Registration
No. 333-130849
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
SB-2/A
AMENDMENT NUMBER TWO
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
NEXIA
HOLDINGS, INC
(Name
of
small business issuer in its charter)
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Nevada
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6510
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84-1062062
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(State
of jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
No.)
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Richard
Surber, President
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
(801)
575-8073
(Address,
including zip code and telephone number of principal executive offices and
principal
place
of
business and name, address and telephone number of agent for
service)
COPIES
TO:
Russell
C. Weigel, III
Attorney
at Law
One
Southeast Third Avenue, Suite 1750
Miami,
Florida 33131
(786)
888-4567
Approximate
date of proposed sale to the public:
As soon
as practicable from time to time after this registration statement becomes
effective. If
this
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering. If
the
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
CALCULATION
OF REGISTRATION FEE
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Title
of each class of securities to be registered
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Amount
of securities to be registered
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Dollar
Amount to be registered
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Proposed
maximum offering price per share (1)
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Proposed
maximum aggregate offering price
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Amount
of registration fee
|
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$.0001
Common Stock
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25,000,000,000
shares
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$5,000,000
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$0.0002
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$0.0002
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$
633.50
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(1)
The
proposed maximum offering price per share is based on the proposed offering
price for the shares of the registrant offered hereby and is based on the
market
price as reported on October 9, 2006.
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a),
may determine.
2
NEXIA
HOLDINGS, INC.
25,000,000,000
shares of $0.0001 par value Common Stock
Purchase
Price of $0.0002 per share.
The
Offering:
Public
Price: $0.0002 $5,000,000
estimated proceeds.Underwriting
Discounts: Cash
to
Nexia Holdings, Inc. from purchases of shares by the Selling Shareholder,
stimated: $4,950,000
The
expenses indicated do not include legal, accounting, printing, and related
costs
incurred in making this offering. We will need to pay all such costs, which
we
estimate to be $100,000.
There
is
no arrangement to place the proceeds from this offering in an escrow, trust
or
similar account. Nexia
Holdings, Inc. is a holding company incorporated in the State of Nevada.
Nexia
through its subsidiaries operates a real estate investment, retail fashion
and
hair salon businesses . We currently own and operate several buildings in
the
greater Salt Lake City, Utah area, own a majority interest in a beauty and
lifestyle salon and on September 18, 2006 finalized the acquisition of a
retail
fashion operation.
We
plan to
buy more investment properties which we believe are undervalued, compared
to
their cash flows and estimated resale value. Our acquisition strategy is
to
identify properties with favorable financing arrangements already in place,
assume that financing, and satisfy any new down-payments with nominal cash
payments or some combination of cash and our own common stock. We plan to
expand
the beauty and lifestyle salon operations and the fashion retail operations
as
revenues and funding permit.
This
offering involves a high degree of risk, and the securities offered by this
prospectus are highly speculative. You should only buy this stock if you can
afford to lose your entire investment. SEE
"RISK
FACTORS"
(BEGINNING ON PAGE 7) AND ADILUTION
(BEGINNING ON PAGE 17) TO READ ABOUT RISKS YOU SHOULD CAREFULLY CONSIDER BEFORE
BUYING THIS STOCK.
Our
common stock is quoted on the OTC Electronic Bulletin Board under the symbol
“NEXH.” On October 9, 2006, the last reported sale price of the common stock on
the OTC Bulletin Board was $0.0002 per share.
Our
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, as amended.
Broker-Dealers dealing in penny stock are required to provide potential
investors with a document disclosing the risks of penny stock. Broker-dealers
are required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor.
We
will receive no proceeds from the sale of the shares by the selling
shareholders. However, we may receive 95% of the market price per share on
the
sale of the registered shares to Dutchess Private Equities Fund L.P.(“Dutchess”
or “Selling Shareholder”) from the exercise of a funding agreement with Dutchess
whereby up to a total of $10,000,000 in purchases may be made over a three
year
period, not all of which shares are being registered at this time. With the
exception of Dutchess, which is an “underwriter” within the meaning of the
Securities Act of 1933, as amended, no other underwriter or person has been
engaged to facilitate the sale of shares of common stock in this
offering.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined whether the
information in this prospectus is truthful or complete. Any representation
to
the contrary is a criminal offense.
The
information in this prospectus will be subject to completion or
amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. The Selling Shareholder may not sell these
securities, nor may it accept offers to buy, until the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the
solicitation of an offer to buy, nor shall the Selling Shareholder sell any
of
these securities, in any state where such offer, solicitation or sale would
be
unlawful before registration or qualification under such
state'
securities laws.
Nexia
Holdings, Inc.
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
(801)
575-8073
Offering
of
25,000,000,000
Shares
of Common
Stock
PROSPECTUS
October
9, 2006
4
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TABLE
OF CONTENTS
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Page
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Page
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6
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9
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9
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21
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22
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23
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23
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25
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26
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27
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28
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29
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31
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31
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33
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36
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41
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46
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47
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48
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106
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107
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First
page of the prospectus
SUMMARY
The
following summary highlights the more detailed information and financial
statements appearing elsewhere in this prospectus. It is only a summary, it
is
not complete and does not convey all of the information you should consider
prior to investing in the common stock. We urge you to read the entire
prospectus carefully, especially the risks of investing in our common stock
as
discussed in the "Risk
Factors"
section
beginning on page 8.
Our
independent auditors have raised substantial doubt as to Nexia’s ability to
continue as a going concern in connection with our financial statements for
the
years ended December 31, 2005 and December 31, 2004. Nexia has since its
inception incurred losses that have resulted in an accumulated deficit of
$13,275,599 as of December 31, 2005 and Nexia reported a net loss of $130,548
for the year ended December 31, 2005 and total comprehensive income for the
six
month period ended June 30, 2006 of $1,878,857.
Nexia’s
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, as amended.
Broker-Dealers dealing in penny stock, are required to provide potential
investors with a document disclosing the risks of penny stock. Broker-dealers
are required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor.
The
corporate structure is as set forth in the following chart:
OUR
BUSINESS
Nexia’s
current operations consist of the acquisition, leasing and selling of real
estate, the operation of a salon and the operation of a retail clothing store.
Nexia’s subsidiaries currently own and operate a 38,000 square foot
retail/office building, an 11,000 square foot office building and a 7,000
square
foot retail building. All of these buildings are located in the greater Salt
Lake City, Utah area. A subsidiary of the Company has acquired the operations
of
Black Chandelier, a clothing and life style retail operation with two stores
located in the Salt Lake City, Utah market. Two additional retail stores
are
scheduled for opening by December 1, 2006. Nexia subsidiary, Landis, LLC
operates a hair salon that sells Aveda™ products exclusively.
THE
OFFERING
Securities
Offered.
25,000,000,000
shares of common stock.
Selling
Shareholders.
Dutchess
Private
Equities Fund, L.P.
Shares
of
Common Stock
Outstanding.
Before
Offering 7,814,768,850
After
Offering32,814,768,850
Nexia
will not receive any proceeds from the sale of the common stock. We will
receive
the sale price of any common stock we sell to the selling stockholder under
the
investment agreement with Dutchess Private Equities Fund.
This
is a resale registration statement of registered shares to be sold by Dutchess
Private Equities Fund
Nexia
has
entered into an investment agreement (the “Investment Agreement”) with Dutchess
Private Equities Fund L.P. (Dutchess” or the “Selling Shareholder”); this
agreement is also referred to as an equity line of credit. The Investment
Agreement provides that, following notice to Dutchess, Nexia may put to Dutchess
up to $10 million in shares of our common stock for a purchase price equal
to
95% of the lowest closing best bid price on the Over-the-Counter (“OTC”)
Bulletin Board of our common stock during the five day period following that
notice. The number of shares that we will be permitted to put pursuant to
the
Investment Agreement will be either: (a) 200% of the average daily volume
of our
common stock for the ten trading days prior to the applicable put notice,
multiplied by the average of the three daily closing “best bid” prices
immediately preceding the day we issue the put, or (b) $100,000; provided
that
in no event will the put amount be more than $1,000,000 with respect to any
single put. (Best Bid is a defined term in the Investment Agreement as the
highest posted bid price for the common stock.) In turn, Dutchess has indicated
that it will resell the shares of common stock in the open market, resell
our
shares to other investors through negotiated transactions or hold our shares
in
its portfolio. This prospectus covers the resale of our shares of common
stock
by Dutchess either in the open market or to other investors through negotiated
transactions.
Any
investor purchasing Nexia’s common stock or a prior holder of such shares during
this registered offering is likely to suffer a dilution of his or her investment
depending on how many of these securities are sold to Dutchess by the Company
prior to the purchase by the investor. For more information on the dilutive
effect of this offering, please see the discussions in this Prospectus of
dilution located at pages twenty one through twenty three.
Nexia’s
Placement Agency Agreement with GunnAllen Financial
Nexia
has
entered into a Placement Agency Agreement with GunnAllen Financial located
in
Tampa, Florida, whereby Nexia has agreed to pay GunnAllen a minimum of $1,000
up
to a maximum of $10,000 for each Put submitted to Dutchess under the Investment
Agreement. In exchange for those payments the placement agent shall render
consulting services to Nexia with respect to the Investment Agreement and
shall
be available for consultation in connection with the advances to be requested
by
Nexia pursuant to the terms of the Investment Agreement. The Placement Agency
Agreement is attached hereto as exhibit 10(iii).
Use
of
Proceeds We
will
use the proceeds from this offering to: 1. Provide operating capital; 2. Improve
existing real estate holdings; and 3. Fund acquisition of real
estate and development properties for retail operations.
Risk
Factors The
stock
offered by this prospectus is speculative and involves a high degree of risk.
Investors should not buy this stock unless they can afford to
lose their entire investment.
OTC
Bulletin Board Common Stock Symbol “NEXH”
SUMMARY
OF SELECTED FINANCIAL DATA
The
information below should be read together with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the financial
statements and notes to financial statements included elsewhere in this
prospectus.
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Year
ended 12/31/2005
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Six
months ended 6/30/06
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Revenue
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$
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415,744
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$
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676,552
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Loss
from operations
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(799,527
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)
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(965,301
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)
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Net
Income (loss)
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(130,548
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)
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1,095,980
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||||
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Income
(loss) per common share
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(0.0001
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)
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(0.00
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)
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Weighted
average number of common shares
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|||||||
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Outstanding
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3,171,129,396
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3,792,762,019
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Balance
Sheet Data
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|||||||
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Working
capital (deficit)
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$
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(971,535
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)
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$
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1,362,009
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Total
assets
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4,319,916
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5,622,842
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Total
liabilities
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3,130,305
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2,707,229
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|||||
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Shareholders
equity
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963,185
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2,685,713
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|||||
RISK
FACTORS
An
investment in the common stock the selling shareholders are offering to resell
is risky. The stock offered in this prospectus inherently involves a high degree
of risk, and you should carefully consider the possibility that you may lose
your entire investment. Given this possibility, we encourage you to evaluate
the
following risk factors and all other information contained in this prospectus
before buying the common stock of Nexia. Any of the following risks, alone
or
together, could adversely affect our business, our financial condition, or
the
results of our operations, and therefore the value of your Nexia common
stock.
Risks
Related to Nexia’s Business
There
is substantial doubt about Nexia’s ability to continue as a going concern due to
insufficient revenues to cover our operating costs, which means that we may
not
be able to continue operations unless we obtain additional
funding.
Our
independent auditors added a going concern qualification to their report
issued
in connection with their audit of our December 31, 2005 and 2004 financial
statements. The auditors noted in their report that Nexia generated significant
losses from operations, had an accumulated deficit of $13,275,599 and a working
capital deficit of $971,535 as of December 31, 2005. These factors raised
for
the auditors substantial doubt about Nexia’s ability to continue as a going
concern. These general conditions continued through the first quarter of
2006,
resulting in additional deficits in the operations of the Company. During
the
second quarter of 2006 there was a decrease in the accumulated deficit of
$1,095,980.
Management
anticipates that Nexia will incur net losses for the year end results for
December 31, 2006. To the extent that Nexia does not generate additional
revenue
from its existing properties, existing retail operations, acquire additional
properties that generate revenue, obtain additional funding, that its stock
price does not increase, that additional adjustments to decrease operating
expenses, then Nexia may not have the ability to continue as a going concern.
The financial statements which accompany this Prospectus do not include any
adjustments that might result from the outcome of this
uncertainty.
Nexia's
real
estate investments are inherently risky and dependent on rental
income.
Real
estate investments are inherently risky. The value of a real estate investment
company's
stock
depends largely on the rental income and the capital appreciation generated
by
the properties which the investment company owns. If our properties do not
generate enough cash flow from rental income to meet operating expenses (such
as
debt service, capital expenditures and tenant improvements), our ability to
develop our business and become profitable will be adversely affected.
Income
from real estate investments may be adversely affected by a number of factors,
including:
| w |
the
general economic climate and local real estate conditions (such as
too
much supply or too little demand for rental space, as well as changes
in
market rental rates);
|
| w |
prospective
tenants'
perceptions of a building's
safety, convenience and attractiveness, or the overall appeal of
a
particular building;
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| w |
the
property owner's
ability to provide adequate management, maintenance and
insurance;
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| w |
expenses
for periodically renovating, repairing and re-letting
spaces;
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| w |
falling
operating costs for competing properties, which would allow them
to
undercut our rental rates;
|
| w |
rising
unemployment rates in the area, which may reduce the demand for rental
space;
|
| w |
adverse
changes in zoning laws, tax laws, or other laws affecting real estate
or
businesses in the area;
|
| w |
damage
from earthquakes or other natural
disasters;
|
| w |
mortgage
interest rates and the availability of
financing.
|
Some
significant expenses associated with real estate investment (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are fixed and
generally can not be reduced if circumstances cause lower rental incomes from
a
building. For example, if we can not meet the mortgage payments, we could lose
some or all of our investment in a building due to foreclosure by the holder
of
the lien on the property.
