UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED December 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _________________
COMMISSION FILE NUMBER: 001-14800
CYTATION CORPORATION
(Name of small business issuer in its charter)
DELAWARE 16-0961436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4902 EISENHOWER BLVD., SUITE 185, TAMPA, FL 33634
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 885-5998
Securities registered under 12(b) of the Exchange Act: None
Securities registered under 12 (g) of the Exchange Act:
Common Stock, par value $0.001
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(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13
or Section 15(d) of the Exchange
Act. Yes No X
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X (1)
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The issuer's revenues for its most recent fiscal year were $59,114 (2). The
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(1)The Registrant ceased being a shell company (as defined in Rule 12b-2 of
the Exchange Act) on January 18, 2006.
(2) As of December 31, 2005. On January 18, 2006, the Registrant acquired
an operating subsidiary with annual revenues in excess of $35,000,000.
aggregate market value of the voting and and non-voting common equity held by
non-affiliates as of March 22, 2006 is $2,856,153.96.Market value based upon a
sales occurring on that date. Calculation does not account for common shares
issuable upon conversion of convertible preferred stock. For purposes of the
foregoing calculation only, directors and executive officers and holders of 10%
or more of the issuer's common capital stock have been deemed affiliates. The
number of shares outstanding of the Registrant's common stock as of December 31,
2005 was 982,662.
Transitional Small Business Disclosure Format: Yes No X
---- ----
------------------------
(3) Market value based upon sales occuring on that date. Calculation does
not account for common stock shares issuable upon conversion of convertible
preferred stock.
CYTATION CORPORATION
2005 FORM 10-KSB
TABLE OF CONTENTS
PAGE
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ITEM
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ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 9
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 12
ITEM 7. FINANCIAL STATEMENTS 19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 20
ITEM 8A. CONTROLS AND PROCEDURES 20
ITEM 8B. OTHER INFORMATION 21
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 22
ITEM 10. EXECUTIVE COMPENSATION 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS 28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 32
ITEM 13. EXHIBITS 33
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 34
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this Annual Report on
Form 10-KSB may contain forward-looking statements. This information may
involve known and unknown risks, uncertainties, and other factors which may
cause our actual results, performance, or achievements to be materially
different from the future results, performance, or achievements expressed or
implied by any forward-looking statements. Forward-looking statements, which
involve assumptions and describe our future plans, strategies, and expectations,
are generally identifiable by use of the words "may," "should," "expect,"
"anticipate," "estimate," "believe," "intend," or "project" or the negative of
these words or other variations on these words or comparable terminology.
ITEM 1. DESCRIPTION OF BUSINESS
Unless the context requires otherwise, "Cytation" refers to Cytation
Corporation, a Delaware corporation, "DVA" refers to Deer Valley Acquisitions
Corp., a Florida corporation, and "Deer Valley" refers to Deer Valley
Homebuilders, Inc., an Alabama corporation. Unless the context requires
otherwise, "Company," "registrant," "we," "us," and "our" and similar terms
refers to Cytation, DVA, and Deer Valley, on a consolidated basis, after
consummation of the acquisition of DVA and Deer Valley on January 18, 2006.
BUSINESS DEVELOPMENT
Cytation was incorporated under the laws of Delaware on November 1, 1999.
Until June 20, 2001, Cytation 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, Cytation 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, Cytation engaged in the business of providing consulting and
related services to private companies wishing to become reporting companies
under the Securities Exchange Act of 1934. In the first quarter of 2005,
Cytation discontinued all business operations except finding an appropriate
private entity with which it could acquire or merge. Cytation'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").
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"). DeerValley 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
-1-
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.
In connection with the Securities Purchase and Share Exchange Agreement, on
January 18, 2006, the Company issued 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"). In March 2006, the lender of these funds 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).
Since January 18, 2006, the Company has closed on the sale of an additional
$2,253,480 (or 225,348 shares) of Series A Preferred Stock.
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 in this Item I or Part I relates to the operations of Cytation's
newly acquired operating subsidiary, Deer Valley.
