Cytation Corporation
4902 Eisenhower Blvd.
Suite 185
Tampa, Florida 33634
(813) 885-5998
April 6, 2006
United States Securities and Exchange Commission
Division of Corporation Finance
Attn: Pamela Long, Assistant Director
100 F Street, N.E.
Washington, D.C. 20549-7010
RE: CYTATION CORPORATION
INFORMATION STATEMENT ON SCHEDULE 14C
FILED FEBRUARY 14, 2006
FILE # 000-05388
Dear Ms. Long,
We received your letter commenting on the Information Statement on Schedule
14C ("Schedule 14C") filed on February 14, 2006 by Cytation Corporation (the
"Company"). In connection with your comments, we have made many of the changes
suggested in your letter and filed them in an amended Schedule 14C, filed via
EDGAR on April 6, 2006. In addition, we have filed a copy of this letter as
correspondence on EDGAR. We have placed revision marks at the beginning and end
of each material change in the Schedule 14C (punctuation and spelling changes
are not marked). Changes to tables are denoted by revision marks at the
beginning and end of each table.
Because the September 30, 2005 financial statements have gone stale, we
have substituted new financial statements. The Schedule 14C now contains the
audited financial statements, as of December 31, 2005, of Cytation Corporation
and its subsidiaries, Deer Valley Acquisitions Corp., and Deer Valley
Homebuilders, Inc.
Our responses to your comments follow below.
General
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1. It appears that you base comment no. 1 on the conclusion that Deer
Valley Homebuilders, Inc. is the "accounting acquirer" of Cytation
Corporation. Because the former owners of Deer Valley Homebuilders, Inc.,
Joel Stephen Logan II, Charles L. Murphee, Jr., John Steven Lawler, James
David Shaw, William Joseph Aycock, Jr., Jerry Ray Cooper, Jr., Timm Gann,
and Jimmy Ray Hawkins, acquired, in the aggregate, less than five percent
of the outstanding capital stock of Cytation Corporation, we believe that
Deer Valley Homebuilders, Inc. would not be the "accounting acquirer" upon
completion of the Series A Preferred Stock Offering, Share Exchange, and
the acquisition of the capital stock of Deer Valley Homebuilders, Inc. (as
summarized below).
Summary of Series A Preferred Stock Offering, Share Exchange and
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Acquisition of Deer Valley Homebuilders, Inc. In our discussions, you had asked
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us to summarize the financing and acquisitions which occurred in the first
quarter of 2006. We have added the summary below to the 14C Information
Statement, "Change of Control" and added a cross-reference to this summary in
Proposals nos. 2 and 3 related to the increase in authorized capital stock.
A. Series A Preferred Stock Offering and Debt Financing
On January 18, 2006, Cytation Corporation closed on a private placement 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
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Stock Purchase Warrants exercisable for 6,936,980 shares of common stock (the
"Series A Warrants"), and Series B Common Stock Purchase Warrants exercisable
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for 3,468,490 shares of common stock (the "Series B Warrants") (the "Series A
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Preferred Offering").
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Also, on January 18, 2006, the Company issued its Interest Bearing
Non-Convertible Installment Promissory Note (the "Promissory Note"), in the
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original principal amount of One Million Five Hundred Thousand and No/100
Dollars ($1,500,000), together with interest accruing thereon at an annual rate
of twelve percent (12%) per annum. In March 2006, the lender agreed to convert
the Promissory Note into 150,000 shares of Series A Preferred Stock, Series A
Common Stock Purchase Warrants entitling the holder to purchase 2,000,000 shares
of Common Stock at an exercise price of one dollar and fifty cents ($1.50) per
share, and Series B Common Stock Purchase Warrants entitling the holder to
purchase 1,000,000 shares of Common Stock at an exercise price of two dollars
and twenty five cents ($2.25) (the "Debt Conversion").