Our
real estate investments have limited liquidity and no certainty of capital
appreciation.
Our
real
estate investments have limited liquidity. Real estate investments in general
are relatively illiquid. Our ability to vary our portfolio in response to
changes in economic and other conditions will be limited. We cannot ascertain
whether we will be able to sell an investment when a sale would be advantageous
or necessary. The sale price may not be enough to recoup the amount of our
investment. Nexia can provide no assurance that the value of its properties
will
appreciate.
There
are
numerous uncertainties in estimating real estate values and prospective
appreciation value. The estimated values set forth in appraisals are based
on
various comparisons to other property sales; predictions about market conditions
such as demand, vacancy rates, prospective vacancy rates, renewal terms and
other factors; assumptions about the property’s condition, conformance with laws
and regulations, absence of material defects; estimates of lease revenues and
operating expenses; and other factors. Any significant change in these
comparisons, predictions, assumptions, and estimates, most of which are beyond
our control, could materially and adversely affect the market values and
appreciation potential of our properties.
We
compete with substantially larger companies to acquire suitable
buildings.
The
commercial real estate market is highly competitive. We compete with
substantially larger companies for the acquisition, development and operation
of
properties that fit within the parameters of our business plan. Some of these
companies are national or regional companies with far greater resources than
ours. The presence of these competitors may significantly impede our business
growth or survival.
Nexia's
ability to generate enough revenue to operate our business is dependent on
the
ability to attract tenants and ensure that tenants meet their lease
obligations.
Our
business would be severely affected resulting from the loss of revenues that
would result if our current tenants fail to meet lease obligations or, if
upon
failure to meet lease obligations, we were unable to enter into new viable
leases for the resulting vacant space. Further, if a tenant defaulted on
a
lease, we might experience a delay before the courts enforced our rights
against
the tenant. Our ability to lease the space during any court enforced action
would be seriously impaired. Failure of a tenant’s business through bankruptcy
would also reduce or eliminate our revenue flow. We can provide no assurance
that tenants will faithfully meet their lease obligations or that tenants
will
not be impaired through some form of business failure or otherwise, with
the
result that our ability to operate our business would be materially and
negatively affected. During the 3rd
quarter
of 2006 the rate of default on tenant’s obligations billed during that period
was 8%.
Our
ability to satisfy fixed operating costs that may rise over time cannot be
reduced in response to any decrease in our rental income, or passed through
to
our tenants.
Our
ability to satisfy fixed operating costs associated with our property could
be
seriously affected by any rise in expenses such as: mortgage payments,
insurance, utilities, cleaning, ventilation, air-conditioning, security,
landscaping, building repairs and maintenance. While our tenants must often
pay
a portion of these escalating costs, there can be no assurance that they
will
agree to any increase in current fixed costs or that any increase in tenant
payments would cover increased operating costs. Our current fixed costs for
any
future time period cannot be reduced in response to any decrease in rental
income resulting from vacancies or non payment of rent and our ability to
operate would be severely affected by any increase in the costs associated
with
owning our property.
All
of
Nexia’s material real estate holdings are located in the Salt Lake City, Utah
market making the Company vulnerable to changes in economic conditions in that
market.
All
of
Nexia’s material real estate holdings are located in the Salt Lake City, Utah
market which creates a greater risk of harm from a downturn in that single
market as compared to wider more diversified holdings in several geographic
areas. Any significant change in the office or retail space in the Salt Lake
City market will directly affect Nexia’s real estate operations.
Nexia
may invest in properties in other real estate markets outside of the Salt Lake
City, Utah area where the Company has no experience.
Nexia
may
make selected acquisitions or develop properties outside the area of its
current
focus of Salt Lake City, Utah as appropriate opportunities are located or
as
they may arise. No area outside of the Salt Lake City has been identified
nor
has any market area been excluded from consideration. The historical experience
of Nexia is in the Salt Lake City market area, and management may not be
able to
operate successfully in other market areas. Some of the risks in operating
in
new market areas would include: a lack of market knowledge and understanding
of
the local economies, an inability to identify promising acquisition or
development opportunities, an inability to obtain qualified development and
maintenance personnel, and a lack of familiarity with local government and
permitting procedures. Any of these factors could cause Nexia to incur costs
greater than anticipated and limit the success of any acquisition and
development that may be undertaken, which would reduce the Company’s
profitability and limit its growth.
Nexia
expects to experience significant growth in the future and may not be able
to
adapt its management and operational systems to adequately integrate the
additional properties and operations without unanticipated significant
disruption or expense.
Nexia
intends to make a significant number of investments in real estate over the
next
36 months. As a result of the anticipated future growth, we cannot assure you
that the Company will be able to adapt its management, administrative,
accounting and operational systems or hire and retain sufficient operational
staff to integrate the new properties into the Company and manage any future
acquisitions of additional properties without operating disruptions or
unanticipated costs. Any future acquisition will generate additional operating
expenses that the Company will be required to pay. As Nexia acquires additional
properties it will be subject to risks associated with managing new properties,
including tenant retention and mortgage defaults. Acquisitions may additionally
cause disruptions of operations and divert management’s attention away from
day-to-day operations, which could impair relationships with our current tenants
and employees. Any failure to successfully integrate future property
acquisitions into our portfolio could cause significant disruption or costs,
which in turn could reduce the Company’s cash flow and potential for
profitability.
We
are
dependent on key personnel, specifically Richard Surber, and have no employment
agreement with him.
We
are
dependent on the services of Richard Surber, our President. We do not have
an
employment agreement with Mr. Surber, and losing his services would likely
have
an adverse effect on our ability to conduct business. Mr. Surber serves as
an
Officer and Director of Nexia. Mr. Surber is currently employed by other
businesses, and he will only allocate a portion of his time (estimated at
an
average of 50 hours per week) to the business of Nexia. Therefore, there
is a
risk that he might not devote enough time to Nexia in fulfilling our business
plan. Further, Nexia has a limited number of full time
employees.
The
operation of Landis Lifestyle Salon and Gold Fusion Laboratories operations
are
each dependent on key personnel.
Our
subsidiary Landis LLC owns Landis Lifestyle Salon. The operations of Landis
Lifestyle Salon are dependent on the day to day management of Matthew Landis,
the namesake of the salon’s name who works in the salon and trains its
personnel. Losing his services would likely have an adverse effect on the
operations and business development of the salon business owned and operated
by
Landis LLC.
Our
subsidiary Gold Fusion Laboratories has acquired the operations of Black
Chandelier which is dependent upon the fashion sense and design creations
of
Jared Gold for its operations. Losing his services would likely have an adverse
effect on the design functions, development of new clothing lines and future
business growth of Gold Fusion’s planned acquisitions and the related retail
operations.
Our
ability to provide adequate management, maintenance and
insurance.
To
provide for adequate management, maintenance and insurance for the properties
owned by Nexia, rental income will need to exceed the operating costs for those
properties. Vacancies, falling rents, bankruptcy of tenants, unexpectedly higher
maintenance costs or a loss not covered by insurance could adversely affect
the
ability of Nexia to provide adequate management, maintenance and insurance
for
its properties. If these services are not provided on an adequate basis,
deterioration of the property would have a severely negative impact on
Nexia.
Risks
related to Nexia’s and its predecessors’ operating histories
The
current focus of Nexia’s business plan is to take advantage of the current boom
in the United States’ real estate market. In the current market, Nexia has not
relied upon the sellers of real property to finance its real estate investments.
Nexia has obtained the necessary funding on its own. However, Nexia and its
predecessors have attempted in recent years to compete in other market trends
which were not successful. For example, Nexia signed an agreement to acquire
Creative Marketing Group, Inc. which holds a license to market coffee maker
filters and ground coffee beans under the “Mr. Coffee” name. In another example,
Nexia attempted to close on a manufacturing and repair company. In each of
these
situations, the executive management of Nexia and its predecessors was the
same.
In each of these failed attempts, Nexia attempted to acquire an existing
business based on the incorrect information that the selling shareholder group
would obtain the necessary financing to support the ongoing business of the
franchise. Based upon past performance, there is the possibility that Nexia’s
executive management may in the future commit resources to an acquisition that
ultimately proves to be unsound and damages the Company
financially.
We
will need new funding, which may not be available, in order to fully execute
our
real estate business plan.
Our
real
estate business planBbuying
undervalued buildingsBwill
depend on our ability to raise more money. Management and shareholders have
not
committed to provide new funding. Except for that funding we hope to obtain
as a
result of selling our common stock to Dutchess, as detailed in this prospectus,
we have not investigated other sources, availability, or terms for new funding.
There is no assurance that funding will be available from any source or, if
available, that it can be obtained on acceptable terms. If we can not obtain
new
funding, our operations could be severely limited.
We
cannot predict our future capital needs and may not be able to secure additional
funding.
Nexia’s
management estimates that the Company’s current “burn rate,” the current rate at
which expenses exceed revenue, is approximately $75,000 per month, or $900,000
per year. We will need to raise additional funds within the next twelve months
in order to fund the current level of operations of the Company. We expect
that
the majority of these funds will come from the sale of our common shares to
Dutchess or the sale or transfer of some of our preferred shares to private
investors. Either method of funding could result in a significant dilution
of
ownership interests by the holders of our common stock.
Environmental
liability could affect our real estate investments.
Various
federal, state and local environmental laws make a real estate owner liable
for
the costs of removal or remediation of certain hazardous or toxic substances
on
a property. These laws often impose environmental liability regardless of
whether the owner was responsible or knew of the presence of hazardous
substances. The presence of hazardous substances, or the failure to properly
remediate them, may adversely affect our ability to sell or rent a property
or
to borrow using the property as collateral. No assurance can be given that
the
environmental assessments of our properties revealed all environmental
liabilities, or that a material, adverse environmental condition does not exist
on our properties.
We
may
face an uninsured loss.
Owners
of
real estate are subject to certain types of losses such as civil disturbance
or
pollution, which are either uninsurable or too expensive to insure. If an
uninsured loss or a loss in excess of insured limits occurs, Nexia's
investment in our real properties, as well as anticipated future revenues could
be lost. Meanwhile, obligations on any mortgage debt for the properties would
continue. Accordingly, any uninsured loss could adversely affect our financial
condition and results of operation.
The
Americans With Disabilities Act and similar legislation may increase our
costs.
The
Americans with Disabilities Act of 1980 (ADA) requires that commercial
facilities and places of public accommodation be accessible to disabled people.
A number of additional federal, state and local laws impose other requirements
on owners concerning access by disabled people. We may need to make both
structural and non-structural changes to our property in order to comply with
the ADA and similar laws. Noncompliance could result in government fines or
an
award of damages to a private litigant. We have not been informed that any
of
our properties fail to comply with such laws. However, we may incur costs,
which
we cannot fully ascertain now, to ensure compliance in the future. While we
do
not expect the prospective costs of compliance to have a material effect on
our
operations, a potential for substantial costs exists. If changes are required,
our financial condition and results of operations could be adversely
affected.
Changes
in consumer tastes and fashion trends can have a negative impact on our
financial performance.
Both
Landis LLC and Gold Fusion Laboratories, Inc. operations could be negatively
impacted by unforeseen and unfavorable changes in consumer tastes and fashion
trends away from those targeted by the marketing and sales efforts of Landis
and
Gold Fusion Laboratories. As these tastes and trends are not predictable
and
their effect on the operations of either retail operation cannot be estimated
in
advance great effort is made in the operations of both companies to ensure
that
their products and services reasonably and adequately anticipate the business
operations of each company such changes and that theses changes are in order
to
insure continued consumer demand for their services and products. However,
there
is no way to assure success with these efforts.
The
Series B Preferred Stock held by Richard Surber creates an anti-takeover
or
change of control limitation. Richard Surber currently holds voting control
of
Nexia through his ownership of voting preferred stock which could be affected
by
the purchases of common stock by Dutchess.
The
ten
million shares of Series B Preferred Stock held by Richard Surber provide
him
with voting control over any proposal requiring a vote of the shareholders.
Through his ownership of 10,000,000 shares of the Series B Preferred Stock
of
the Company, he holds voting rights equal to 5,000,000,000 shares of common
stock. This effectively gives him a veto over any attempt to take over or
change
control of the Company. Such an event would include a vote by the board of
directors to conduct a reverse split of the common stock. The shares held
by Mr.
Surber thus have a strong anti-takeover effect. His interests may not always
conform to the interests of the common stockholders, in general, and thus
his
voting rights may not always be exercised in the best interests of the common
stockholders of the Company. The issuance of 8 million preferred shares was
to
compensate Mr. Surber for serving as the personal guarantor of the loans
used to
acquire all of the real estate holdings currently under the Company’s control,
and an additional 2 million shares were recently issued as partial compensation
for the transfer of Mr. Surber’s interest in Landis LLC. In the event that
Dutchess should acquire the 25 billion shares of common stock being registered
under this prospectus and retain those shares it would hold 76.2% of the
approximately 32,814,768,850 votes that would be outstanding at that time,
that
number of votes may provide Dutchess with a controlling interest in the Company.
Further, if the share price of the common stock decreases during the period
of
purchases by Dutchess, the number of shares it could acquire would increase
as
the price it would have to pay for those shares would
decrease.
Risks
Related to Landis LLC’s Operation of Landis Lifestyle
Salon
The
operation of Landis Lifestyle Salon operations are each dependent on key
personnel.
The
operations of Landis Lifestyle Salon are dependent on the day to day management
of Matthew Landis, the namesake of the salon’s name who works in the salon and
trains its personnel. Losing his services would likely have an adverse effect
on
the operations and business development of the salon business owned and operated
by Landis LLC.
Our
success depends on our ability to attract and retain trained stylists in
order
to support our existing salon business and to staff future
expansion.
Landis
is
actively recruiting qualified candidates to fill stylist positions for the
salon. There is substantial competition for experienced personnel in this
area,
which we expect to continue. We will compete for experienced candidates with
companies who have substantially greater financial resources than we do.