Deer Valley is an Alabama corporation with its business offices located at
205 Carriage Street, P.O. Box 310, Guin, Alabama 35563 and is engaged in the
production, sale and marketing of manufactured homes in the southeastern and
south central U.S. housing market. As of the date of this filing, we
manufacture all of our factory-built homes in two manufacturing facilities, one
located in Guin, Alabama and one located in 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 filing, we are selling our manufactured homes in 15 states through our
network of independent dealers and retail centers.
BUSINESS OF THE ISSUER
OVERVIEW
Each home we manufacture is 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 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 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 shipped in November. Our production and marketing efforts have
concentrated on multi-section homes and, as of the date of this filing, 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.
-2-
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. This
facility normally functions 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 2006, the Company opened
a 65,992 square foot plant in Sulligent, Alabama. Please see "Description of
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.
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.
-3-
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 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.
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.
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.
-4-
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)
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Multi-floor Homes 1,560 - 2,580 $59,000 to $119,000
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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.
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.
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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.
As acceptance of manufactured housing has increased among higher-income
buyers and as financing for single-section homes has become more scarce, demand
has shifted toward larger, multi-section homes, which accounted for 74% of
industry shipments in calendar year 2004, up from 47% in calendar year 1991,
according to data published by the Manufactured Housing Institute (MHI).
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.
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.
Deer Valley has experienced quality assurance personnel at each of its
manufacturing facilities who provide on-site service to dealers and home buyers.
-6-
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.
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 under Item 6 of this
filing, 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.
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:
-7-
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
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.
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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's manufactured and modular homes are also subject to local
zoning and housing regulations. Utility connections are subject to state and
local regulation, and must be complied with by the dealer or other person
installing the home. A number of states require manufactured and modular home
producers to post bonds to ensure the satisfaction of consumer warranty claims.
Several states have adopted procedures governing the installation 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 compliance or
notify the state after a change in ownership. Deer Valley is taking the steps
necessary to remain in compliance with these state laws.
REGULATORY APPROVAL
Other than the regulations described above, no federal or state regulatory
approvals are required for our principal products and services.
PATENTS AND LICENSES
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.
RESEARCH AND DEVELOPMENT
Due to the nature of our business, we do not have a significant formal
research and development program and we do not allocate significant funds for
research and development activities.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
There are no special or unusual environmental laws or regulations which
require us to make material expenditures or which can be expected to materially
impact the operation of our business.
EMPLOYEES
We currently have approximately 350 employees, all of whom are full-time.
None of our employees are represented by a labor union and we consider our
relationships with our employees to be good.
ITEM 2. DESCRIPTION OF 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
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manufacturing plant and offices are located at 205 Carriage Street, Guin,
Alabama 35563, and its telephone number is (205) 468-8400. Deer Valley's
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. Deer Valley has
executed a mortgage on the Guin property in favor of State Bank and Trust in the
amount of $1,502.838.75, with interest fixed at 5% per annum. The payment
schedule is as follows: 55 payments of $10,000 beginning April 11, 2004 and
continuing at monthly intervals. A final payment of unpaid principal plus
accrued interest is due November 11, 2008. The current balance is
$1,403,789.42.
On January 25 2006, the Company approved Deer Valley Homebuilders, Inc., an
indirect wholly-owned subsidiary of the Company, entering into a Sales Contract
with Steve J. Logan to purchase real property, with 65,992 square feet of
manufacturing space, located at 7668 Highway 278 in Sulligent, Alabama (the
"Sulligent Property"). The purchase price for the Sulligent Property is
$725,000, and the closing is scheduled to occur on or about April 30, 2006. We
intend to obtain a loan, secured by a mortgage on the Sulligent Property, to
finance the purchase price for the Sulligent Property. Currently, Deer Valley
is occupying the Sulligent Property pursuant to a short term lease. Deer
Valley's plant on the Sulligent Property opened on February 20, 2006.
We believe that the general physical condition of our manufacturing
facilities and executive offices is adequate to satisfy our current production
needs. Accordingly, there are no present plans to improve or develop any of the
unimproved or undeveloped portions of the Guin or Sulligent plants.
