631 and $1,705,470, respectively. This change was
primarily due to differences in capital asset purchases during that period. In
particular, in 2004 Deer Valley purchased its first manufacturing facility in
Guin, Alabama, whereas in 2005 Deer Valley had very few purchases of capital
assets. The net cash used in financing activities as of December 31, 2005 was
$1,748,444, and the net cash produced by financing activities as of December 31,
2004 was $2,482,150. The cash financing activities in 2004 included $1,100,000
invested as capital in the form of common stock, of which 66,000 was repurchased
at end of 2004 as treasury stock, and $1,543,314 in loan proceeds used to
purchase the Guin manufacturing facility and equipment. Net cash financing
activities in 2005 were primarily for distributions to shareholders, which
amounted to $1,670,540. These distributions were more substantial in 2005 than
the $52,618 distributed in 2004 because Deer Valley was more profitable.
The net cash used in operating activities as of April 1, 2006 was $8,711.
The net cash used in investing activities as of April 1, 2006 was $3,022,887,
which primarily reflects the amount related to the purchase of Deer Valley,
which was $6,375,000, net of cash acquired in the purchase, as well as purchases
of equipment. The net cash provided by financing activities as of April 1, 2006
was $6,434,071, the majority of which resulted from the issuance of preferred
stock.
Deer Valley is contingently liable under the terms of repurchase agreements
with financial institutions providing inventory financing for retailers of Deer
Valley's products. These arrangements, which are customary in the industry,
provide for the repurchase of products sold to retailers in the event of default
by the retailer. The risk of loss under these agreements is spread over numerous
retailers. The price Deer Valley is obligated to pay generally declines over the
period of the agreement (typically 18 to 24 months) and the risk of loss is
further reduced by the sale value of repurchased homes. The maximum amount for
which the Company was contingently liable under such agreements amounted to
$9,600,519 and $4,516,365 at December 31, 2005 and 2004, respectively. As of
December 31, 2005 and December 31, 2004, the company had a reserve of $35,000
and $3,500, respectively, for future repurchase losses, based on prior
experience and an evaluation of dealers' financial conditions. The maximum
amount for which Deer Valley is contingently liable under such agreements
amounted to $12,272,510 at April 1, 2006. As of April 1, 2006, the Company had a
reserve of $60,000 for future repurchase losses, based on prior experience and
an evaluation of dealers' financial conditions. Deer Valley to date has not
52
experienced significant losses under these agreements, and management does not
expect any future losses to have a material effect on the accompanying financial
statements. The risk of loss which we face under these repurchase agreements is
also lessened by additional factors listed below under "Reserve for Repurchase
Commitments."
FINANCING
Deer Valley had a fixed-rate revolving line of credit with State Bank and
Trust of Guin, Alabama. Under this line of credit entered into on March 3, 2004,
the Company could make loan draws for business purposes up to a maximum amount
of $500,528 in the aggregate.
The line of credit matured on March 25, 2005 and was not renewed.
On April 12, 2006, Deer Valley entered into a Loan and Security Agreement
with Fifth Third Bank providing for a revolving line of credit in an amount not
to exceed Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00)
(the "Loan") evidenced by a revolving credit note (the "Note") and secured by
accounts receivable, inventory, equipment and all other tangible and intangible
personal property of Deer Valley, DVA, and Cytation. The purpose of the Loan is
to provide working capital, to provide Letter of Credit support, to replace Deer
Valley's previous revolving line of credit with State Bank and Trust, and to
provide interim financing for the acquisition of the real property on which Deer
Valley operates a plant in Sulligent, Alabama. The Loan has a one year term and
has a variable interest rate at 2.60% above LIBOR. Upon issuance of a letter of
credit, Deer Valley is charged a letter of credit fee equal 1.00% of the face
amount of the letter of credit. The Loan provides for conditions to meet prior
to each advance, including financial ratios.
In addition to the revolving line of credit described in the preceding
paragraph, Deer Valley, during its normal course of business, is required to
issue irrevocable standby letters of credit in the favor of independent third
party beneficiaries to cover obligations under repurchase agreements.
On May 26, 2006, Deer Valley entered into a Loan Agreement with Fifth Third
Bank (the "Lender") providing for a loan of Two Million and No/100 Dollars
($2,000,000.00) (the "Loan") evidenced by a promissory note and secured by a
first mortgage on Deer Valley's properties in Guin, Alabama and Sulligent,
Alabama, including the structures and fixtures located thereon, as well as Deer
Valley's interest in any lease thereof. The purpose of the loan is to pay off an
existing loan from another bank secured by the Guin property and to reduce the
outstanding balance on Deer Valley's revolving credit facility with the Lender.