If we
fail to attract, motivate and retain qualified stylists, it could harm our
business and limit our ability to be successful and hamper expansion plans.
For
example, we will depend upon the expertise and training abilities of Matthew
Landis, the principal manager of the salon. Since we do not maintain insurance
policies on any of our employees, if we lose the services of any key officers
or
employees, like Mr. Landis, it could harm our business and results of
operations.
We
face significant competition in the salon business, which could harm our
sales
and profitability
The
primary competition to Landis operations will come from salons offering
above-and-beyond customer service in the Salt Lake Area market. Currently
identified as offering this level of competition are salons named, Lunatic
Fringe, Salon Zazou and Salon RZ. Landis will also be in competition with
large
scale hair cutting operations such as Great Clips, Supercuts, and Fantastic
Sams, though these operations do not compete in offering the extra services
and
products that Landis offers.
The
loss of distribution rights to the Aveda™ line of products would damage the
operation of the Landis Lifestyle Salon and have a significant and negative
impact on its ability to operate and generate revenues.
The
Landis LLC operates the Landis Lifestyle Salon, has a Retail Product Use
Agreement with a distributor of the Aveda™ line of products and which are used
exclusively in the services provided to customers of the salon and offered
for
retail sale at the salon location. Loss of the right to sell Aveda product
would
have a significant and negative impact on the operation of the salon and
its
ability to generate revenues from either retail sales of health and beauty
products or from providing services to consumers at the salon. Landis believes
that the high quality and reputation of this line of products is key to its
current operations and future success.
Changes
in consumer tastes and hairstyling trends can have a negative impact on our
financial performance.
Landis’
salon operations could be negatively impacted by unforeseen and unfavorable
changes in consumer tastes and hairstyling trends away from those targeted
by
the marketing and sales efforts of Landis. As these tastes and trends are
not
predictable and their effect on the operations of the salon cannot be estimated
in advance great effort is made in the operations of the salon to ensure
that
its products and services reasonably and adequately anticipate such changes
and
that theses changes are met with modifications in the salon’s operations to
insure continued consumer demand for its services and products. However,
there
is no way to assure success with these efforts.
Risks
Related to Gold Fusion Laboratories Operation of Black Chandelier Clothing
Line
The
success of the Gold Fusion Laboratories business plan depends in large part
on
our ability to identify fashion trends and to react to changing customer
demand
in a timely manner.
Consequently,
we depend, in part, upon favorable market response to the creative efforts
of
the Gold Fusion Laboratories operation.
Failure
on our part to anticipate, identify, and respond effectively to changing
consumer demands and fashion trends will adversely affect our
sales.
If
we are
unable to obtain raw materials, or find manufacturing facilities, our financial
condition may be harmed. Outside of a small sample room, we do not own any
manufacturing facilities, and therefore depend on a limited number of third
parties to manufacture our products. We place all of our orders for production
of merchandise and raw materials by purchase order and do not have any long-term
contracts with any manufacturer or supplier. If we fail to obtain sufficient
quantities of raw materials, it could have a harmful effect on the results
of
our operations. Furthermore, we may receive shipments of products from
manufacturers that fail to conform to our quality control standards. In such an
event, unless we are able to obtain replacement products in a timely manner,
we
may lose sales. If we fail to maintain favorable relationships with these
production facilities, or fail to obtain an adequate supply of quality raw
materials on commercially reasonable terms, it could harm our business and
results of operations.
Gold
Fusion will be dependent on third party manufacturers for production, and
its
sales may be negatively affected if the manufacturers do not perform acceptably,
or if design changes are communicated after the production has
begun.
We
will
develop a significant portion of our merchandise in conjunction with third-party
apparel manufacturers. In some cases, we select merchandise directly from
these
manufacturers’ lines. We do not have long-term contracts with any third party
manufacturers and will purchase all of the merchandise from such manufacturers
by purchase order. Furthermore, we may receive, in the future, shipments
of
products from third-party apparel manufacturers that fail to conform to our
quality control standards. In such an event, unless we are able to obtain
replacement products in a timely manner, we may lose sales. We cannot assure
you
that third party manufacturers (1) will not supply similar products to our
competitors, (2) will not stop supplying products to us completely or, 3)
will
supply products that satisfy our quality control standards. In addition,
certain
of our third party manufacturers will store our raw materials. In the event
our
inventory is damaged or destroyed, and we are unable to obtain replacement
raw
materials, our ability to generate earnings may be negatively impacted. In
addition, if we decide to change a key design element, after the manufacturing
process has begun, we may negatively impact the manufacturer's ability to
deliver the products on a timely basis, which could impact our ability to
generate earnings.
Our
success depends on our ability to attract and retain key employees in order
to
support our existing business and future expansion.
We
are
actively recruiting qualified candidates to fill key executive positions
within
the Company. There is substantial competition for experienced personnel,
which
we expect to continue. We will compete for experienced personnel with companies
who have substantially greater financial resources than we do. If we fail
to
attract, motivate and retain qualified personnel, it could harm our business
and
limit our ability to be successful. For example, we will depend upon the
expertise and design talents of Jared Gold, the founder of the Black Chandelier
line of products. Since we do not maintain insurance policies on any of our
employees, if we lose the services of any key officers or employees, like
Mr.
Gold, it could harm our business and results of operations.
We
face significant competition in the retail and apparel industry, which could
harm our sales and profitability.
The
retail and apparel industries are highly competitive and are characterized
by
low barriers to entry. We expect competition in our markets to increase.
The
primary competitive factors in our markets are: brand name recognition, sourcing
strategies, product styling, quality, presentation and pricing, timeliness
of
product development and delivery, customer service, and convenience. We compete
with specialty store retailers, business to consumer websites, off-price
retailers and direct marketers for, among other things, raw materials, market
share, finished goods, sourcing and personnel. Because many of these competitors
are larger and have substantially greater financial, distribution and marketing
resources than we do, we may lack the resources to adequately compete with
them.
If we fail to compete in any way, it could harm our business, financial
condition, and future results of operations.
Purchases
of the merchandise we sell are generally discretionary and are therefore
particularly susceptible to economic slowdowns.
If
economic conditions are not favorable or if they should suffer a downward
trend,
our retail businesses, financial condition, and results of operations could
be
adversely affected. Consumers are generally more willing to make discretionary
purchases, including purchases of fashion products and high-end home products,
during periods in which favorable economic conditions prevail.
If
we
are not able to successfully protect our intellectual property, our ability
to
capitalize on the value of the Black Chandelier brand name may be
impaired.
Even
though we intend to take actions to establish, register and protect our
trademarks and other proprietary rights, we cannot assure you that these
efforts
will be successful. There is a risk that others will imitate our products
or
infringe upon our intellectual property rights. In addition, we cannot assure
you that others will not resist or seek to block the sale of our products
as
infringements of their trademark and proprietary rights. We are seeking to
register our trademarks in targeted markets. In some of these markets, obstacles
exist that may prevent us from obtaining a trademark for the Black Chandelier
or
related names. Furthermore, in some jurisdictions, despite successful
registration of our trademarks, third parties may allege infringement and
bring
actions against us. We are not aware of any actual infringement by our products
on any other trademarked product.
If
an
independent manufacturer violates labor or other laws, is accused of violating
any such laws, or if their labor practices diverge from those generally accepted
as ethical, it could harm our business and brand image.
While
all
our manufacturers are contractually required to comply with ethical labor
practices, we cannot control the actions or public perception of such
manufacturers, nor can we assure that these manufacturers will conduct their
businesses using ethical or legal labor practices. Apparel companies may
be held
jointly liable for the wrongdoings of those that manufacturer their products.
While we do not control independent manufacturer’s employment conditions, or
their business practices, people in general act in their own self-interest,
and
may act in a manner that produces a negative public perception of the Company.
Accordingly we could receive negative publicity or perhaps a court determination
that we are jointly liable for such improper practices.
Additional
capital is necessary to implement the Company's Business Plan for Gold Fusion
Laboratories.
The
Company does not believes that it has sufficient cash, cash equivalents and
operating income to maintain its business at its existing level through the
next
12 months. The Gold Fusion Laboratories’ operation will require significant new
capital in order to execute its business plan. The Company’s success in raising
this capital will depend upon its ability to access equity capital markets.
We
may not be able to do so, or do so on acceptable terms. If the Company fails
to
obtain funds on acceptable terms, it will not be able to execute the Gold
Fusion
Laboratories business plan and would have to delay or abandon some or all
of its
plans for growth.
Risks
Related to Investment
Nexia
expects the price of its common stock to be volatile. As a result, investors
could suffer greater market losses in a down market than they might experience
with a more stable stock. Volatility in our stock may also increase the risk
of
having to defend a securities class action suit, which could be expensive and
divert management’s attention from managing Nexia’s business.
The
market price of Nexia’s common shares has been subject to wide fluctuations in
response to several factors, such as:
| · |
Significant
dilution
|
| · |
Actual
or anticipated variation in the results of
operations
|
| · |
Announcements
of acquisitions
|
| · |
Changes
in the areas of operations of the
company
|
| · |
Conditions
and trends in the real estate market in Salt Lake City, Utah and
nationally
|
The
stock
markets generally, and the OTC Bulletin Board in particular, have experienced
extreme price and volume fluctuations that are often unrelated and
disproportionate to the operating performance of a particular company. These
market fluctuations, as well as general economic, political and market
conditions such as recessions or interest rate or international currency
fluctuations, may adversely affect the market for the common stock of the
company. In the past, class action litigation has often been brought against
companies after periods of volatility in the market price of their securities.
If such a class action suit is brought against the Company it could result
in
substantial costs and a diversion of management’s attention and resources, which
would hurt business operations.
Dutchess
will pay less than the then-prevailing market price of our common stock, which
may cause our stock price to decline.
The
common stock to be issued under our agreement with Dutchess will be purchased
at
a 5% discount to the lowest closing bid price for the five days immediately
following our notice to Dutchess of our election to exercise our put right.
These discounted sales could cause the price of our Common Stock to decline,
and
you may not be able to sell our stock for more than you paid for it. Dutchess
will have an immediate incentive to sell the shares it acquires and realize
a
gain as a result of the discount from market price at which it will purchase
shares of Nexia’s commons tock. This incentive to sell will increase as the
market price of Nexia’s common stock falls as Dutchess will wish to avoid a loss
on the sale of such shares.
Our
stock value is dependent on our ability to generate net cash
flows.
A
large
portion of any potential return on our common stock will be dependent on our
ability to generate net cash flows.
If
we can
not operate our commercial property and/or retail operations at a net profit,
there will be no return on shareholders’ equity, and this could result in a loss
of share value. No assurance can be given that we will be able to operate at
a
net profit now or in the future.
Our
common stock value may decline after the offering.
Sales
of
our common stock in the public market following this offering could lower the
market price of our common stock. The sales may also make it more difficult
for
the company or its investors to sell current securities in the future at a
time
and price that the company or its current investors deem acceptable or even
to
sell such securities at all. The risk factors discussed in this "Risk
Factors"
section
may significantly affect the market price of our stock. The low price of our
stock may result in many brokerage firms declining to deal in our stock. Even
if
a buyer finds a broker willing to effect a transaction in our common stock,
the
combination of brokerage commissions, state transfer taxes, if any, and other
selling costs may exceed the selling price. Further, many lending institutions
will not permit the use of this stock as collateral for loans. Thus, you may
be
unable to sell or otherwise realize the value of your investment in our
stock.
The
number of shares that could be issued to Dutchess could lead to a large number
of shares being placed on the market which could exert a downward trend on
the
prices. Dutchess, who will have purchased its shares at a discount to the
market
price, will have an incentive to sell the shares to realize its profits
resulting from the discount purchase price that it will be receiving. If
the
supply created by these events exceeds the demand for purchase of the shares
the
market price for the shares of common stock will decline.
The
number of shares to be made available through this registration statement could
encourage short sales by third parties, which could contribute to a future
decline in the price of our stock.
In
our
circumstances, the provision of a large number of common shares to be sold
to
Dutchess has the potential to cause a significant downward pressure on the
price
of common stock, such as ours, that is traded on the OTC Bulletin Board. This
would be especially true if the shares being placed into the market exceeds
the
market’s ability to take up the increased number of shares or if the Company has
not performed in such a manner to encourage additional investment in the market
place. Such events could place further downward pressure on the price of the
common stock. As a result of the number of shares that could be placed with
Dutchess, an opportunity exists for short sellers and others to contribute
to
the future decline of Nexia’s stock price. Persons engaged in short-sales first
sell shares that they do not own and, thereafter, purchase shares to cover
their
previous sales. To the extent the stock price declines between the time the
person sells the shares and subsequently purchases the shares, the person
engaging in short-sales will profit from the transaction, and the greater the
decline in the stock price the greater the profit to the person engaging in
such
short-sales. If there are significant short-sales of our stock, the price
decline that would result from this activity will cause our share price to
decline even further, which could cause any existing shareholders of our stock
to sell their shares creating additional downward pressure on the price of
the
shares. It is not possible to predict how much the share price may decline
should a short sale occur. In the case of some companies that have been
subjected to short-sales the stock price has dropped to near zero. This could
happen to Nexia.
The
Investment Agreement entered into with Dutchess does not contain a restriction
on short selling. Any significant downward pressure on the price of our common
stock could encourage short sales by Dutchess, and others, subject to applicable
securities laws. Even if we use the proceeds under the Investment Agreement
to
grow our revenues and profits or invest in assets, which are materially
beneficial to us, the opportunity exists for short sellers and others to
contribute to the future decline of our stock price. If there are significant
short sales of our stock, the price decline that would result from this activity
will cause the share price to decline even more, which, in turn, may cause
long
holders of the stock to sell their shares thereby contributing to sales of stock
in the market. If there is an imbalance on the sell side of the market for
the
stock, our stock price will decline. In that event, the number of shares
of our
common stock that are issuable pursuant to the Investment Agreement will
increase, which will materially dilute existing stockholders equity and voting
rights.