Except for ownership of the manufacturing facilities we occupy or intend to
occupy, Deer Valley does not invest in real estate or real estate mortgages.
It is not our policy to acquire properties for capital gain or rental income.
In our opinion, we have sufficient property insurance for our property.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent dated November 7, 2005, permitted by the Company's
Certificate of Incorporation, as amended, under Delaware law, the Company's
stockholders approved the withdrawal of the election to be a "business
development company" ("BDC") and the filing of a Form N 54C. There were 357,194
votes for such withdrawal (73% of the issued and outstanding common stock at the
time) and none opposed. On November 25, 2005, the Company mailed a Schedule 14C
Information Statement (after previously submitting it for review and comment by
the Securities and Exchange Commission) to its stockholders with respect to this
matter in which the consequences of the Company's withdrawal of its election to
be a BDC were fully disclosed.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
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. Except for the prices listed for the quarter which ended on
December 31, 2005, the prices in the following table reflect pre-dividend sales.
-------------------------------------------------------
2005 QUARTER ENDED HIGH LOW
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December 31, 2005 $4.25 $.60
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September 30, 2005 $1.50 $.50
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June 30, 2005 $1.75 $.35
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March 31, 2005 $1.00 $.25
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2004 QUARTER ENDED
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December 31, 2004 $3.00 $1.79
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September 30, 2004 $5.00 $2.30
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June 30, 2004 $10.25 $0.60
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March 31, 2004 $.60 $.60
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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.
HOLDERS OF COMMON STOCK
On March 22, 2006, there were 332 registered holders or persons otherwise
entitled to hold our common shares pursuant to a shareholders' list provided by
our transfer agent, Computershare Investor Services. The number of registered
shareholders excludes any estimate by us of the number of beneficial owners of
common shares held in street name.
DIVIDENDS
On November 4, 2005, in connection with the anticipated purchase of Deer
Valley, the Board of Directors of the registrant declared a 2-for-1 forward
stock dividend on its common stock, par value $.001, for stockholders of record
on November 14, 2005. The payment date was November 23, 2005.
-11-
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.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
None.
RECENT SALES OF UNREGISTERED SECURITIES
Except as reported in previous filings, we did not sell any securities in
transactions which were not registered under the Securities Act in the quarter
ended December 31, 2005.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
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 next 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
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.
-12-
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. 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
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.
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 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 the company's lines of
business and principal products and services, please see the section of this
filing entitled "Description of Business."
Deer Valley operates its manufacturing facility and business offices in
Guin, Alabama. Also, on January 25 2006, the Company approved Deer Valley
Homebuilders, Inc., an indirectly wholly-owned subsidiary of the Company,
entering into a Sales Contract with Steve J. Logan to purchase real property
located at 7668 Highway 278 in Sulligent, Alabama (the "Sulligent Property").
The purchase price for the Sulligent Property is $725,000 and the closing is
currently scheduled to occur on or before April 30, 2006. The Company will
finance the Sulligent Property. As of the date of this filing, the details of
the financing have not been finalized. The Sales Contract is subject to certain
contingencies, including a standard title contingency. Deer Valley's plant on
the Sulligent Property opened on February 20, 2006 and, as of the date of this
filing, is producing approximately 12 floors per week. For more information on
floors and rates of production, please see the section of this filing entitled
"Description of Business."
When evaluating the Company's financial condition and operating
performance, the most important matters on which the company's executives are
currently focusing are raising additional capital and establishing a new credit
line with a larger bank, in order to facilitate growth. Management is currently
negotiating with bankers to secure such a credit line and feels that the
availability of the current financial data presented in the financial statements
attached hereto may expedite that process. The key performance indicators
management examines are (1) the Company's production rate, in "floors" produced
per day, (2) the cost of sales, and (3) the size of the Company'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."
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 forsees 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. Please see Item 8A of this filing for more information on internal
controls and procedures.
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
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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
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 has created a huge need for the rapid replacement of
houses in the Gulf Coast Region. The lure of lucrative "FEMA" contracts has
caused other suppliers to disrupt or delay normal shipments to their dealers.