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Since January 18, 2006, Cytation Corporation has sold an additional
$1,728,480 (or 172,848 shares) of Series A Preferred Stock, Series A Warrants
exercisable for 2,304,640 shares of common stock, and Series B Warrants
exercisable for 1,152,320 shares of common stock (inclusive of amounts issued in
connection with the Debt Conversion). Cytation has sold the Series A Preferred
Stock and warrants to institutional, accredited, and a limited number of
non-accredited investors pursuant to Rule 506 promulgated by the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Series A Preferred Stock ranks senior to Cytation's Common Stock,
Series B Convertible Preferred Stock, $.001 Par Value ("Series B Preferred
Stock"), and Series C Convertible Preferred Stock, $.001 Par Value. The Series
A Preferred Stock has a stated value of $10.00 per share. Each share of Series A
Preferred Stock, at its stated value of $10 per share, together with any accrued
and unpaid dividends, is convertible into Common Stock at a price of Seventy
Five Cents ($.75) per share of Common Stock. A holder of Series A Preferred
Stock is entitled to receive a dividend at a rate per annum equal to seven
percent (7%), payable semi-annually, at the option of the company, (i) in cash,
to the extent funds are legally available therefor, or (ii) in shares of
registered Common Stock at a ten percent (10%) discount to the market price.
The Series A Preferred Stock ceases to accrue the seven percent (7%) fixed
dividend on the earliest of (a) the payment of the liquidation preference on
each share of Series A Preferred Stock upon the liquidation, dissolution, or
winding-up of the Corporation, (b) the conversion of the Series A Preferred
Stock into common stock, or (c) the date two (2) years from the date of issuance
of the share of Series A Preferred Stock. Series A Warrants are exercisable, in
whole or in part, at any time after the earlier of (a) the date a registration
statement covering such Series A Warrants and underlying warrant shares is
declared effective, or (b) twelve (12) months from the date of grant and before
the close of business on the date five (5) years from the initial exercise date.
Series A Warrants have an exercise price of one dollar and fifty cents ($1.50)
per share. A Series B warrant is exercisable, in whole or in part, at any time
after the earlier of (a) the date a registration statement covering such Series
B warrants and underlying warrant shares is declared effective, or (b) twelve
(12) months from the date of grant and before the close of business on the date
seven (7) years from the initial exercise date. A Series B Warrant has an
exercise price of two dollars and twenty five cents ($2.25) per share. See 14-C,
under "Capital Structure" for a more complete description of Series A Preferred
Stock, Series A Warrants, and Series B Warrants.
Except for the matters discussed immediately below, to Cytation's
knowledge, no holder of Series A Preferred Stock was an affiliate of, or was a
party to a material contact with, any holder of Series B Preferred Stock, any
holder of Series C Preferred Stock, or the former owners of Deer Valley
Homebuilders, Inc. The former owners of Deer Valley Homebuilders, Inc. acquired
$500,000, in the aggregate, of Series A Preferred Stock using a portion of the
proceeds from the $6,000,000 cash purchase price received upon completion of the
sale of 100% of the issued and outstanding capital stock of Deer Valley
Homebuilders, Inc. In addition, the father of Joel Logan, a former owner and
current officer of Deer Valley Homebuilders, Inc., purchased 15,000 shares of
Series A Preferred Stock (and related Series A and Series B warrants) for
$150,000. Edwin McGusty, an employee of Midtown Partners & Co., LLC, the
placement agent for the Series A Preferred Offering, purchased 10,000 shares of
Series A Preferred Stock (and related Series A and Series B warrants) for
$100,000. Hans Beyer, an owner of Daedalus Consulting, an owner of 3,425 shares
of Series B Preferred Stock, purchased 1,000 shares of Series A Preferred Stock
(and related Series A and Series B warrants) for $10,000. Max Frye, an
employee of Deer Valley Homebuilders, Inc. purchased 3,750 shares of Series A
Preferred Stock (and related Series A and Series B warrants) for $37,500.