Our
shareholders may face significant restrictions on the resale of our stock due
to
state "Blue
Sky"
laws.
Each
state has its own securities laws, often called "blue
sky
laws,"
which
(1) limit sales of stock to a states’ residents unless the stock is registered
in that state or qualifies for an exemption from registration and (2) govern
the
reporting requirements for broker-dealers and stock brokers doing business
directly or indirectly in the state. Before a security is sold in a state,
there
must be a registration in place to cover the transaction, or it must be exempt
from registration. Also, the broker must be registered in that state. We do
not
know whether our stock will be registered, or exempt, under the laws of any
states. A determination regarding registration will be made by the
broker-dealers, if any, who agree to serve as the market-makers for our stock.
There may be significant state blue sky law restrictions on the ability of
investors to sell, and on purchasers to buy, our stock.
You
should consider the resale market for our securities to be limited. Shareholders
may be unable to resell their stock, or they may be unable to resell it without
the significant expense of state registration or qualification.
Our
stock may be subject to significant restrictions on resale due to federal penny
stock regulations.
Our
stock
differs from many stocks because it is a Apenny
stock.
The
Securities and Exchange Commission (“SEC”) has adopted a number of rules to
regulate penny stocks. These rules require that a broker or dealer, prior to
entering into a transaction with a customer, must furnish certain information
related to the penny stock. The information that must be disclosed includes
quotes on the bid and offer, any form of compensation to be received by the
broker in connection with the transaction and information related to any cash
compensation paid to any person associated with the broker or
dealer.
These
rules may affect your ability to sell our shares in any market that may develop
for Nexia stock. Should a market for our stock develop among dealers, it may
be
inactive. Investors in penny stocks are often unable to sell stock back to
the
dealer that sold it to them. The mark-ups or commissions charged by
broker-dealers may be greater than any profit a seller can make. Because of
large dealer spreads, investors may be unable to sell the stock immediately
back
to the dealer at the same price the dealer sold it to them. In some cases,
the
stock value may fall quickly. Investors may be unable to gain any profit from
any sale of the stock, if they can sell it at all.
Potential
investors should be aware that, according to the SEC Release No. 34-29093,
the
market for penny stocks has suffered in recent years from patterns of fraud
and
abuse. These patterns include:
| · |
control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
|
| · |
manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases;
|
| · |
Aboiler
room
practices involving high pressure sales tactics and unrealistic price
projections by inexperienced sales
persons;
|
| · |
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
| · |
the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
inevitable collapse of those prices with consequent investor
losses.
|
Investors
must contact a broker-dealer to trade over-the-counter bulletin board
securities. As a result, you may not be able to buy or sell our securities
at
the times you may wish.
Even
though our securities are quoted on the OTC Bulletin Board, they may not permit
our investors to sell securities when and in the manner that they wish. Because
there are no automated systems for negotiating trades on the OTC Bulletin Board,
they are conducted via telephone. In times of heavy market volume, the
limitations of this process may result in a significant increase in the time
it
takes to execute investor orders. When investors place market orders to buy
or
sell a specific number of shares at the current market price it is possible
for
the price of a stock to go up or down significantly during the lapse of time
between placing a market order and its execution.
If
we
fail to remain current on the reporting requirements that apply to Nexia, we
could be removed from the OTC Bulletin Board which would limit the ability
of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities.
Companies
trading on the OTC Bulletin Board, such as Nexia, must be reporting issuers
under Section 12 of the Securities Exchange Act of 1934, as amended, and must
be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, shares of our common stock could be removed from the
OTC
Bulletin Board. As a result of that removal, the market liquidity for our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.
Investors
may experience an immediate and significant dilution of their interest if any
securities registered hereunder are sold.
"Dilution"
represents the difference between the offering price and the net tangible book
value per share immediately after completing this offering. "Net
tangible book value"
is the
amount that results from subtracting total liabilities and intangible assets
from total assets. Dilution is caused primarily by our arbitrary determination
of the offering price for the shares detailed in this prospectus. Dilution
also
occurs because of the lower book value of the shares held by our existing
shareholders.
As
of
October 9, 2006, the net tangible book value of our shares of common stock
was
$1,309,213, or approximately $0.0002 per share, based on 7,814,768,850 shares
outstanding.
Upon
completion of this offering, if 100% of the offered shares are sold, the
net
tangible book value of the 32,814,768,850 shares to be outstanding will be
$6,309,213 or approximately. You would not experience any immediate dilution
or
change in the net tangible book value of a share of common stock.
Dutchess
may not buy all or any of our common stock.
The
possibility exists that we will not sell any of the securities to Dutchess
detailed in this offering; or that we will sell only a limited number of
securities. Dutchess has no obligation to buy common stock until a request
is
made by Nexia and management has reached a decision to make such a request
as
being in the company’s best interests. Nexia has incurred expenses related to
this offering. The offering expenses are to be paid from the proceeds of
the
offering or the sales to Dutchess. Should Nexia fail to sell, or should Dutchess
fail to buy any securities or only a limited number of securities as offered,
then offering costs would be paid from our operating budget. The addition
of
this financial obligation to the operating budget of Nexia would have a negative
impact on our ability to continue our operations.
SELLING
SHAREHOLDERS
The
following table presents information regarding the selling shareholders.
None of
the selling shareholders holds, or has held a position or office or had any
other material relationship with Nexia. Dutchess is not a broker-dealer or
an
affiliate of a broker-dealer.
|
Selling
Security Holder
|
Shares
held
|
percentage
of shares
|
shares
sold
|
percentage
of
|
|
|
Before
offering
|
before
offering
|
in
offering
|
shares
after offering
|
|
Dutchess
Private Equities
|
||||
|
Fund
L.P.
|
0
|
0%
|
25,000,000,000
|
77.1%
|
USE
OF PROCEEDS
Nexia
will not receive any proceeds from the sale of the shares by Dutchess pursuant
to this registration. However, all shares sold to Dutchess pursuant to the
Investment Agreement between Nexia and Dutchess will generate cash proceeds
from
those sales for Nexia. Nexia intends to use the proceeds from those transfers
to
Dutchess in the following manner, and in the following order of
priority.
|
|
|
Estimated
Proceeds from Percentage
of
Current Market Price
|
|||
|
|
|
||||
|
|
|
|
|
|
|
|
Priority
|
Use
of Funds Received from Dutchess
|
100%
|
75%
|
50%
|
25%
|
|
|
|
|
|
|
|
|
1
|
Cost
of offering
|
$
100,000
|
$
100,000
|
$
100,000
|
$
100,000
|
|
|
|
|
|
|
|
|
2
|
Working
capital
|
1,700,000
|
1,700,000
|
1,700,000
|
1,150,000
|
|
|
|
|
|
|
|
|
3
|
Expansion
of retail operations
|
2,400,000
|
1,465,000
|
525,000
|
-
|
|
|
|
|
|
|
|
|
4
|
Improve
existing real estate holdings
|
200,000
|
120,000
|
45,000
|
-
|
|
|
|
|
|
|
|
|
5
|
Acquisition
of real estate
|
600,000
|
365,000
|
130,000
|
-
|
|
|
|
|
|
|
|
|
|
TOTAL
PROCEEDS RECEIVED
|
$5,000,000
|
$
3,750,000
|
$2,500,000
|
$1,250,000
|
The
numbers in the above table for priority 3, Expansion of retail operations,
are
based on the following estimates if 100% of the stock offered is
sold:
|
|
|
Black
|
|
||||
|
|
|
Landis
|
|
Chandelier
|
|
||
|
|
|
Lifestyle
|
|
Retail
Clothing
|
|
||
|
|
|
Salons
|
|
Stores
|
|||
|
Set
up initial store, furniture & equipment
|
$
|
214,700
|
$
|
121,250
|
|||
|
Inventory
|
$
|
73,450
|
$
|
84,000
|
|||
|
Marketing
& advertising
|
45,000
|
45,000
|
|||||
|
Other
nonrecurring costs
|
19,400
|
11,500
|
|||||
|
TOTAL
COST TO SET UP
|
|||||||
|
EACH
NEW LOCATION
|
$
|
352,550
|
$
|
261,750
|
|||
|
Estimated
new locations over
|
|||||||
|
the
next 12 months
|
3
|
5
|
|||||
|
TOTAL
EXPANSION COST
|
$
|
1,057,650
|
$
|
1,308,750
|
|||
If
75% of
the stock offered is sold, there would be enough funds for 2 new Landis
locations and 3 new Black Chandelier retail stores. If 50% of the stock offered
is sold, there would be enough funds for 1 new Landis location and 1 new
Black
Chandelier retail store. If 25% of the stock offered is sold, new sources
of
funding will have to be found for the expansion of retail
operations.
DETERMINATION
OF OFFERING PRICE
The
shares of Nexia common stock are being offered for sale by the selling
stockholder at prices established on the OTC Bulletin Board or in negotiated
transactions during the term of this offering. These prices will fluctuate
based
on the demand for the shares.
DILUTION
“Dilution”
represents the difference between the offering price and the net tangible
book
value per share immediately after completing this offering. “Net tangible book
value” is the amount that results from subtracting total liabilities and
intangible assets from total assets. Dilution arises mainly because we
have
arbitrarily determined the offering price for the shares offered in this
prospectus. Dilution may occur in the event of reductions in the book value
of
shares held by our existing stockholders.
These
calculations are assumptions based upon an estimate of prices and sales
that may
never be realized. Actual prices to be paid by Dutchess to the Company
will not
be determined until the time of sale. All of the following information
is
premised upon those assumptions and estimated prices. Actual results may
vary
materially from those presented in the following information as a result
of the
sale and transfer of the shares registered hereunder.
As
of
October 9, 2006, the net tangible book value of our shares of common stock
was
$1,309,213, or approximately $0.0002 per share, based on 7,814,768,850
shares
outstanding.
Upon
completion of this offering, if 100% of the offered shares are sold
(25,000,000,000), the net tangible book value of the 32,814,768,850 shares
to be
outstanding will be $6,309,213 or approximately $0.0002 per share. The
net
tangible book value of the shares held by our existing stockholders will
not
change. You would not experience any immediate dilution or change in
the net
tangible book value of a share of common stock.
Upon
completion of this offering, if 75% of the offered shares are sold
(18,750,000,000), the net tangible book value of the 26,564,768,850 shares
to be
outstanding will be $5,059,213 or approximately $0.0002 per share. The
net
tangible book value of the shares held by our existing stockholders will
not
change. You would not experience any immediate dilution or change in the
net
tangible book value of a share of common stock.
Upon
completion of this offering, if 50% of the offered shares are sold
(12,500,000,000), the net tangible book value of the 20,314,768,850 shares
to be
outstanding will be $3,809,213 or approximately $0.0002 per share. The
net
tangible book value of the shares held by our existing stockholders will
not
change. You would not experience any immediate dilution or change in the
net
tangible book value of a share of common stock.
Upon
completion of this offering, if 25% of the offered shares are sold
(6,250,000,000), the net tangible book value of the 14,064,768,850 shares
to be
outstanding will be $2,559,213 or approximately $0.0002 per share. The
net
tangible book value of the shares held by our existing stockholders will
not
change. You would not experience any immediate dilution or change in the
net
tangible book value of a share of common stock
Upon
completion of this offering, if 5% of the offered shares are sold
(1,250,000,000), the net tangible book value of the 9,064,768,850 shares
to be
outstanding will be $1,559,213 or approximately $0.0002 per share. The
net
tangible book value of the shares held by our existing stockholders will
not
change from. You would not experience any immediate dilution or change
in the
net tangible book value of a share of common stock.
The
following table compares the number shares outstanding before and after
the
offering and the number of shares held by our existing
stockholders.
|
NUMBER
OF SHARES ISSUED AND OUTSTANDING
|
|||||
|
25,000,000,000
|
18,750,000,000
|
12,500,000,000
|
6,250,000,000
|
1,250,000,000
|
|
|
Description
|
100%
|
75%
|
50%
|
25%
|
5%
|
|
|
|
|
|
|
|
|
Number
of common shares outstanding before public offering
|
|||||
|
7,814,768,850
|
7,814,768,850
|
7,814,768,850
|
7,814,768,850
|
7,814,768,850
|
|
|
|
|
|
|
|
|
|
Number
of shares in public offering
|
25,000,000,000
|
18,750,000,000
|
12,500,000,000
|
6,250,000,000
|
1,250,000,000
|
|
|
|
|
|
|
|
|
Total
number of shares outstanding after public offering
|
|
|
|
|
|
|
32,814,768,850
|
26,564,768,850
|
20,314,768,850
|
14,064,768,850
|
9,064,768,850
|
|
|
Shares
held by affiliates after public
offering
|
|
|
|
|
|
|
(2,002,012,756)
|
(2,002,012,756)
|
(2,002,012,756)
|
(2,002,012,756)
|
(2,002,012,756)
|
|
|
Number
of shares, after public offering, held by public
investors
|
|||||
|
30,812,756,094
|
24,562,756,094
|
18,312,756,094
|
12,062,756,094
|
7,062,756,094
|
|
|
|
|
|
|
|
|
|
Percentage
of public ownership after public offering
|
93.9%
|
92.46%
|
90.15%
|
85.77%
|
77.91%
|
|
EXISTING
STOCKHOLDERS:
|
||||
|
Price
per share
|
$
|
0.0002
|
||
|
Net
tangible book value per share before offering
|
$
|
0.0002
|
||
|
Net
tangible book value per share after offering, assuming
|
||||
|
all
shares are sold
|
$
|
0.0002
|
||
|
Net
increase in tangible book value to existing stockholders after
offering,
assuming all shares are sold
|
||||
|
Number
of shares outstanding before the offering
|
7,814,768,850
|
|||
|
Number
of shares after offering held by existing stockholders
|
7,814,768,850
|
|||
|
Percentage
of ownership after offering
|
23.81
|
%
|
||
|
Price
|
Increase
in net tangible
|
Held
by
|
|||||||||||
|
per
|
Book
value
|
Capital
|
public
|
||||||||||
|
share
|
per
share
|
contributions
|
investors
|
||||||||||
|
PURCHASERS
OF SHARES IN
THIS OFFERING:
|
|||||||||||||
|
Purchasers
of shares in this offering if
all shares sold
|
$
|
0.0002
|
$
|
0.0000
|
$
|
5,000,000
|
30,812,756,094
|
||||||
|
Purchasers
of shares in this offering if
75%
of
shares sold
|
$
|
0.0002
|
$
|
0.0000
|
$
|
3,750,000
|
24,562,756,094
|
||||||
|
Purchasers
of shares in this offering if
50%
of shares sold
|
$
|
0.0002
|
$
|
0.0000
|
$
|
2,500,000
|
18,312,756,094
|
||||||
|
Purchasers
of shares in this offering if
25%
of shares sold
|
$
|
0.0002
|
$
|
0.0000
|
$
|
1,250,000
|
12,062,756,094
|
||||||
|
Purchasers
of shares in this offering if
5%
of shares sold
|
$
|
0.0002
|
$
|
0.0000
|
$
|
250,000
|
7,062,756,094
|
PLAN
OF DISTRIBUTION
The
Selling Shareholder has told us they intend to sell the common stock covered
by
this prospectus from time to time in the OTC Bulletin Board market or in any
other market where our shares of common stock are quoted. The Selling
Shareholder, or brokers, dealers or agents that participate in the distribution
of the common stock, may be deemed to be underwriters, and any discounts on
the
sale of common stock by them and any discounts, concessions, or commissions
they
receive may be deemed to be underwriter discounts and commissions under the
Securities Act.