This has created a rush by dealers to establish new relationships or increase
orders with Deer Valley, which has not interrupted its service in this way. The
hurricane effect could increase even further this summer, as landowners in
hurricane-damaged areas receive government permission to rebuild, new storms
destroy existing housing, and Gulf Coast residents return to their home towns.
However, hurricane-related disruptions in the availability of the raw materials
we use to construct our products could have a material adverse impact upon our
business.
4) "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
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
-14-
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.
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company 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. The Company's
sales of manufactured homes generate an average positive cash flow in excess of
$281,000 per month. 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 and expenses,
such as through the acquisition of new products, the depletion of our working
capital would be accelerated. Management believes that the Company will need
additional working capital to sustain its present rate of growth in the long
term. Accordingly, the Company may seek additional equity financing in an
amount up to $3,000,000.
The company spends its cash to pay expenses and to fund increases in
production capacity. 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 Company is contingently liable under the terms of repurchase agreements
with financial institutions providing inventory financing for retailers of the
Company'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 the Company 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 is contingently liable under such
agreements amounted to $9,600,519 and $4,516,365 at December 31, 2005 and 2004,
respectively. The remaining outstanding contingent liability arising from sales
to dealers prior to December 31, 2004 amounted to $525,000 on the date of this
filing. 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
Company to date has not experienced significant losses under these agreements,
-15-
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
The Company 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. Amounts drawn on the line of credit accrue
interest at the fixed interest rate of 5.5%. The line of credit matured on
March 25, 2005 and was not renewed. The line of credit was secured by inventory
and accounts receivable of the Company.
In addition to the revolving line of credit described in the preceding
paragraph, the Company, during its normal course of business, is required to
issue irrevocable standby letters of credit in the favor of independent third
party beneficiaries. As of October 1, 2005, 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
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.
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 shareholders of the Company.
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 December 31, 2005, no amounts had been drawn on
the above irrevocable letters of credit by the beneficiaries.
The Company is also obligated under a Promissory Note payable to State Bank
& Trust of Guin, Alabama (the "B&T Note"). 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 major 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 1, Nature of
Business , Basis of Presentation, and Summary of Significant Accounting
Policies, contained in the explanatory notes to Deer Valley Homebuilders, Inc.'s
financial statements for the fiscal year ended December 31, 2005, contained in
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
-16-
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.
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. 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.
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
-17-
(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.
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. 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 our products sold to independent dealers are 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. Once the standard is
adopted, we currently expect full-year 2006 diluted net earnings per share to be
reduced by approximately $.01 for stock option. Application of this
pronouncement requires significant judgment regarding the inputs to an option
pricing model, including stock price volatility and employee exercise behavior.
-18-
Most of these inputs are either highly dependent on the current economic
environment at the date of grant or forward-looking over the expected term of
the award. As a result, the actual impact of adoption on earnings for 2006 could
differ significantly from our current estimate. We are currently considering the
modified prospective method of transition, which would be first effective for
our 2006 fiscal first quarter.
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 manufacturing
plant and offices are located at 205 Carriage Street, Guin, Alabama 35563, and
its telephone number is (205) 468-8400. Deer Valley's 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., an indirect wholly-owned subsidiary of the Company, entering
into a Sales Contract with Steve J. Logan to purchase real property located at
7668 Highway 278 in Sulligent, Alabama. Deer Valley's plant on the Sulligent
Property opened on February 20, 2006 under a short-term lease.
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.
Deer Valley does not invest in real estate or real estate mortgages.
OFF-BALANCE SHEET ARRANGEMENTS
In connection with the Capital Stock Purchase Agreement, the Company
entered into the Earnout Agreement, pursuant to which additional payments may be
paid to the former owners of Deer Valley Homebuilders, Inc., as an earnout,
based upon the Net Income Before Taxes of Deer Valley Homebuilders, Inc. during
the next five (5) years, up to a maximum of $6,000,000. The business purpose of
executing the Earnout Agreement was to set the purchase price of Deer Valley
Homebuilders, Inc. by an objective standard, given that the owners of DVH and
the Company could not agree on an outright purchase price. The Company's
obligations under the Earnout Agreement could negatively affect earnings per
share, liquidity, capital resources, market risk, and credit risk.