The net effect of the reduction in the revolving credit balance is to increase
the credit available to the Company for working capital under its revolving
facility. The Loan has a term from May 26, 2006 through June 1, 2011 and has a
variable interest rate at 2.25% above LIBOR. There is no prepayment penalty.
Future advances are available under the Loan Agreement, subject to approval by
the Lender. Also on May 26, 2006, the Company and DVA guaranteed the Loan.
Should Deer Valley default, thereby triggering acceleration of the Loan,
Cytation and DVA would become liable for payment of the Loan.
As of April 1, 2006, the following letters of credit were issued and in
force:
Letter of Credit No. 98 issued through State Bank & Trust in the
amount of $400,000 to the favor of beneficiary Bombardier Capital expired
53
on January 27, 2006 and was replaced with letter of credit to GE Commercial
on January 27, 2006 and expiring January 27, 2007. The beneficiary was
changed from Bombardier Capital to GE, due to GE's buyout of Bombardier's
manufactured housing floor plan division. Personally guaranteed by Joel
Logan, President and General Manager of Deer Valley.
Letter of Credit No. 93 issued through State Bank & Trust in the
amount of $100,000 to the favor of beneficiary 21st Mortgage Corporation,
issued May 3, 2005 and expiring May 3, 2006, pending renewal. Personally
guaranteed by the three largest former shareholders of Deer Valley.
Letter of Credit No. 97 issued through State Bank & Trust in the
amount of $150,000 to the favor of Textron Financial Corporation, issued
August 29, 2005 and expiring August 29, 2006, pending renewal.
All of the Letters of Credit above are required under the terms of the
Repurchase Agreements described below in the section entitled "Critical
Accounting Estimates." As of April 1, 2006, no amounts had been drawn on the
above irrevocable letters of credit by the beneficiaries.
As of April 1, 2006, Deer Valley was also obligated under a Promissory Note
payable to State Bank & Trust of Guin, Alabama (the "B&T Note") having a
principal balance of $1,465,904. The B&T Note is payable in monthly installments
of $10,000 (which includes interest at 5.00%) and matures on November 11, 2008.
The B&T Note is secured by all assets of the Company and is personally
guaranteed by two former stockholders of the Company.
Management does not believe that current debt commitments will make it
difficult to secure additional debt or equity financing, since the company has
no significant debt other than long-term mortgages, trade payables, and the
earnout agreement referenced in "Off-Balance Sheet Arrangements" below.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. For a description of those estimates, see Note 5, Critical
Accounting Policies and Estimates, contained in the explanatory notes to the
Company's financial statements for the quarter ended April 1, 2006, which are
attached as exhibits to this filing. On an ongoing basis, we evaluate our
estimates, including those related to reserves, deferred tax assets and
valuation allowance, impairment of long-lived assets, fair value of equity
instruments issued to consultants for services, and estimates of costs to
complete contracts. We base our estimates on historical experience and on
various other assumptions which we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities which are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. However, we believe that our estimates, including
those for the above-described items, are reasonable.
54
CRITICAL ACCOUNTING ESTIMATES
Management is aware that certain changes in accounting estimates employed
in generating financial statements can have the effect of making the Company
look more or less profitable than it actually is. Management does not believe
that either the Company or its auditors have made any such changes in accounting
estimates. A summary of the most critical accounting estimates employed by the
Company in generating financial statements follows below.
WARRANTIES
We provide our retail buyers with a one-year limited warranty covering
defects in material or workmanship, including plumbing and electrical systems.
We record a liability for estimated future warranty costs relating to homes
sold, based upon our assessment of historical experience and industry trends. In
making this estimate, we evaluate historical sales amounts, warranty costs
related to homes sold and timing in which any work orders are completed. We have
a reserve for estimated warranties of $750,000 as of December 31, 2005, compared
to $550,000 as of December 31, 2004 and $592,500 as of April 2, 2006. Although
we maintain reserves for such claims, there can be no assurance that warranty
expense levels will remain at current levels or that the reserves that we have
set aside will continue to be adequate. A large number of warranty claims which
exceed our current warranty expense levels could have a material adverse affect
upon our results of operations.