Under
the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. We will inform
the Selling Shareholder that any underwriters, brokers, dealers or agents
effecting transactions on behalf of the selling shareholder must be registered
to sell securities in all 50 states. In addition, in some states the shares
of
common stock may not be sold unless the shares have been registered or qualified
for sale in such state or an exemption from registration or qualification is
available and there is compliance with those exemptions.
Nexia
will pay all the expenses of the registration, offering, and sale of the shares
of common stock to the public under this prospectus other than commissions,
fees, and discounts of underwriters, brokers, dealers or agents. We have agreed
to indemnify the Selling Shareholder and their controlling persons against
certain liabilities, including liabilities under the Securities Act. We estimate
the expenses of the offering, to be borne by Nexia, will be approximately
$100,000. We will not receive any proceeds from the sale of the shares of common
stock by the Selling Shareholder. We will, however, receive proceeds from the
sale of common stock to Dutchess pursuant to the Investment
Agreement.
The
Selling Shareholder should be aware that the anti-manipulation provisions of
Regulation M under the Exchange Act will affect purchases and sales of common
stock by the selling shareholder and that there are restrictions on
market-making activities by persons engaged in the distribution of the shares.
Under Regulation M, the Selling Shareholder or its agents may not bid for or
purchase, or attempt to induce any person to bid for or purchase, shares of
our
common stock while they are distributing shares covered by this prospectus.
Accordingly, except as noted below, the selling shareholder is not permitted
to
cover short sales or purchasing shares while the distribution is taking place.
We will advise the Selling Shareholder that if a particular offer of common
stock is to be made on terms materially different from the information set
forth
in the above Plan of Distribution, that a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
Dutchess
Private Equities Fund, L.P.
On
August
15, 2005, the Company executed the Investment Agreement with Dutchess Private
Equities Fund, L.P., (“Dutchess” or the “Selling Shareholder”) a Delaware
limited partnership with its principal office located at 50 Commonwealth Avenue,
Suite 2, Boston, Massachusetts 02116. The Company reported the execution of
this
agreement on Form 8-K.
The
Investment Agreement provides for Dutchess to extend to the Company up to
$10,000,000 in equity financing. The term of the financing extends for up to
a
three year period, during which the Company can receive funds through the sale
of its common stock to Dutchess. The purchase price of the shares is stipulated
to be at 95% of the lowest closing bid price for the five trading days after
a
request is received by Dutchess from the Company.
The
financing will only become available to the Company after the filing and
subsequent effectiveness of this SB-2 Registration Statement.
LEGAL
PROCEEDINGS
The
following civil actions may have a material impact on Nexia:
Richard
D. Surber, Individually and Hudson Consulting Group, Inc., a Nevada Corporation
vs. Richard A. Bailey and Florian R. Ternes, Individually, Gateway Distributors,
Inc., a Nevada Corporation and Worldwide Holdings Delaware Corp., a Delaware
corporation, f/k/a TRSG Corporation.
Suit
was filed on October 8, 2004 in the Third Judicial District Court of Salt Lake
County, State of Utah, Civil Case No. 040921072. The complaint was filed on
behalf of Mr. Surber and Hudson Consulting Group, Inc. seeking recovery for
unpaid obligations owed to Hudson by the named defendants, some of which are
represented by a promissory note in the face amount of $175,000 and for damages
alleged to have been caused by the fraudulent actions of the named defendants
which have caused injury to both Hudson and to Mr. Surber personally. Defendants
have been served and all but one has filed an appearance with the court in
which
they have denied liability. Worldwide Holdings Delaware Corp. has failed to
make
an appearance and a default has been requested from the court against that
corporation.
Nexia
Holdings, Inc., a Nevada Corporation vs. Richard Bailey, Individually and
Creative Marketing Group, Inc., a Nevada Corporation.
This
action was filed on September 28, 2004, in the Third Judicial District Court
of
Salt Lake County, State of Utah, Civil Case No. 040920424. Nexia filed this
cause of action to recover its damages that resulted from the failure of the
named defendants to perform the terms and conditions of a Stock Purchase
Agreement and Plan of Reorganization signed on or about November 10, 2003.
This
agreement provided for Nexia to acquire a controlling interest in the defendant
corporation which the Defendants have subsequently failed and refused to
perform, despite Nexia having tendered full performance on its part. Both
defendants were served with process in the case and failed to make an appearance
before the Court; entry of default against each defendant has been signed by
the
court. Development of information to establish the amount of damages suffered
by
Nexia is currently being gathered and after presentation to the court, a final
judgment is expected for Nexia in an amount yet to be determined.
Hallmark
Construction & Development, L.L.C. v. Wasatch Capital Corporation, Community
First National Bank, CUBCO, Inc. and John Does 1-10.
Action
was filed on or about August 18, 2005, in the Third Judicial District Court
of
Salt Lake County, State of Utah, Civil Case No. 050914860. Hallmark Construction
& Development LLC has filed suit against Wasatch Capital Corporation seeking
collection of $92,000 in alleged unpaid construction costs for the improvements
and work provided on the Wallace/Bennett buildings owned by Wasatch Capital.
Wasatch has responded with a demand that, as provided in the underlying
contract, the matters in dispute between the parties be submitted to
arbitration. Wasatch denies that it is currently indebted to Hallmark for
any
services or work provided for the improvement of the said buildings and believes
that it has actions for damages against Hallmark. On June 20, 2006 a full
release of this lien was filed by Hallmark Construction and Development L.L.C.
releasing the subject real estate from all claims asserted by Hallmark. The
matter was subsequently heard by the assigned arbitrator who entered a finding
in favor of Wasatch Capital, granting a judgment to Wasatch against Hallmark
in
the sum of $99,791.12, which includes overpayment, damages for defective
work,
attorney fees, costs, arbitration fees and provides for interest both pre
and
post-judgment. A Motion to Confirm Arbitration Award was filed with the Court
and a final order and judgment has been signed by the Court.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS & CONTROL PERSONS
The
following persons are officers and directors of Nexia as of the date of this
prospectus:
|
Name
|
Age
|
Position(s)
and Office(s)
|
|
Richard
Surber
|
32
|
President
and Director
|
|
Gerald
Einhorn
|
67
|
Vice
President, Secretary and Director
|
|
Adrienne
Bernstein
|
61
|
Director
|
Richard
D. Surber, 32,
graduated from the University of Utah with a Bachelor of Science degree in
Finance and then with a Juris Doctorate with an emphasis in corporate law,
including securities, taxation and bankruptcy. He has served as President and
Director of the Company since May of 1999. He also served as an officer and
director of the Company's former parent corporation, Axia Group, Inc. (president
and director from 1992 until control transferred in 2004). He has been an
officer and director of several public companies, including: Golden Opportunity
Development Corporation ("GODC"), a majority owned subsidiary of Nexia until
December 31, 2004, (president and director from September 1999 to December
19,
2001). GODC's operations (until January 4, 2002) consisted of operating a 134
room motel in Baton Rouge, Louisiana.
In
2004,
the SEC instituted administrative proceedings to de-register fourteen shell
companies affiliated directly or indirectly with Mr. Surber over the last six
years. Four of these companies were majority owned affiliates of Nexia. All
of
the companies de-registered by the SEC were inactive shell companies. Mr. Surber
was not named as a respondent in any of those SEC proceedings.
Gerald
Einhorn, 67,
was
appointed to the board in June of 2002 as a Director, Vice-President and
Secretary of Nexia. He was employed by Hudson Consulting Group, Inc. (currently
a subsidiary of Nexia) in its legal department from February 1996 to November
2003 as an attorney working in the areas of real estate, corporate and
securities matters. Prior to that time, Mr. Einhorn was self employed for more
than 20 years in Long Island, New York as a wholesale distributor of fresh
produce and frozen foods to retail and institutional end users. He is a member
of the New York Bar and practiced in New York State for a period of 10 years
before entering the food distribution business.
Adrienne
Bernstein, 61,
was
appointed to the Board of Directors in June 2002. Ms. Bernstein had previously
been a director of Axia Group, Inc. from 1999 through 2001. From 1988 to 1994,
Ms. Bernstein was the Assistant Director of Human Resources for the Love Stores,
a chain of retail health and beauty stores. In this capacity, Ms. Bernstein
was
responsible for hiring and training all employees and for preparing management
and employee seminars. Prior to her position with the Love Stores, Ms. Bernstein
served as a Vice President for Leucadia National Corporation, a NYSE traded
company specializing in finance, insurance and manufacturing. In this capacity,
Ms. Bernstein's primary emphasis involved real estate management and sales
activities.
Directors
are appointed for terms that expire upon a shareholders meeting being held
at
which an election of directors is held.
No
other
person is expected to make a significant contribution to Nexia who is not
identified in this prospectus as an executive officer or director of
Nexia.
All
executive officers are appointed by the board and hold office until the board
appoints their successors or they resign.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information concerning the ownership of
the
Company's common stock as of October 9, 2006, with respect to: (i) each person
known to the Company to be the beneficial owner of more than five percent
of the
Company's common stock; (ii) all directors; and (iii) directors and executive
officers of the Company as a group. The notes accompanying the information
in
the table below are necessary for a complete understanding of the figures
provided below. As of October 9, 2006, there were 7,814,768,850 shares of
common
stock issued and outstanding.
|
TITLE
OF
CLASS
|
NAME
AND ADDRESS OF
BENEFICIAL
OWNER
|
AMOUNT
&
NATURE
OF
BENEFICIAL
OWNERSHIP
|
PERCENT
OF CLASS
|
|
|
Preferred
Series
"B"
Stock
($0.001par
value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
10,000,000
(3)
|
100%
|
|
|
Preferred
Series “A” Stock ($0.001 par value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
145,000(4)
|
96.67%
|
|
|
Common
Stock
($0.0001
par
value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
20,091,937
Direct
2,000,012,862
Indirect(1)
|
25.85%
|
|
|
Common
Stock
($0.0001
par
value)
|
Gerald
Einhorn, VP & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
10,000
|
>0.001%
|
|
|
Common
Stock
($0.0001
par
value)
|
Adrienne
Bernstein, Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
12,957
|
>0.001%
|
|
|
Common
Stock
($0.0001
par
value)
|
Oasis
International Hotel & Casino, Inc.
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
2,655(2)
|
>0.001%
|
|
|
Common
Stock
($0.0001
par
value)
|
Diversified
Holdings I, Inc..
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
9,905(2)
|
>0.001%
|
|
|
Common
Stock
($0.0001
par
value)
|
Joseph
Corso, Jr.
167
Zock Road
Cuddlebackville,
NY 12719
|
750,000,000
|
9.6%
|
|
|
Common
Stock
($0.0001)
par
Value
|
Directors
and Executive Officers as a
Group
|
2,020,127,756
|
25.85%
|
|
| (1) |
The
shares owned by Diversified Holdings I, Inc., Diversified Holdings
X, Inc.
and Oasis International Hotel & Casino, Inc., are attributed
beneficially to Richard D. Surber due to his position as an officer
and
director in each of the said
corporations.
|
| (2) |
Richard
Surber may be deemed a beneficial owner of 12,560 shares of the
Company's
common stock by virtue of his position as an officer and director
of
Diversified Holdings I, Inc. (9.905 shares), Diversified Holdings
X, Inc.
(2,000,000,000 shares) and Oasis International Hotel & Casino, Inc.
(2,655 shares). Mr. Surber personally owns 20,091,937 shares of
common
stock.
|
| (3) |
Series
"B" preferred stock has voting rights of 500 to 1 of the common
stock,
these shares give Mr. Surber 5,000,000,000 votes in any shareholder
vote
and his personal vote of these shares may not always be exercised
in the
best interest of the balance of the common stock
shareholders.
|
| (4) |
Series
“A” preferred stock has voting rights of 100 to 1 of the common stock,
these shares give Mr. Surber 14,500,000 votes in any shareholder
votes and
his personal vote of these shares may not always be exercised in
the best
interest of the balance of the common stock
shareholders.
|
If
all
shares proposed to be registered are sold to Dutchess and it retains those
shares it will hold 25 billion shares out of a total of 32,814,768,850
issued
and outstanding or 76.19 of the common stock or 66.1% of all voting rights
issued and outstanding, including the voting rights of preferred stock
holders
as set forth above.