ITEM 7. 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 report on Form 10-KSB:
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.
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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.
It is imperative that investors read the footnotes to the financial
statements attached to this filing.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and acting Chief Financial Officer
has evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the fiscal period ending December 31, 2005 covered by this Annual Report
on Form 10-KSB. Based upon such evaluation, the Chief Executive Officer and
acting Chief Financial Officer has concluded that, as of the end of such period,
the Company's disclosure controls and procedures were not effective as required
under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion by
the Company's Chief Executive Officer and acting Chief Financial Officer does
not relate to reporting periods after December 31, 2005 or to the controls and
procedures in place at the company's subsidiaries which were acquired subsequent
to December 31, 2005.
Several individuals have been nominated for election to the Board of
Directors of the Company. After the next election, it is anticipated that the
new Board of Directors will establish various committees, including an audit
committee. In addition, the Company's Chief Executive and acting Chief
Financial Officer is devoting considerable effort to continue to develop and
implement a system of disclosure controls and procedures to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 is accumulated and communicated to management and its
officers, as appropriate, to allow timely decisions regarding required
disclosure.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
Beginning with the year ending December 31, 2007, Section 404 of the
Sarbanes-Oxley Act of 2002 will require us to include management's report on our
internal control over financial reporting in our Annual Report on Form 10-K.
The internal control report must contain (1) a statement of management's
responsibility for establishing and maintaining adequate internal control over
our financial reporting, (2) a statement identifying the framework used by
management to conduct the required evaluation of the effectiveness of our
internal control over financial reporting, (3) management's assessment of the
effectiveness of our internal control over financial reporting as of the end of
our most recent fiscal year, including a statement as to whether or not our
internal control over financial reporting is effective, and (4) a statement that
our registered independent public accounting firm has issued an attestation
report on management's assessment of our internal control over financial
reporting.
In order to achieve compliance with Section 404 within the prescribed
period, management is planning to commence a Section 404 compliance project to
assess the adequacy of our internal control over financial reporting, remediate
any control deficiencies that may be identified, validate through testing that
controls are functioning as documented, and implement a continuous reporting and
-20-
improvement process for internal control over financial reporting. Except as
described above, during the fourth quarter of fiscal year 2005, there have been
no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
INHERENT LIMITATIONS OF THE EFFECTIVENESS OF INTERNAL CONTROL
A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the internal
control system are met. Because of the inherent limitations of any internal
control system, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected.
ITEM 8B. OTHER INFORMATION
None.
-21-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
OFFICERS AND DIRECTORS
As of March 1, 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
DIRECTOR/EXECUTIVE
OFFICER AGE POSITION PERIOD SERVED
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.
Charles L. Murphree, Jr. 44 Member of the Board of Directors April 2004 to Present; term as
of Deer Valley Homebuilders, Inc., Director expires in 2006
Vice President and Regional Sales
Director of Deer Valley
Homebuilders, Inc.
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
John Steven Lawler 37 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
Donald Sproat 50 Proposed Class III Director Nominee; term would expire in
2008
Dale Phillips 58 Proposed Class I Director Nominee; term would expire in
2009
-22-
DUTIES, RESPONSIBILITIES AND EXPERIENCE
CHARLES G. MASTERS, Chief Executive Officer, President and Director of
Cytation Corporation. Mr. Masters was the founder of DeerValley 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. 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.
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. 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.
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. In addition, Mr. Beyer is President and
Founder for Daedalus Consulting, Inc. 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.
-23-
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.
DONALD SPROAT, Nominee for Director. From January 2003 until March 2006,
Mr. Sproat served as Chief Executive Officer, Chief Financial Officer, and as a
Director for Telzuit Medical Technologies, Inc., a medical services provider.
From September 2000 until November of 2003, he served as Controller and Chief
Financial Officer for Worker's Temp Staffing, an employee leasing firm. Mr.
Sproat received his Bachelor's degree in Management and his M.B.A. from Stetson
University.