The proceeds from the Series A Preferred Stock Offering and the Loan
referenced above were used as follows: (a) $6,000,000 to purchase 100% of the
issued and outstanding capital stock of Deer Valley Homebuilders, Inc., (b)
$636,871 as payment of commissions to Midtown Partners & Co., LLC, and (c)
$294,344 for working capital and payment of accountant, legal, consulting and
miscellaneous offering expenses.
B. Share Exchange
On January 18, 2006, simultaneous with the closing of the Series A
Preferred Offering, Cytation completed a share exchange pursuant to which
Cytation acquired 100% of the issued and outstanding capital stock of DeerValley
Acquisitions, Corp. (the "Share Exchange"). In exchange for 100% of the issued
and outstanding common stock of DeerValley Acquisitions, Corp., the Company
issued the following securities to the shareholders of DeerValley 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 exercisable for 2,000,000 shares of common stock of Cytation
Corporation. DeerValley Acquisitions, Corp. is a Florida corporation formed in
July 2005. DeerValley Acquisitions, Corp. was formed solely for the purpose of
identifying a private company for acquisition. On November 1, 2005, DeerValley
Acquisitions, Corp. entered into a Capital Stock Purchase Agreement to acquire
100% of the capital stock of Deer Valley Homebuilders, Inc. (the "DVH Purchase
Agreement"). Other than the DVH Purchase Agreement, DeerValley Acquisitions,
Corp. has not had significant assets or liabilities. In addition, DeerValley
Acquisitions, Corp has not had any operations. We have included audited
financial statements for DeerValley Acquisitions, Corp. since inception.
C. Acquisition
Pursuant to the Capital Stock Purchase Agreement dated November 1, 2005, as
amended, DeerValley Acquisitions Corp., a wholly-owned subsidiary of Cytation
Corporation, acquired, immediately after completion of the Series A Financing
and the Share Exchange, one hundred percent (100%) of the issued and outstanding
capital stock of Deer Valley Homebuilders, Inc. Upon completion of the
acquisition of the capital stock of Deer Valley Homebuilders, Inc., Deer Valley
Homebuilders, Inc. became an indirectly wholly-owned subsidiary of Cytation
Corporation. Pursuant to the terms of the Capital Stock Purchase Agreement, DVA
purchased one hundred percent (100%) of the issued and outstanding capital stock
of Deer Valley Homebuilders, Inc. for $6,000,000 cash. An additional portion of
the purchase price is calculated and paid as an earnout, pursuant to the Earnout
Agreement, based upon the net income before taxes of Deer Valley Homebuilders,
Inc. during the next five (5) years up to a maximum of an additional $6,000,000.
There is no material relationship between Cytation Corporation or its
affiliates, or any director or officer of Cytation Corporation, and any other
party to the Capital Stock Purchase Agreement other than with respect to the
transactions contemplated in the Capital Stock Purchase Agreement, or as
disclosed in this Information Statement. Upon completion of the acquisition,
the former owners of Deer Valley Homebuilders, Inc. acquired less than a five
percent (5%) ownership interest in Cytation Corporation.
2. We have revised our disclosures such that they are consistent with an
information statement in which the Company is not seeking proxies by
deleting from the Schedule 14C provisions relating to abstention from
voting and board recommendations to shareholders to vote for particular
proposals.
3. Immediately below the footnotes to the table disclosing the security
ownership of certain beneficial owners and management, we have indicated
how we determined that we have received the required number of consents.
4. We have placed a Summary Term Sheet as early in the Schedule 14C as
possible and have disclosed the details of the financing of the transaction
in that Summary Term Sheet.
5. We have elaborated on the consulting services business which Cytation
conducted between 2002 and 2004 and disclosed that the Company was a
Business Development Company under the Investment Company Act of 1940.