DESCRIPTION
OF SECURITIES
Common
Stock
As
of
October 9, 2006, the number of issued and outstanding shares of the Company's
common stock was 7,814,768,850. The number of common stock shares authorized
is
50,000,000,000. The common stock holds voting rights of one vote per share,
it
has no dividend nor preemptive rights. The Company filed an amendment to
its
articles of incorporation that as of September 18, 2006 increased the number
of
shares of authorized common stock to 50,000,000,000 from 10,000,000,000 and
changed the stated par value of each share to $0.0001.
Effective
as of November 1, 2004, pursuant to shareholder consent, a reverse split of
the
Company's common stock was carried out on a 1 for 1,000 basis which is reflected
by the current number of shares issued and outstanding.
Shareholders:
As of October 9, 2006, there were approximately 795 shareholders of
record.
Dividends:
The Company has not declared a cash dividend during fiscal years ending 2003,
2004 or 2005.
In
August
of 2006 the Company announced the approval of the board of directors and
of a
majority of the voting rights of the shareholders to increase the number
of
authorized shares of the Company’s common stock from 10 billion up to 50
billion. Notice of the approved proposal was mailed to shareholders of record
on
August 28, 2006. Final action to carry out these changes was filed with the
Nevada Secretary of State’s office on the 18th
of
September, 2006.
Preferred
Stock
The
Company has 50,000,000 authorized shares of convertible preferred stock,
portions of which are designated as Classes A, B, and C.
As
of
September 8, 2006, the number of shares of Series A Convertible Preferred
Stock
issued and outstanding is 150,000. Richard Surber holds a total of 145,000
shares of Series A and Seth Bullough holds the other 5,000 shares of series
A.
Each named individual received the shares of Series A stock in exchange for
the
transfer of assets or stock to Diversified Holdings I, Inc. The Series A
Convertible Preferred Shares have voting rights which equate to 100 shares
of
common stock for every 1 Series A Preferred share and may be converted into
$10
worth of common stock. A total of 10,000,000 shares have been designated
and
authorized as Series A Preferred Shares of a total number of 50,000,000
authorized shares of preferred stock.
On
August
25, 2004, the Company filed with the Nevada Secretary of State a Certificate
of
Designation of the Rights and Preferences of Preferred Stock of Nexia Holdings,
Inc. This designation created 10,000,000 shares, par value $0.001, of Series
B
Convertible Preferred Stock, out of the 50,000,000 authorized shares of
preferred stock of the Company. The Series B Preferred Stock holds voting rights
equal to 500 shares of common stock for each share of the Series B Preferred
Stock issued. The shares do not have any conversion rights into common stock
or
any other class of stock of the Company. The Company reported this event on
Form
8-K filed on August 31, 2004.
On
September 28, 2004 the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28, 2004. The
Series B Preferred shares are given the same voting rights as Common Shares
on a
five hundred-for-one (500 to 1) basis. The 8,000,000 shares held by Mr. Surber
give him voting right equal to 4,000,000,000 shares of common stock.
On
November 8, 2004, the Company filed with the Nevada Secretary of State a
Certificate of Designation of the Rights and Preferences of Preferred Stock
of
Nexia Holdings, Inc. designated as Series C Preferred Stock. The
designation of 5,000,000 shares of the 50,000,000 authorized as Series C
Preferred Stock provides that the Series C shares will hold conversion rights
into shares of the common stock of the Company equal in value to $5.00 per
share
and are subject to redemption by the Company upon a $5.00 cash
payment.
The
Series C Preferred Shares hold no voting rights. The Company reported this
event
on Form 8-K filed on November 10, 2004.
On
November 10, 2004 an agreement was entered into with Joseph Corso, Jr. to sell
him 100,000 shares of its Series C Preferred Stock in exchange for a cash
payment of $50,000. These shares had not been registered for sale and the
exchange was handled as a private sale exempt from registration under section
4(2) of the Securities Act of 1933. The Company reported this exchange on Form
8-K filed on November 12, 2004.
On
July
18, 2006, the Company’s subsidiary Diversified Holdings I, Inc. (“DHI”) executed
an agreement with Richard Surber to acquire Mr. Surber’s 60% ownership interest
in Landis LLC, a Utah limited liability company. In exchange for his 60%
ownership interest in Landis LLC, Mr. Surber received the following
compensation, (1) a promissory note in the amount of $250,000, bearing interest
at the rate of 24% per annum, payments are due in five annual payments of
principal and interest, (2) 75,000 shares of Nexia’s Class A Preferred stock,
and (3) 2,000,000 shares of Nexia’s Class B Preferred stock.
On
July
13, 2006, DHI signed an agreement with Seth Bullough to acquire his 5% ownership
interest in Landis LLC. In exchange for the transfer of that interest, the
Company agreed to delivery to Mr. Bullough 5,000 shares of its Series A
Preferred Stock.
On
August
15, 2006, Gold Fusion Laboratories, Inc., a wholly owned subsidiary of the
Company, signed an Asset Purchase Agreement with Richard Surber to acquire
ownership of the assets, inventory and receivables of the fashion operations
of
Diversified Holdings X, Inc., a corporation owned by Mr. Surber, that owned
and
operated the Black Chandelier and related clothing operations. The consideration
for this transaction was a promissory note in the amount of $300,000, bearing
interest at the rate of 24% per annum, with payment due in five annual
installments and 70,000 shares of Nexia’s Class A Preferred
stock.
On
September 21, 2006, the Company authorized the issuance of 7,500 shares of
Nexia’s Class C Preferred Stock to John E. Fry, Jr. in exchange for service
provided to Gold Fusion Laboratories, Inc. and the potential expansion and
development of the business plans for Black Chandelier and its retail outlets.
Series C Preferred Stock provides that the Series C shares will hold conversion
rights into shares of the common stock of the Company equal in value to $5.00
per share and are subject to redemption by the Company upon a $5.00 cash
payment. The Series C Preferred Shares hold no voting rights.
Dividends:
The Company has not declared a cash dividend for the Series A Convertible
Preferred Stock during the fiscal years ended December 31, 2003, 2004 or
2005.
Rights to dividends are granted to the Series A Convertible Preferred Stock
equal to those of the Common Stock, when, as and if declared by the Directors
of
Nexia, to be paid in cash or in common stock equal to market value at the
election of the Company.
Conversion
Rights: Conversion rights into shares of Common Stock are given to the Series
A
Convertible Preferred Stock based upon that number of shares of the Company's
Common Stock equal in market value to $10.00 at the time of conversion. The
designation of the Series C Preferred Stock provides that the Series C shares
will hold conversion rights into shares of the common stock of the Company
equal
in value to $5.00 per share and are subject to redemption by the Company
upon a
$5.00 cash payment. The Series B Preferred Stock have no right to conversion
into shares of common stock.
INTEREST
OF NAMED EXPERTS AND COUNSEL
No
"Expert"
or
"Counsel"
(as
defined by Item 509 of Regulation S-B promulgated pursuant to the Securities
Act
of 1933) whose services were used in the preparation of this Form SB-2 was
hired
on a contingent basis or will receive a direct or indirect interest in
Nexia.
Legal
Matters
The
validity of the shares of common stock offered hereby have been passed upon
for
Nexia by Mr. Russell C. Weigel, III, an attorney admitted in the District of
Columbia, and the States of Florida and New York.
Experts
The
financial statements of Nexia as of December 31, 2004, were audited by HJ
&
Associates, Certified Public Accountants, as stated in their report appearing
herein dated May 13, 2005 and as amended on April 20, 2006 and as amended
on
October 10, 2006.
On
December 1, 2005, HJ & Associates, L.L.C. (the “Former Accountant”) resigned
as the auditors for the Company.
On
January 26, 2006, De Joya Griffith & Company of 6330 McLeod Drive, Suite 1,
Las Vegas, Nevada 89120 was retained as the auditors for the Company. The
financial statements of Nexia as of December 31, 2005, were audited by De
Joya
Griffith & Company, as stated in their report appearing herein dated, April
17, 2006 and as amended on October 10, 2006.
Refer
to
the “CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES” section, on page 69, for further discussion.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company has entered into the following related party transactions:
Richard
Surber has at various times been appointed to serve as an officer or director
for some clients of Nexia. These appointments have been disclosed to the
disinterested members of the board, and the approval of the board of directors
has been granted in each of these cases. As payment for services provided to
these corporations, Surber has received securities of those corporations, and
these transactions have been disclosed to the board of directors in each
case.
Mr.
Surber is licensed to practice law in the State of California and occasionally
represents corporate clients on various corporate matters. Mr. Surber has
disclosed the fact that he, on occasion, does act as counsel to several
companies for which he receives fees for the legal services
provided.
On
January 29, 2004 the Company, and/or its subsidiaries entered the following
agreements to settle debts and obligations with Axia Group, Inc., a related
party of which Richard Surber, President of the Company, also served as an
officer and director:
· Diversified
Holdings I, Inc. accepted the assignment of certain rights to securities with
a
stated value of $50,000
due in the settlement of Axia's litigation claim against America West Securities
and Robert Kay.
· Diversified
Holdings, I, Inc. also accepted an assignment of Axia's rights (presently being
litigated) against
Kevin Sheff for the recovery of 10,000 post-split shares of Axia Group, Inc.'s
common stock.
· As
settlement of compensation due under a May 2, 2003 Consultant Agreement with
Hudson Consulting Group,
Inc., Axia Group Inc. transferred 9,100,012 shares of Nexia common stock to
Hudson.
· Signed
a
full release and settlement of all claims against Axia Group, Inc. held by,
Nexia Holdings, Inc., Wasatch
Capital, Inc., Hudson Consulting Group, Inc. and West Jordan Real Estate
Holdings, Inc.
The
end
result of the agreements was to resolve and settle all claims against Axia
Group, Inc. held by the named entities, all subsidiaries of Nexia Holdings,
Inc.
Richard Surber, President of the Company, was formerly an officer and director
of Axia Group, Inc. The purpose of the above described transaction was to settle
the various claims and resolve the debts and obligations that existed between
Axia and the Company and its subsidiaries.
On
September 28, 2004 the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under Section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28, 2004. The
shares were valued at $8,000.
On
November 2, 2005, the Company’s subsidiary, Diversified Holdings I, Inc.
invested $100,000 in Landis, LLC in exchange for a 20% interest in the LLC.
Landis has opened an upscale hair salon located at the corner of 900 East and
1300 South in Salt Lake City, Utah. Richard Surber, president and director
of
the company held a 60% ownership interest in Landis LLC at that
time.
On
July
13, 2006, the Company approved, and its subsidiary Diversified Holdings I,
Inc.
(“DHI”) executed an agreement with Richard Surber to acquire Mr. Surber’s 60%
ownership interest in Landis LLC, a Utah limited liability company. Richard
Surber is the president of the Company and was the proposing party for the
transaction. The independent directors of the Company both approved of the
deal
and an independent valuation of Landis LLC has been received by the Company
that
supports the value paid to Mr. Surber for his interest. In exchange for his
60%
ownership interest in Landis LLC Mr. Surber will receive the following
compensation, (1) a promissory note in the amount of $250,000, bearing interest
at the rate of 24% per annum, payments are due in five annual payments of
principal and interest, (2) 75,000 shares of Nexia’s Class A Preferred stock and
(3) 2,000,000 shares of Nexia’s Class B Preferred stock.
Landis
LLC is the operator of the Landis Lifestyle Salon located at the corner of
13th
East and
900 South in Salt Lake City, Utah. This salon features the Aveda™
line of products. Due to the Company’s prior existing ownership interest in
Landis, LLC and Mr. Surber’s position as the managing member of the LLC, the
Company previously reported financial results included the operations of
Landis
on a consolidated basis, and those results will continue to be consolidated
in
the Company’s financial reports as a result of this acquisition. The assets and
inventory interests acquired by DHI have been consolidated into Nexia’s balance
sheet as of the date of closing and valued in accordance with the independent
valuation that was performed.
On
August
15, 2006, Gold Fusion Laboratories, Inc., a wholly owned subsidiary of the
Company, signed an Asset Purchase Agreement with Richard Surber to acquire
ownership of the assets, inventory and receivables of the fashion operations
of
Diversified Holdings X, Inc., a corporation owned by Mr. Surber that owned
and
operated the Black Chandelier and related clothing operations. The consideration
for this transaction was a promissory note in the amount of $300,000, bearing
interest at the rate of 24% per annum, payments are due in five annual
installment and 70,000 shares of Nexia’s Class A Preferred stock. On September
18, 2006 an addendum to this agreement was approved by the parties that provided
for the issuance of 2,000,000,000 shares of the Company’s restricted common
stock be issued to Diversified Holdings X, Inc. as compensation for the
transfers made to Gold Fusion Laboratories.
DESCRIPTION
OF BUSINESS
This
prospectus contains forward-looking statements which involve risks and
uncertainties, including trends in the real estate investment market, projected
leasing and sales and future prospects. Actual results could differ materially
from those discussed in the forward-looking statements. Factors that might
cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
General
Nexia’s
general area of business at the current time is the acquisition, management
and
selling of commercial real estate properties in the greater Salt Lake City,
Utah
area. A subsidiary of the Company has also acquired an 85% ownership interest
in
Landis LLC which owns and operates Landis Lifestyle Salon, an Aveda™ lifestyle
salon located in Salt Lake City, Utah. Another subsidiary, Gold Fusion
Laboratories, Inc., has acquired 2 retail clothing stores operating under
the
name Black Chandelier in Salt Lake City, Utah.
Discontinued
Operations
The
Company, through its subsidiary, Hudson Consulting Group, Inc., formerly
provided a variety of financial consulting services to a wide range of clients.
The Company in 2004 elected to discontinue those services by Hudson and
concentrate its efforts on the execution of the core of its business
plan.