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, other than as described below, 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 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.
Mr. Donald Sproat served as a director and officer of Telzuit Technologies,
LLC, a Florida limited liability company ("Telzuit LLC"). In November 2003,
Telzuit LLC removed Richard Krampe as its chief executive officer due to
disagreements over compensation issues. In connection with this dispute, on
December 23, 2003, Focused Strategies, Inc., MKCS, Inc., and Silent Services
Corporation collectively filed a petition for involuntary bankruptcy against
Telzuit LLC pursuant to Chapter 7 of the United States Bankruptcy Code. All
three (3) corporations which joined in filing the petition were owned,
controlled, or affiliated with Mark Krampe. The three (3) corporations claimed
that Telzuit LLC collectively owed them the sum of approximately $408,000 for
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various services performed and that it was not able to pay these debts in the
ordinary course of our business. These obligations had been previously disputed
by Telzuit LLC and contributed to the dismissal of Richard Krampe in November of
2003 as Telzuit LLC's Chief Executive Officer and member of its Board of
Directors. After further proceedings were held before the bankruptcy judge, the
court, on February 12, 2004, ruled that the involuntary petition was filed by
such corporations in bad faith. The court, therefore, dismissed the action
against Telzuit LLC but retained jurisdiction to determine damages against the
parties responsible for filing the bankruptcy petition. On June 1, 2004, the
court awarded Telzuit LLC approximately $25,000 in damages against such
corporations which represented the attorney's fees and costs of approximately
$20,000 Telzuit LLC incurred in this litigation and also $5,000 in punitive
damages for the bad faith filing of the petition.
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.
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.
CODE OF ETHICS
The Company has not adopted a code of ethics which applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. We intend to adopt a Code
of Ethics upon completion of a special shareholder meeting providing for the
election of new directors.
ITEM 10. EXECUTIVE COMPENSATION
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 $100,000 for
each of the years indicated with respect to services rendered by such persons.
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SUMMARY COMPENSATION TABLE (9)
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
--------------- --------------------------
RESTRICTED
STOCK
AWARDS/
SECURITIES PAYOUTS
UNDERLYING
OTHER ANNUAL OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION SARS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) ($) (#) ($) ($)
2005 - - - - - -
2004 - - - - - -
Charles G. Masters (1) 2003 - - - - - -
2005 $52,000 $245,161 $143,617(7) - - -
2004 $49,000 $ 62,121 $162,120(8) - - -
Joel Stephen Logan, II(2) 2003 - - - - - -
2005 $52,000 $124,353 86,710(7) - - -
2004 $48,000 $ 34,389 $97,516(8) - - -
Charles L. Murphree, Jr.(3) 2003 - - - - - -
2005 $52,000 $118,291 $67,021(7) - - -
2004 $47,000 $ 31,494 $75,846(8) - - -
John Steven Lawler (4) 2003 - - - - - -
2005 $0 - $0 $0 - -
2004 $0 - $ 352,982 $0 - -
Richard A. Fisher(5) 2003 $0 - $ 140,000 $25,000 - -
2005 $0 - $0 $0 - -
2004 $0 - $ 95,284 $0 - -
Kevin J. High (6) 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.
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.
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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.
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.
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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.
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.
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.
ITEM 11. 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 March 24, 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.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(12)
--------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS AMOUNT AND NATURE
OF
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS(1)
--------------------------------------------------------------------------------------------------------------
Common Stock issuable Charles G. Masters, Director of
upon conversion of Series Cytation Corp., Chief Executive
B Preferred Stock; Officer & President of Cytation
Common Stock issuable Corp.(2)
upon conversion of
Series A Preferred Stock, 1,513,335 (4) 8.7%
Series A Common Stock
Purchase Warrants, and
Series B Common Stock
Purchase Warrants.