6. The information required by Item 1004(a)(2) of Regulation M-A is
provided in the Information Statement in the sections entitled "Summary
Term Sheet" and "Acquisition." With respect to the information required by
Item 1004(a)(2)(vii) of Regulation M-A, management believes that the
federal income tax consequences of the transaction are not material to
Cytation Corporation.
7. We have disclosed federal and state regulatory requirements which must
be followed under the heading "Regulation," which immediately precedes the
description of the Company's capital structure.
8. Pursuant to Items 1005(b)(5) and 1011(a)(1) of Regulation M-A, we have
added a disclosure in the sections entitled "Acquisition" and "Employment
Agreements with Named Executive Officers."
9. Item 3 of Schedule 14A is not applicable, since there were no
dissenter's rights with respect to the transaction which occurred on
January 18, 2006.
10. We have noted in the proposals to increase the common and preferred
stock that (a) if Deer Valley remains profitable, certain members of the
senior management of Deer Valley will receive substantial additional
payments from the acquisition of Deer Valley and (b) increasing the number
of authorized shares of the Company's common and preferred stock will
facilitate this transaction. In these disclosures we have included a
cross-reference to other sections of the Schedule 14C which describe the
additional payments in more detail, namely "Certain Relationships And
Related Transactions" and "Off Balance Sheet Arrangements."
11. We have included the information required by Item 9(e) of Schedule 14A
under the captions "Audit Fees," "Audit-Related Fees," "Tax Fees," and "All
Other Fees," which immediately precede the disclosures regarding the
security ownership of certain beneficial owners and management.
Proposal 2
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12. In Proposal No. 2, we have noted that the Company has plans to issue
preferred stock in the future.
Proposal 3
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13. We have noted that the Company (a) does not currently have sufficient
common stock to satisfy the conversion provisions of its outstanding
convertible securities and (b) does not currently have any plans to issue
common stock, other than in exchange for its convertible securities.
Management
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14. In the section of the Schedule 14C which discloses information
regarding management, we have noted that (a) Ranger Industries engages in
business consulting, due diligence research and oil and gas exploration and
development (b) Daedalus Consulting, Inc. provides Internet research and
business consulting services, primarily for start-up and small companies
(c) Mirabilis Ventures, Inc. is a diversified, privately-held holding
company with interests in a variety of companies in industries including
construction, business consulting, and software development, and (d)
Clayton Homes, Inc., Cavalier Homes, Inc., and Southern Energy Homes, Inc.
are all producers of manufactured housing.
Audit Committee
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15. We have noted that our Board of Directors has not adopted a written
audit committee charter.
Nominating Committee
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16. We have noted that (a) the Board of Directors does not currently have
a formal procedure to be followed by security holders in submitting
recommendations or nominations for candidates for the Board of Directors
and (b) security holders may submit such recommendations or nominations
directly to the Board of Directors at the Company's address, listed on the
Schedule 14C.
Change in Control and Acquisition
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Additional Warrant
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17. The common stock issuable upon exercise of the warrant is now
reflected in the beneficial ownership table.
Description of Business
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18. We have deleted the word "leading" from this sentence.
Products
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19. We have noted that the terms "multi-section" and "multi-floor" are
used interchangeably in the Schedule 14C and that both terms refer to a
house which is constructed by attaching two or more factory produced
"floors" or "sections" together to form a complete structure.
Manufactured Homes- Industry Overview
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20. Regarding the request for an update of the figures included in the
third paragraph of this section, we have not been able to obtain
comparative figures for the year 2005. Regarding the request for recent
negative trends for sales of multi-section homes, we have added the
following paragraph.
We are not aware of any negative trends in the industry for
multi-section homes. Certain statistics may, however, lead to that
conclusion. Because of a significant spike in the number of single
section homes delivered to FEMA and other emergency relief
organizations in the latter half of 2005, the number of multisection
homes being delivered appears to have dipped momentarily due to the
diversion of production capacity to meet the FEMA demand. Furthermore,
because of this same spike in shipments of single-wide (i.e.,
FEMA-style) homes, the percentage of multisection homes relative to
the total number of manufactured homes produced may have also dipped
temporarily. The continued growth of our backlog, now at over 300
homes, does not reflect any negative trend.