Overview
of the Salt Lake City Real Estate Market
Trends
in
the current Salt Lake City real estate market are favorable in some respects
to
the Company’s real estate holdings. In general, these trends are as follows: the
significant growth of retail sales in the city; increased interest in Salt
Lake
from specialty retailers; relatively low vacancy rates for retail space in
the
area; estimated slowdowns in the rate of new retail space construction; and
Utah
economic indicators pointing to above-average retail sales.
For
purposes of the following discussion Class A office space is defined as a
building that has excellent location and access, attracts high quality tenants
and are managed professionally. Rents are competitive with other new buildings.
Class B buildings have good locations, management, and construction and tenant
standards are high. Buildings have very little functional obsolescence and
deterioration. Class C buildings are typically 15 to 25 years old but are
maintaining steady occupancy and demand lower rent than Class B
buildings.
Significant
Growth.
According to the Year-End 2005 Market Review of Commerce CRG published by
national real estate broker Cushman & Wakefield, the Salt Lake City office
market Amore
than
1.45 million square feet of office space were absorbed in the Salt Lake valley
in 2005. This change represents greater absorption numbers than in the last
three years combined.” The
overall vacancy rate was 10.81% in 2005, a 4.19% drop from 2004 figures.
The
likely closing of a major office center in the central business district
is
expected to reduce available space and could provide additional impetus for
the
construction of new projects. Salt Lake City has, during the recent past,
attracted new attention from national tenants seeking space in the
area.
These
reported trends have not, however, lead to increased occupancy in Class C office
buildings or retail space which would cover the holdings of Nexia at the present
time, excluding a portion of the Wallace building that we own which is Class
A
office space. Vacancies in such buildings have remained much higher as the
higher class buildings have completed tenant improvements to their space to
attract new tenants, Class C vacancy rates were reported at 25.62% for the
year
of 2005 compared to an overall vacancy rate of 11.24% for the central business
district. However, for retail space, lease rates for Class A space have reached
record highs and may encourage local retailers to move into Class B and C spaces
with their lower lease rates.
All
of
the retail space in the Wallace/Bennett buildings owned by our subsidiary
Wasatch Capital is currently leased. A 2,500 square foot portion of a total
of
7,000 square feet of the retail space in the buildings located at 1374 South
State Street is leased and the balance is unoccupied at this time. The balance
of the Company’s holdings in the Salt Lake City market are of office or studio
space. Plans have been made to improve the vacant spaces and ready them for
more
aggressive marketing.
Our
Plan to Acquire and to Sell Commercial Properties
Our
business plan is to buy more properties that we believe are undervalued compared
to their cash flows and estimated resale value. We are looking for properties
with sufficient rental income to enable us to cover the operating costs of
our
overall portfolio. We will sell properties when market conditions are favorable.
Our
strategy is to identify properties with a favorable financing arrangement
already in place, assume that financing, and satisfy any new down-payment with
a
relatively nominal cash payment. We plan to lease primarily to commercial
tenants. We are prepared to make limited improvements to our properties so
that
we can increase occupancy, improve cash flows, and enhance potential resale
value. We do not plan to limit the geographical area in which we buy properties;
however, given our current financial condition, we will most likely seek
properties in the Salt Lake City area.
From
time
to time, we will sell our commercial properties when favorable market conditions
enable us to do so. While we are actively seeking tenants for all our
properties, our real estate agents are also seeking buyers for those properties.
Our goal ultimately is to maximize profits and not necessarily to be
landlords.
Landis
Salon
Nexia
currently owns 85% of Landis LLC (“Landis”). In November 2005, the Company
acquired a 20% equity interest in Landis for a $100,000 cash payment. Landis
operates an AvedaTM
lifestyle salon that features AvedaTM
products
for retail sale. Landis is controlled by Nexia’s Chief Executive Officer. Nexia
has consolidated Landis for accounting purposes as of June 30, 2006, because
of
its ownership interest and common control with our president. Nexia, subsequent
to the end of the second quarter, signed an agreement to acquire Mr. Surber’s
60% ownership interest in Landis. As consideration for that acquisition Nexia
and Diversified Holdings I, Inc. delivered to Mr. Surber (1) a promissory
note
in the amount of $250,000, bearing interest at the rate of 24% per annum,
due in
five annual payments, (2) issuance of 75,000 shares of Nexia’s Class A Preferred
Stock and (3) issuance of 2,000,000 shares of Nexia’s Class B Preferred Stock. A
5% interest was acquired from Seth Bullough in exchange for the issuance
by
Nexia of 5,000 shares of Class A Preferred Stock. Landis Salon has a single
location in Salt Lake City, Utah and reported revenue of $587,987 during
the six
months ended June 30, 2006. Additional information on the Landis Salon can
be
found on its website at www.landissalon.com.
Landis
intends to limit the services offered in its salons to hair and makeup only.
The
current salon consists of three major components, an Aveda ™ retail store, an
advanced hair salon and a training academy (for the training of future staff
about the culture, services and products provided by Landis). Pricing of
hair
services will reflect the experience level of the stylists with the training
academy ranging from $16 to $25 and the advanced hair salon from $30 to $75.
The
design of the studio is intended to look clean, comfortable and modern,
appealing to both genders and all age groups.
The
target market for Landis is 70% female and 30% male, seeking customers with
high
expectations at a reasonable cost. The average customer is expected to visit
the
salon 7-9 times a year, spending an average of $47 on services and purchasing
$15 of retail Aveda™ product with each visit. The current location was selected
for its central location to the Salt Lake market area, the high income
demographics available within easy driving distance and the trendy, upwardly
mobile nature of the area. The primary marketing efforts of Landis will be
word
of mouth, supplemented by carefully selected advertising campaigns and seeking
referrals from the existing customer base.
The
operations of Landis are subject to normal government regulation at the federal,
state and local level. Landis must comply with governmental regulation regarding
employment, wages, access for handicapped and disabled persons and other
laws,
rules, regulations and ordinances. Although there are no anticipated changes
in
existing local, state or federal regulations, if changes should occur, Landis
Salon operations would adapt to such new regulations without any significant
effect on revenues or operations. However, no assurances can be made that
compliance or failure to comply with future regulations will not have a
materially adverse effect on the business, operating results or financial
situation of Landis.
Primary
competition will come from salons offering above-and-beyond customer service
in
the Salt Lake Area market. Currently identified as offering this level of
competition are salons named, Lunatic Fringe, Salon Zazou and Salon RZ. Landis
will also be in competition with large scale hair cutting operations such
as
Great Clips, Supercuts, and Fantastic Sams, though these operations do not
compete in offering the extra services and products that Landis offers. No
other
salons in the Salt Lake area provide the Aveda™ experience with the Aveda™
product line offered by Landis.
Gold
Fusion Laboratories
In
August
of 2006 Gold Fusion Laboratories, Inc., a 100% owned subsidiary of the Company
signed an asset purchase agreement with Diversified Holdings X, Inc. to acquire
the rights, assets, inventories and receivables of the Black Chandelier clothing
lines. Diversified Holdings X, Inc. is controlled by Richard Surber and could
be
deemed an affiliate of Nexia. Included in this operation are the two retail
outlets operated under the Black Chandelier label, in Trolley Square and
Gateway
shopping centers located in Salt Lake City, as well as the on line shopping
site, www.blackchandelier.biz
.
Black
Chandelier designs, produces and manufactures a majority of all items sold
in
its stores that are sold under the trademarks, Black Chandelier, Jared
Gold,
Olfactory Surrealism and Pink Chandelier. The stores also carry merchandise
from
Wrangler
Jeans,
Le
Sportsac,
Taschen
books,
Lomography
Cameras,
and
Tokidoki
Italy.
The
first
Black Chandelier retail location has been in operation for over two years
at the
Trolley Square location. Jared Gold has designed a pilot store to be used
as a
model for the opening of additional stores, this newly designed Black Chandelier
is located in the Gateway Shopping Center in downtown Salt Lake City. A virtual
tour of this store can be viewed at http://www.blackchandelier.com/Gateway.html.
From
January 1 through its acquisition by Gold Fusion the Black Chandelier operations
have generated approximately $240,000 in gross revenues. The Company has
announced plans to explore the potential for opening additional stores in
the US
and abroad over the next 3-5 years.
Black
Chandelier is a lifestyle company that produces clothing, candles and active
wear. The mission of Black Chandelier is to offer products designed with
deliberateness and wild inspiration that indulge an individual’s innate drive to
be unique. The overarching concept is to provide the consumer with an affordable
alternative to ‘mass-market” offerings by extending a product that conveys a
sense of eccentricity that stands apart in quality, style and price, from
most
of the homogenous fare being offered consumers by the mainstream apparel
market.
The clothing items are produced in small runs keeping merchandise offered
in the
stores fresh.
Black
Chandelier stands in a unique position to establish a niche market among
its
customers. The clothing, accessories and other products are designed with
an
edgy sophistication that allows customers to fulfill their need to express
their
uniqueness. The consumer base of Black Chandelier has a very large age range.
Female shoppers vary in age from 15 to 65. The income ranges vastly among
this
large age spread, however the average is $37,000. This typical consumer is
fashion conscious and follows current trends and subscribes to or reads several
fashion oriented women’s magazines. The expanding men’s division has garnered a
large fanbase in the age group from 15 to 35. These consumers read weekly
entertainment guides and local underground publications and
fanzines.
The
operations of Black Chandelier are subject to normal government regulation
at
the federal, state and local level. Black Chandelier must comply with
governmental regulation regarding employment, wages, access for handicapped
and
disabled persons and other laws, rules, regulations and ordinances. Although
there are no anticipated changes in existing local, state or federal
regulations, if changes should occur, Black Chandelier operations would adapt
to
such new regulations without any significant effect on revenues or operations.
However, no assurances can be made that compliance or failure to comply with
future regulations will not have a materially adverse effect on the business,
operating results or financial situation of Black Chandelier.
The
Company believes that local competition for the Black Chandelier retail is
Lollabella and JMR. This assumption is based on their marketing and customer
demographics. Nationally Black Chandelier will face Diesel, Urban Outfitters
and
Anthropologie. These specialty retailers manufacture their own goods as well
as
sell third party product, are nationally marketed, and maintain company operated
boutiques in most major cities. Black Chandelier’s edge over its competition is
its sales of exclusive product in a market that is presently saturated with
larger brands. Ancillary items are purchased from other vendors in small
amounts
and with studied curation, in order to keep merchandise on the cutting edge.
Although the apparel industry is mature and slow growing, it exists in a
dynamic
and competitive environment. The apparel industry is extremely competitive
and
highly fragmented. The power of the big retailers is a major challenge to
any
new designer and manufacturer; however, specialized product with limited
distribution can create a unique identity among retailers.
Employees
Nexia
currently employees 6 people on a full time basis and from time to time hires
outside contractors to perform various services as required by the operations
of
the Company. Landis employs approximately 30 employees and Gold Fusion
Laboratories employs approximately 22 employees.
Reports
to Security Holders
We
are
not required to deliver an annual report to security holders and do not plan
to
send a copy of the annual report to them. If we choose to create an annual
report, it will contain audited financial statements. We intend to file all
required information with the SEC. We plan to file with the SEC our Forms 10KSB,
10QSB and all other forms that are or may become applicable to us.
The
public may read and copy any materials filed with the SEC at the
SEC's
Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling
the
SEC at 1-800-SEC-0330. We have filed all statements and forms with the SEC
electronically, and they are available for viewing or copy on the
SEC's
Internet site, that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC.
The
Internet address for this site is http://www.sec.gov.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements and
accompanying notes and the other financial information appearing elsewhere
in
this prospectus. Our fiscal year end is December 31.
General
Our
business plan for the next twelve months involves the continued operation
of our
office buildings in Salt Lake City, Utah coupled with our ongoing attempts
to
locate and acquire additional commercial space in the greater Salt Lake area
and
elsewhere and to locate suitable buyers for the properties as the circumstances
may permit. We recently acquired 85% of Landis and have plans to open two
more
locations over the next 12 months. We also operate two Black Chandelier stores
and have plans to open two more in Utah by December 1, 2006. We anticipate
opening an additional six locations over the next 18 to 24
months.
Results
of Operations
Revenues
Year
ended December 31, 2005. Gross
revenues for the fiscal years ended December 31, 2005 and 2004 were $415,744
and
$512,456, respectively. This represents a 19% decrease from 2004 to 2005.
The
decrease in revenues is due in part to a decrease in rental revenues as a
result
of the divestiture of the Glendale shopping center in the second quarter
of 2005
and a decrease in consulting revenues from the discontinuance of Hudson
Consulting Group, Inc.
Gross
rental revenues for the fiscal years ended December 31, 2005 and 2004 were
$281,350 and $512,456, respectively. This was a decrease of nearly 50% from
2004
to 2005. We do not expect rental revenues to substantially increase until
such
time as Nexia is able to successfully raise a substantial amount of capital
which will provide the means to purchase additional properties to replace
those
which have been sold over the last few years.
The
revenues attributable to sales from Landis totaled $123,869 for the two months
ended December 2005. There are no comparable revenue figures for 2004 because
Landis commenced operations in November 2005. We expect revenue from Landis
to
exceed $1,200,000 for the fiscal year ending December 31,
2006.
Six
months ended June 30, 2006.
Gross
revenues for the three and six month periods ended June 30, 2006, were $365,107
and $676,552 as compared to $11,186 and $207,822 for the same periods in
2005.
The increase in the three and six month revenues of $253,921 and $468,730,
or
228% and 226% respectively, are due to inclusion of sales revenue from the
operation of the Landis Salon in the sums of $322,746 and $587,987,
respectively. Landis began operations in November 2005.