Common Stock Christopher Portner, Director of 38,332 *
Cytation Corporation(2) Direct Ownership
Common Stock issuable Joel Stephen Logan, II, Member 500,000 2.8%
upon conversion of of the Board of Directors of Direct Ownership(5)
Series A Preferred Stock; Deer Valley Homebuilders,
Common Stock issuable Inc., President and General
upon exercise of Series A Manager of Deer Valley
and Series B Warrants Homebuilders, Inc.(3)
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Common Stock issuable Charles L. Murphree, Jr.,
upon conversion of Member of the Board of
Series A Preferred Stock; Directors of Deer Valley 333,335 1.9%
Common Stock issuable Homebuilders, Inc., Vice Direct Ownership(6)
upon exercise of Series President and Regional Sales
A and Series B Warrants Director of Deer Valley
Homebuilders, Inc.(3)
Common Stock issuable John Steven Lawler, Member of
upon conversion of the Board of Directors of Deer
Series A Preferred Stock; Valley Homebuilders, Inc. 166,668 *
Common Stock issuable , Director of Finance, Deer Direct Ownership(7)
upon exercise of Series A Valley Homebuilders, Inc.(3)
and Series B Warrants
Common Stock issuable Deecembra Diamond(2)
upon conversion of 865,100(8) 5.0%
Series B Preferred Stock
Common Stock issuable Christopher Phillips(2)
upon conversion of Series
B Preferred Stock or
Series C Preferred Stock; 5,357,700(9) 30.5%
Common Stock issuable
upon exercise of Series C
Warrants
Common Stock issuable Hans Beyer,
upon conversion of Director Nominee (2)
Series A and B Preferred
Stock; Common Stock 565,933(10) 3.2%
issuable upon exercise of
Series A and Series B
Warrants
Common Stock issuable Donald Sproat, Director
upon conversion of Series Nominee (2)
A Preferred Stock;
Common Stock issuable 41,668(11) *
upon exercise of Series A Direct Ownership
and Series B Warrants
All Officers and Directors
as a group (5 persons) 3,159,271 18.0%
*Less than 1%.
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(1) Applicable percentage of ownership is based on (i) 1,000,000 shares of
common stock being issued and outstanding as of March 24, 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, and (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. 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 currently exercisable or exercisable
within 60 days of January 20, 2006 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.
(2) Unless otherwise indicated, the mailing address of the shareholder is 4902
Eisenhower Blvd., Suite 185, Tampa, FL 33634.
(3) Unless otherwise indicated, the mailing address of the shareholder is 205
Carriage St., Guin, Alabama 35563.
(4) Includes (a) 1,430,000 common shares issuable upon conversion of 14,300
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) 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.
(6) 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.
(7) 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.
(8) Includes (a) 675,000 common shares issuable upon conversion of 675 shares
of the Company's Series B Preferred Stock directly owned by Deecembra
Diamond, and (b) 190,100 common shares issuable upon conversion of 190
shares of the Company's Series B Preferred Stock indirectly owned by nature
of Deecembra Diamond's ownership of Apogee Financial Investments, Inc.
Deecembra Diamond disclaims beneficial ownership of securities owned by
Apogee Financial Investments, Inc., except to the extent of her 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.
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(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 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 warrants 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 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. As a result, the inclusion of Series C Preferred Stock 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.
(11) Includes (a) 16,667 common shares issuable upon exercise of the Company's
Series A Preferred Stock, (b) 16,667 common shares issuable upon exercise
of the Company's Series A Common Stock Purchase Warrant, and (c) 8,334
common shares issuable upon exercise of the Company's Series B Common Stock
Purchase Warrant.
(12) Nominees for director Dale Phillips and John Giordano own no securities of
Cytation Corporation.
CHANGE IN CONTROL AND ACQUISITION
None during 2005. 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 a lender (the "Lender"). Pursuant to the
Securities Purchase and Share Exchange Agreement the following transactions
occurred resulting in a change in control of the Registrant.
SERIES A PREFERRED STOCK OFFERING
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"). Since January 18,
-31-
2006, the Company has closed on the sale of an additional $2,253,480 of Series A
Preferred Stock, representing 225,348 shares of Series A Preferred Stock.