Warranty, Quality Control, and Service
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21. Deer Valley Homebuilders, Inc. has two manufacturing facilities. We
have modified the disclosure under "Warranty, Quality Control and Service"
to clarify this. In addition, we have added a cross-reference to the
"Property" section of the Schedule 14C, which describes both manufacturing
facilities.
Capital Structure
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Preferred Shares
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22. In the introduction to our Capital Structure section, we have
indicated how we intend to account for our convertible preferred stock.
Options and Warrants Convertible into Common Shares
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23. In the section of the Schedule 14C entitled, "Options and Warrants
Convertible into Common Shares" we have disclosed (a) our calculations
under the Black-Scholes Option Pricing Model as to the fair value of the
warrants, including the assumptions used and (b) that the Company issued
its warrants in connection with the issuance of its Series A Preferred
Stock.
Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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Cautionary Notice Regarding Forward Looking Statements
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24. We have removed the word "will" from its list of words under the
heading "Cautionary Notice Regarding Forward Looking Statements."
25. We have updated the Management's Discussion and Analysis of Financial
Condition and Results of Operations to provide a fuller discussion and
analysis of known trends, demands, commitments, events, and uncertainties
which management views as most critical to the company's revenues,
financial position, liquidity, plan of operations, and results of
operations.
26. We have noted that (a) Deer Valley Homebuilders, Inc. will not issue
securities for the acquisition of the Sulligent Property, (b) Deer Valley
Homebuilders, Inc. plans to finance the acquisition of the Sulligent
Property with a mortgage secured by the Sulligent Property, and (c) that
the terms of such financing have not yet been finalized.
27. We have included the required disclosures regarding changes in
financial condition and results of operations for each of the last two
years.
28. We have discussed in greater detail the business reasons for the
changes between the periods in revenues, cost of sales, and selling,
general, and administrative expenses and in doing so have disclosed the
amount of significant changes in line items. When more than one business
reason contributed to these changes, we have attempted to quantify the
incremental impact of each individual business reason. We have also noted
that the overriding reason for all changes between periods in revenues,
cost of sales, and selling, general, and administrative expenses is the
large increase in sales of homes in 2005 (1,385 floors) compared to 2004
(655 floors).
Liquidity and Capital Resources
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29. We have updated the Liquidity and Capital Resources section to the
latest practicable date. We have included figures from audited financial
statements as of December 31, 2005 as well as some unaudited figures as of
March 4, 2006 from a monthly balance sheet supplied by Deer Valley
Homebuilders, Inc.'s internal accountant.
30. In our Liquidity section, we have discussed changes in our operating,
investing, and financing cash flows.
Financing
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31. In our "Financing" section, we have noted that all Letters of Credit
listed in the Schedule 14C are required under the terms of repurchase
agreements and included a cross reference to another section of the
Schedule 14C, "Reserve for Repurchase Commitments," which describes our
repurchase agreements more fully. In addition, we have updated the
disclosures regarding our letters of credit with new factual information.
Pro Forma Financial Statements
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Since the September 30, 2005 financial statements have gone stale, we have
substituted new financial statements. The Schedule 14C now contains the audited
financial statements, as of December 31, 2005, of Cytation Corporation and its
subsidiaries, Deer Valley Acquisitions Corp. and Deer Valley Homebuilders, Inc.
Please see our answers to your comments below.
Pro Forma BalanceSheet
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32. We have made changes in the pro forma balance sheet to adequately
disclose the adjustments to our Series A preferred stock. As requested, we
have included these computations within footnotes 2 and 3 to the pro forma
financial statements. We have also included the adjustments to our Series B
and C preferred stock in footnotes 4 and 5 to the pro forma financial
statements.