VOLUME INCENTIVES PAYABLE
We have relied upon volume incentive payments to our independent dealers
who retail our products. These volume incentive payments are accounted for as a
reduction to gross sales, and are estimated and accrued when sales of our
manufactured homes are made to our independent dealers. Volume incentive
reserves are recorded based upon the annualized purchases of our independent
dealers who purchase a qualifying amount of home products from us. We accrue a
liability to our dealers, based upon estimates derived from historical payout
rates. Volume incentive costs represent a significant expense to us, and any
significant changes in actual payouts could have an adverse affect on our
financial performance. We had a reserve for volume inventives payable of
$137,779 as of April 2, 2006.
RESERVE FOR REPURCHASE COMMITMENTS
Most of our independent dealers finance their purchases under a wholesale
floor plan financing arrangement under which a financial institution provides
the dealer with a loan for the purchase price of the home and maintains a
security interest in the home as collateral. When entering into a floor plan
arrangement, the financial institution routinely requires that we enter into a
separate repurchase agreement with the lender, under which we are obligated,
upon default by the independent dealer, to repurchase the manufactured home at
our original invoice price less the cost of administrative and shipping
expenses. Our potential loss under a repurchase obligation depends upon the
estimated net resale value of the home, as compared to the repurchase price that
we are obligated to pay. This amount generally declines on a predetermined
schedule over a period that usually does not exceed 24 months.
The risk of loss that we face under these repurchase agreements is lessened
by several factors, including the following:
(i) the sales of our products are spread over a number of independent
dealers,
(ii) we have had only isolated instances where we have incurred a
repurchase obligation,
(iii) the price we are obligated to pay under such repurchase
agreements declines based upon a predetermined amount over a period
which usually does not exceed 24 months, and
(iv) we have been able to resell homes repurchased from lenders at
current market prices, although there is no guarantee that we will
continue to be able to do so.
55
The maximum amount for which the Company is contingently liable under such
agreements amounted to $9,600,519 at December 31, 2005. As of December 31, 2005
and December 31, 2004 we had a reserve of $35,000 and $3,500, respectively,
established for future repurchase commitments, based upon our prior experience
and evaluation of our independent dealers' financial conditions. The maximum
amount for which the Company is contingently liable under such agreements
amounted to approximately $12,272,510 at April 1, 2006. As of April 1, 2006, we
had a reserve of $60,000 established for future repurchase commitments, based
upon our prior experience and evaluation of our independent dealers' financial
conditions. This represents an increase from the reserve amount of $35,000, due
to a substantial increase in Deer Valley's sales compared to the first quarter
of 2005. Because Deer Valley to date has not experienced any significant losses
under these agreements, management does not expect any future losses to have a
material effect on our accompanying financial statements.
REVENUE RECOGNITION
Revenue for Deer Valley's products sold to independent dealers is generally
recorded when all of the following conditions have been met: (i) an order for
the home has been received from the dealer, (ii) an agreement with respect to
payment terms has been received, and (iii) the home has been shipped and risk of
loss has passed to the dealer.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." 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 which lack commercial substance, the FASB believes
this statement produces financial reporting which 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,
"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
which begins after June 15, 2005. For public entities filing as small
business issuers, SFAS 123(R) is applicable as of the beginning of the
first interim or annual reporting period beginning after December 15, 2005.
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As of April 1, 2006, the Company had not yet created a stock incentive plan
which authorizes the issuance of options to purchase common stock. Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123(R),using the modified-prospective-transition method. Under that
transition method, compensation cost for all share-based payments granted prior
to, but not yet vested as of January 1, 2006, are based on the grant date fair
value estimated in accordance with the original provisions of SFAS No. 123 and
on the compensation cost for all share-based payments granted subsequent to
January 1, 2006, based on the grant-date fair value estimated in accordance with
the provisions of SFAS No.123(R). Results for prior periods have not been
restated. Adopting SFAS No.123(R) on January 1, 2006 did not have any effect on
the Company's net income and earning per share for the quarter ended April 1,
2006 since no options were granted.
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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.
PROPERTY
The Company's executive and operating offices are located at 4902
Eisenhower Blvd., Suite 185, Tampa, FL 33634. The telephone number at the
Company's executive offices is (813) 885-5998. Deer Valley's principal
manufacturing plant and offices are located at 205 Carriage Street, Guin,
Alabama 35563, and its telephone number is (205) 468-8400. Deer Valley's
principal manufacturing plant and company offices consists of a manufacturing
plant with 107,511 square feet, a frame shop with 10,800 square feet, material
shed of 23,172 square feet and offices with 11,250 square feet of space. Deer
Valley owns the buildings and 25.5 acres underlying these facilities.