SHARE EXCHANGE
On January 18, 2006, the Company completed a share exchange pursuant to
which the Company acquired 100% of the issued and outstanding capital stock of
Deer Valley Acquisitions, Corp. (the "Share Exchange"). Pursuant to the Share
Exchange Agreement, in exchange for 100% of the issued and outstanding common
stock of Deer Valley Acquisitions, Corp., the Company issued the following
securities to the shareholders of Deer Valley Acquisitions, Corp.: (a) 49,451
shares of the Company's Series B Preferred Stock, (b) 26,750 shares of the
Company's Series C Preferred Stock, and (c) Series C Common Stock Purchase
Warrants to the holders of the Series C Preferred Stock, entitling the holders
of the Series C Preferred Stock to purchase 2,000,000 shares of the Company's
common stock at an exercise price of seventy five cents ($.75) per share.
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).
There are no existing agreements which may provide for a further change in
control of the Company.
ITEM 12. 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.
In connection with the Securities Purchase and Share Exchange Agreement, on
January 18, 2006, the Company issued to a lender (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. 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.
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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 purchase price for the Sulligent Property is
$725,000, which is to be financed, and the closing is currently scheduled to
occur on April 30, 2006. In addition, Steve J. Logan and Deer Valley have
agreed to enter into a short term lease of the Sulligent Property, for nominal
consideration, to allow early occupancy and commencement of operations pending
the expected purchase on April 30, 2006. Steve J. Logan is the father of Joel
Stephen Logan, II, a Member of the Board of Directors, President, and General
Manager of Deer Valley.
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.
ITEM 13. EXHIBITS
EXHIBIT
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 By-Laws of Cytation Corporation. (1)
4.1 Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock. (2)
4.2 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock. (2)
4.3 Certificate of Designation, Preferences and Rights of Series C
Convertible Preferred Stock. (2)
10.1 Securities Purchase and Share Exchange Agreement dated January
18, 2006, by and among the Company, Richard A. Fisher, Kevin J. High,
certain purchasers of the Company's Series A Convertible Preferred
Stock, DeerValley Acquisitions Corp., and certain other persons a
party thereto. (2)
10.2 Investor Rights Agreement, by and among the Company, each of the
purchasers of the Company's Series A Convertible Preferred Stock and
certain other persons a party thereto. (2)
10.3 Earnout Agreement, between Deer Valley Homebuilders, Inc.,
DeerValley Acquisitions Corp., and the former owners of DeerValley
Homebuilders, Inc. (2)
10.4 Form of Series A Common Stock Purchase Warrant. (2)
10.5 Form of Series B Common Stock Purchase Warrant. (2)
10.6 Interest Bearing Non-Convertible Installment Promissory Note
issued by the Company in the original principal amount of $1,500,000.
(2)
10.7 Placement Agent Agreement between Cytation Corporation and
Midtown Partners, LLC. (2)
21.1 List of Subsidiaries of the Company. (3)
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a). (3)
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31.2 Certification of Acting Chief Financial officer pursuant to Rule
13a-14(a) and Rule 15d-14(a). (3)
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley
Act of 2002. (3)
32.2 Certification of the Acting Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (3)
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. (3)
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. (3)
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. (3)
99.4 Pro Forma Financial Statements as of December 31, 2005
(unaudited) for Cytation Corporation, Deer Valley Acquisitions Corp.
and Deer Valley Homebuilders, Inc. (3)
(1) Previously filed as an Exhibit to the Company's Registration Statement No.
333-85079 on Form SB-2 and incorporated herein by reference.
(2) Previously filed on Form 8-K, filed with the U.S. Securities and Exchange
Commission on January 25, 2006 and hereby incorporated by reference.
(3) Filed Herewith.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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.
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 our principal accountant did not render
any services for tax compliance, tax advice, and tax planning work.
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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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYTATION CORPORATION
By: /s/ Charles G. Masters
-------------------------
Charles G. Masters
President and Chief Executive
Officer
Date: March 29, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company and in
the capacities indicated on March 29, 2006.
SIGNATURE TITLE
--------- -----
/s/ Charles G. Masters President, Chief Executive Officer
------------------------- (Principal Executive Officer) and
Charles G. Masters Director
/s/ Christopher Portner
-------------------------
Christopher Portner Director
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