33. The numbering in the new pro forma financial statements has changed
from the previously submitted pro forma. However, we have revised our
presentation to clearly identify each adjustment and assumption in the
footnotes.
34. We have corrected the numbering error in the new pro forma and have
ensured that there is a footnote for each adjustment.
35. It appears that you base comment no. 35 on the conclusion that Deer
Valley Homebuilders, Inc. is the "accounting acquirer" of Cytation
Corporation. Please see our response to comment no. 1 above for an
explanation as to why the transaction was actually an acquisition rather
than a reverse merger. Accordingly, purchase accounting is correct.
Pro Forma Consolidated Statement of Operations
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36. We have included footnotes within our pro forma statements of
operations to clearly explain the adjustments to our income tax expense.
37. We have disclosed in our footnotes how we calculated the number of
weighted average common and common stock equivalent shares outstanding for
the years ended December 31, 2005 and December 31, 2004.
Deer Valley Homebuilders, Inc. Financial Statements
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38. We have revised the common stock description on the face of our
balance sheet to reflect that the number of shares of issued and
outstanding stock are not equal, due to the fact that we have treasury
stock.
Statement of Stockholders' Equity
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39. We have included a column which shows the changes during each period
in the number of shares held as treasury stock.
Property, Plant, and Equipment
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40. In footnote no. 1, we have subdivided the range of useful lives for
each category of property presented.
Income Taxes
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41. In footnotes nos. 6 and 12, we have noted that (a) on January 18, 2006
Deer Valley Homebuilders, Inc.'s S-corporation election was terminated and
on a going-forward basis will be treated as a C Corporation and (b) Deer
Valley Homebuilders, Inc. has reserved approximately $925,000 for a
distribution to the prior S-corporation shareholders to pay their tax
associated with earnings for the 2005 year end. We have revised our pro
forma financial statements to reflect the fact that any undistributed
earnings or losses still reflected in the retained earnings and accumulated
deficit line item are removed with a corresponding adjustment to APIC as of
the conversion date.
New Accounting Pronouncements
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42. In the body of the Schedule 14C under the caption "Acquisition" we
have disclosed that we have adopted SFAS 123R beginning on January 1, 2006.
Repurchase Agreements
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43. In footnote no. 9, we have disclosed that the Company evaluates its
liability under its repurchase agreements in accordance with FASB
Interpretation No. 45 Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others and
our analysis thereunder.
Related Party Transactions
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44. We have addressed this comment in the body of the Schedule 14C at
"Certain Relationships And Related Transactions."
Subsequent Events
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45. We have disclosed, in footnote no. 11, Common Stock Purchase
Agreement, how we will account for the price adjustment target accounts.
Additionally, in the body of the Schedule 14C under the caption
"Acquisition" we have disclosed that Deer Valley Homebuilders, Inc.
expenses compensation paid under Employment Agreements with Messrs. Logan,
Murphree, and Lawler as that compensation is earned. If the compensation is
earned but not paid out then the compensation is accrued as a liability on
the balance sheet. We have selected this accounting treatment based upon
FASB Concepts Statement No. 6, paragraphs 139 through 142.
46. We plan to similarly amend our Form 8-K for each comment above which
also impacts disclosures in our Form 8-K.
In addition to the responses above, the Company acknowledges that
- - it is responsible for the adequacy and accuracy of the disclosure in
the filing;
- - staff comments or changes to disclosure in response to staff comments
in the filing reviewed by the staff do not foreclose the Commission from
taking any action with respect to the filing; and
- - the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you should have any questions regarding our amended Schedule 14C, please
do not hesitate to contact me.
Sincerely,
/s/ Charles G. Masters
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Charles G. Masters
President & Chief Executive Officer
Cytation Corporation
Cc: Bush Ross, P.A.