Due to increased sales, Management believed that the Company needed to
obtain a small satellite production facility near to its facility in Guin,
Alabama, in 2006. On January 25 2006, the Company approved Deer Valley
Homebuilders, Inc. entering into a Sales Contract with Steve J. Logan to
purchase real property located at 7668 Highway 278 in Sulligent, Alabama (the
"Sulligent Property").
SUBSEQUENT EVENT
On April 18, 2006, Deer Valley purchased the Sulligent Property from Steve
J. Logan. The Sulligent Property consists of a 65,992 square foot manufacturing
plant located on approximately 13 acres of land. The purchase price for the
Sulligent Property was $725,000, paid in cash at closing. Deer Valley obtained
the funds for the purchase price of the Sulligent Property from its revolving
line of credit described above under the heading "Financing." Prior to acquiring
the Sulligent Property, Deer Valley's plant on the Sulligent Property operated
beginning on February 20, 2006 under a short-term lease.
Deer Valley does not invest in real estate or real estate mortgages except
for those necessary to support the company's normal business purposes.
WEBSITE
Deer Valley maintains a website at www.deervalleyhb.com. The information
contained on Deer Valley's website is not a part of this filing, nor is it
incorporated by reference into this filing.
OFF-BALANCE SHEET ARRANGEMENTS
In connection with the purchase of Deer Valley Homebuilders on January 18,
2006, 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.
PROPOSALS BY SECURITY HOLDERS
No security holders have submitted to the Registrant any proposals or
notice to present the same for action at the meeting.
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INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED UPON
(a) Except as set forth in this Schedule 14C, no officer, director or
director nominee of the Company has any substantial interest, direct or
indirect, in the matters to be acted upon, other than his role as an officer or
director of the Company.
(b) No director of the Company has informed the Company that he intends to
oppose any action taken by the Company set forth in this Information Statement.
COMPANY CONTACT INFORMATION
Only one Information Statement is being delivered to multiple security
holders sharing an address unless the Company has received contrary instructions
from one or more of the security holders. The Company shall deliver promptly,
upon written or oral request, a separate copy of the Information Statement to a
security holder at a shared address to which a single copy of the document was
delivered. A security holder can notify the Company that the security holder
wishes to receive a separate copy of the Information Statement by sending a
written request to the Company at 4902 Eisenhower Blvd., Suite 185, Tampa, FL
33634; or by calling the Company at (813) 885-5998 and requesting a copy of the
Information Statement. A security holder may utilize the same address and
telephone number to request either separate copies or a single copy for a single
address for all future information statements and annual reports.
All inquires regarding our Company should be addressed to our Company's
principal executive office:
CYTATION CORPORATION
4902 Eisenhower Blvd., Suite 185
Tampa, FL 33634
(813) 885-5998
Attention: Charles G. Masters, President and Chief Executive Officer
EXHIBITS
99.1 Financial Statements of Cytation Corporation: audited statements
of income, cash flows and changes in stockholders' equity for the one
year periods ending December 31, 2005 and December 31, 2004.
99.2 Financial Statements of Deer Valley Acquisitions Corp.: audited
balance sheet as of December 31, 2005, and audited statements of
income, cash flows and changes in stockholders' equity for the six
month period ending December 31, 2005.
99.3 Financial Statements of Deer Valley Homebuilders, Inc.: audited
balance sheet as of December 31, 2005, and audited statements of
income, cash flows and changes in stockholders' equity for the years
ended December 31, 2005 and December 31, 2004.
99.4 Pro Forma Financial Statements as of December 31, 2005
(unaudited) for Cytation Corporation, Deer Valley Acquisitions Corp.
and Deer Valley Homebuilders, Inc.
99.5 Consolidated Balance Sheets as of April 1, 2006 (unaudited)
99.6 Consolidated Statements of Operations Three Months ended April 1, 2006
(unaudited) and Three Months ended March 31, 2005 (unaudited)
99.7 Consolidated Statements of Cash Flows Three Months ended April 1, 2006
(unaudited) and Three Months ended March 31, 2005 (unaudited)
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99.8 Auditor's Letter.
99.9 Proposed Articles of Incorporation of Florida Corporation.
99.10 Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock
99.11 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock
99.12 Certificate of Designation, Preferences and Rights of Series C
Convertible Preferred Stock
99.13 Certificate of Designation, Preferences and Rights of Series D
Convertible Preferred Stock
BY ORDER OF THE BOARD OF DIRECTORS
/S/CHARLES G. MASTERS
---------------------
CHARLES G. MASTERS
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
TAMPA, FLORIDA
June 2, 2006
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