Expenses
Year
ended December 31, 2005. Total
expenses for the fiscal years ended December 31, 2005 and 2004 were $729,017
and
$1,662,538, respectively. This is a $933,521 decrease, or a 56% decrease
from
2004 to 2005. The decrease was attributable to the cessation of providing
consulting services in 2004, the sale of a large shopping center in April
2005,
further reduction in the number of employees as a result of that sale, and
the
absence of any impairment of marketable securities in 2005.
Depreciation
and amortization expenses for the year ended December 31, 2005, were $141,299
compared to $136,025 for same period in 2004. The increase in the year end
expense of $ 5,274, or 3.9%, was primarily the result of a full year of
depreciation for the capital improvements made to the Wallace/Bennett buildings
in 2004.
Nexia
expects expenses as a percent of revenues to increase through 2006 as Nexia
steps up its effort to expand its retail operations as well as acquire
additional properties.
Six
months ended June 30, 2006. General
and administrative expenses for the three and six month periods ended June
30,
2006, were $866,536 and $1,207,760 compared to $190,242 and $569,440 for
the
same periods in 2005. The increase in three and six month expenses of $676,294
and $638,320, or 355% and 112% respectively, was due primarily to Landis’
expenses of $253,738 and $478,896, which did not exist in 2005. There were
also
increased expenses for investor relations during the three months ended June
30,
2006 totaling $97,982 compared to zero in the same three month period of
2005.
Depreciation
and amortization expenses for the three and six months ended June 30, 2006,
were
$37,790 and $81,556 compared to $39,312 and $67,742 for same periods in 2005.
The decrease in the three month expense of $1,522, or 4%, was the net result
of
no depreciation for the Glendale Plaza in 2006 and $10,029 of Landis
depreciation in 2006 compared to none in 2005 (Landis’ operations began in
November 2005). The increase in the six month expense of $13,814, or 20%,
was
primarily the net result of no Glendale Plaza depreciation in 2006 and $20,118
of Landis depreciation in 2006 compared to none in 2005.
Income
/ Losses
Year
ended December 31, 2005. Nexia
recorded an operating loss of $799,527 at December 31, 2005, as compared
to an
operating loss of $2,205,221 for the comparable period in 2004. Nexia recorded
a
net loss of $130,548 for the fiscal year ended December 31, 2005, compared
to a
net loss of $2,920,584 for the comparable period in 2004. Nexia's losses
decreased as a result of the Company’s ability to successfully decrease total
expenses by $1,395,169 in 2005. The decrease was attributable to the cessation
of providing consulting services in 2004, the sale of a large shopping center
in
April 2005, further reduction in the number of employees as a result of that
sale, and the absence of any impairment of marketable securities in 2005.
In
addition, Nexia recognized a gain of $756,471 from the sale of real estate
and
$206,500 from the settlement of litigation during 2005.
Operating
Losses
Nexia
recorded operating losses of $675,835 and $965,301 for the three and six
month
periods ended June
30,
2006, compared to losses of $184,575 and $630,812 for the comparable periods
in
the year 2005. The increase in three month operating losses of $491,260 and
in
the six month operating losses of $334,489, or a 266% increase and a 53%
increase respectively, was the result of the increased operating expenses
related to the operation of the Landis Salon, and a large expense related
to the
use of shares of Diversified Financial Resources Corporation for the payment
of
various consulting expenses during the quarter in the amount of $359,286,
a non
cash payment.
Net
Income
Nexia
recorded net income of $1,328,928 and $1,095,980 for the three and six month
periods ended June 30, 2006, as compared to net income of $672,695 and $239,139
for the comparable periods in 2005. The increase in the three month net income
of $656,233, or 98%, compared to the same period in 2005, reported above,
is
attributable primarily to the revenue recognized from the Landis Salon
operations and the recognition of income from the settlement of the claim
against Diversified Financial Resources Corporation in June of
2006.
Nexia
may
not operate at a profit through fiscal 2006. Since Nexia's activities in
the
past were tied to its ability to operate its real estate properties at a
profit,
future profitability or its revenue growth tended to follow changes in the
real
estate market place. The recent diversification into retail operations
represented by its investment in Landis LLC will broaden Nexia’s operations and
make it less dependent on the real estate market and its fluctuations. There
can
be no guarantee that profitability or revenue growth will be realized in
the
future.
Impact
of Inflation
The
Company believes that inflation may have a negligible effect on future
operations. The Company believes that it may be able to offset inflationary
increases in the cost of revenue by increasing revenue and improving operating
efficiencies.
Liquidity
and Capital Resources
On
June
30, 2006, Nexia had current assets of $2,825,764 and $5,622,842 in total
assets
compared to current assets of $532,278 and total assets of $4,319,916 as
of
December 31, 2005. Nexia had net working capital of $1,362,009 at June 30,
2006,
as compared to a net working capital deficit of $971,534 at December 31,
2005.
The increase in working capital of $2,333,543 is due primarily to the increased
fair market value of marketable securities represented by the settlement
with
Diversified Financial Resources Corporation. A portion of those shares, valued
at $2,041,000, have been transferred to prepay for consulting services to
the
Company. These expenses will be amortized over the 6 to 9 month term of those
contracts. A major portion of the current obligation is a result of the loan
on
the Wallace-Bennett building being due within 90 days (August 14, 2006).
A
refinancing of this loan was signed on August 28, 2006, subsequent to the
end of
the second quarter. It provided a $1 million loan, with an interest rate
of
7.125%, a ten-year term and monthly payments based upon a 30 year amortization.
The debt will be reclassified as long term and has significantly improved
the
Company’s working capital.
On
June
1, 2006, Diversified Holdings I, Inc., (“DHI”) a subsidiary of the Company,
signed a Settlement Agreement and Release with Diversified Financial Resources
Corporation (“CHFR”) whereby DHI released all claims remaining under a June 30,
2003 Stock Purchase Agreement between the two parties in exchange for the
delivery of 2,000,000 shares of CHFR common stock without a restrictive
legend.
DHI has agreed to deliver 1.6 million of those shares to three different
recipients in exchange for various services to be provided to DHI resulting
in
pre-paid expenses reported on the balance sheet of the Company. DHI has
retained
400,000 shares which have a current market value of approximately $400,000.
(The
shares of CHFR are thinly traded with a reported bid price of $0.53, an
asking
price of $1.35 and $1.00 as the last reported trade price as of August
1, 2006.)
The future values of these shares are unknown and are subject to market
fluctuations. The obligation of CHFR to DHI had earlier been written off
as
unlikely to be collected, and the receivable was not included in the financial
statements as of December 31, 2005 and for the first quarter ended March
31,
2006. (All share numbers reflect a 1 for 12.5 reverse stock split by CHFR
effective July 12, 2006.)
Cash
used
by operating activities was $419,814 for the six months ended June 30, 2006,
compared to cash provided by operating activities of $387,866 for the comparable
six month period in 2005. The increase in cash used of $807,680 was attributable
to the costs generated by the prepaid consulting expenses in the amount of
$2,050,515, and the increase in expenses generated by Landis and its retail
operations compared to no such costs during the comparable six month period
in
2005.
Net
cash
provided by investing activities was $950,040 for the six month period ended
June 30, 2006, compared to net cash provided by investing activities of $557,894
for the six months ended June 30, 2005. The increase of cash provided in
the sum
of $392,146 was attributable primarily to a $2,505,241 in proceeds from
marketable securities from a settlement with Diversified Financial Resources
Corporation.
Cash
used
by financing activities was $552,194 for the six months ended June 30, 2006,
compared to cash used of $497,749 for the six months ended June 30, 2005.
The
increase of $54,445 in cash used by financing activities was due primarily
to
the decrease in receipt of stock subscriptions receivable recognized during
the
first six months of 2006 compared to the same period of 2005.
Nexia
may
experience occasional cash flow shortages due to debt service on real estate
holdings and willingness to acquire properties with negative cash flow.
To cover
these shortages, Nexia may need to issue shares of its common stock in
payment
for services rendered. The Company is currently experiencing challenges
with
regard to cash flows. We are looking at several options to improve this
situation, including having signed for an equity line of credit with Dutchess
Private Equities Fund. The agreement with Dutchess provides that, following
notice to Dutchess, Nexia may put to Dutchess up to $10 million in shares
of our
common stock for a purchase price equal to 95% of the lowest closing best
bid
price on the Over-the-Counter (“OTC”) Bulletin Board of our common stock during
the five day period following that notice. The number of shares that we
will be
permitted to put pursuant to the agreement will be either: (a) 200% of
the
average daily volume of our common stock for the ten trading days prior
to the
applicable put notice, multiplied by the average of the three daily closing
“best bid” prices immediately preceding the day we issue the put, or (b)
$100,000; provided that in no event will the put amount be more than $1,000,000
with respect to any single put. (Best Bid is a defined term in the agreement
as
the highest posted bid price for the common stock.) In turn, Dutchess has
indicated that it will resell the shares of common stock in the open market;
resell our shares to other investors through negotiated transactions or
hold our
shares in its portfolio. These shares are made the subject of this SB-2/A
Registration Statement.
|
The
following is a summary schedule of stockholders' equity and
changes,
|
|||||||
|
for
the six months ended June 31, 2006 and the year ended December
31, 2005.
|
|||||||
|
The
numbers show the effect of the November 1, 2004 reverse
split.
|
|||||||
|
Six
Months
|
Year
|
||||||
|
Ended
|
Ended
|
||||||
|
June
30,
|
December
31,
|
||||||
|
2006
|
2005
|
||||||
|
(Unaudited)
|
|||||||
|
BALANCE
DECEMBER 31, 2005 AND 2004
|
$
|
963,185
|
$
|
441,415
|
|||
|
Intrinsic
and fair value of options issued
|
35,000
|
56,750
|
|||||
|
Common
stock issued for options exercised
|
105,000
|
34,500
|
|||||
|
Stock
certificate from a previous year returned and cancelled
|
(11,800
|
)
|
-
|
||||
|
Increase
in stock subscriptions receivable
|
(105,000
|
)
|
(34,500
|
)
|
|||
|
Receipt
of cash for stock subscriptions receivable
|
24,448
|
396,691
|
|||||
|
Common
stock issued for services
|
-
|
120,025
|
|||||
|
Common
stock issued to contractors for services - restricted
|
-
|
25,000
|
|||||
|
Common
stock issued to contractors applied to accounts payable
|
-
|
53,327
|
|||||
|
Common
stock issued to contracdtors applied to building
improvements
|
-
|
10,000
|
|||||
|
Proceeds
from options stock applied to A/P - Sorensen
|
-
|
430
|
|||||
|
Proceeds
from options stock applied to A/P - T Hall
|
-
|
7,555
|
|||||
|
Old
stock subscription receivable reclassified
|
-
|
1,493
|
|||||
|
Return
of common stock issued to J. Fry, Jr. on 11/12/2004
|
-
|
(20,000
|
)
|
||||
|
Change
in comprehensive loss for three months ended March 31
|
(61,707
|
)
|
1,046
|
||||
|
Net
consolidated loss for three months ended March 31, 2006
|
(232,948
|
)
|
(130,548
|
)
|
|||
|
Rounding
|
-
|
1
|
|||||
|
Balance
for the three months ended March 31, 2006
|
716,178
|
963,185
|
|||||
|
Intrinsic
and fair value of options issued
|
25,750
|
-
|
|||||
|
Common
stock issued for options exercised
|
77,250
|
-
|
|||||
|
Increase
in stock subscriptions receivable
|
(77,250
|
)
|
-
|
||||
|
Receipt
of cash for subscriptions receivable
|
46,940
|
-
|
|||||
|
Common
stock issued for past services
|
12,448
|
-
|
|||||
|
Paid-in
capital adjusted for sales of stock issued at fair market
|
|||||||
|
values
less than the stock values when it was issued
|
(12,000
|
)
|
-
|
||||
|
Adjust
for cash received on subscriptions receivable in excess
|
|||||||
|
of
amount receivable from an employee
|
(1,576
|
)
|
-
|
||||
|
Adjust
stock subscriptions receivable for sales of stock at fair
|
|||||||
|
market
values less than the value when the stock was issued
|
12,000
|
-
|
|||||
|
Net
increase in paid-in capital from net difference of
intercompany
|
|||||||
|
balances
receivable and payable forgiven and written off the books
|
7,118
|
-
|
|||||
|
Change
in comprehensive income for three months ended June 30,
2006
|
549,928
|
-
|
|||||
|
Net
consolidated income for three months ended June 30, 2006
|
1,328,927
|
-
|
|||||
|
Balance
for the six months ended June 30, 2006
|
$
|
2,685,713
|
$
|
963,185
|
|||
DESCRIPTION
OF PROPERTY
Location
and Description
Each
of
our properties competes with other general retail or office space in the
greater
Salt Lake City market. Occupancy rates for the area as a whole will most
significantly impact our properties and the efforts to improve and upgrade
the
properties will enhance our ability to obtain tenants and maintain occupancy
rates that will sustain the operating costs of the properties
themselves.
Wasatch
Capital Corporation ("Wasatch")
Wasatch,
a 100% owned subsidiary of Nexia, owns the Wallace-Bennett Building, located
at
55-65 West 100 South, Salt Lake City, Utah. The building is a 36,797 square
foot, turn-of-the-century multi-story office building. The building was acquired
in November of 1994 for a price of $800,000.
At
the
beginning of the year 2004 only the ground level was suitable for rent as
retail
space. The ground level comprises 7,816 square feet or 21% of the Building.
A
portion of this space is currently leased to Richard Wirick, the owner of
the
Oxford Shoe Shop, a retail outlet for men's shoes, for a monthly rental of
$1,245 for 1350 square feet. A lounge occupies 1,900 square feet of the ground
floor retail space at a monthly rental of $ 2,533.34 for the first year of
a
five year term ending February 28, 2010. A restaurant and an art gallery
occupy
the balance of the ground floor space. The average annual effective rental
for
the rentable ground level space is $15.00 per square foot or $117,240 in
gross
rental income. Tenants by contract are liable for their pro-rata shares of
the
taxes and insurance on the building and each tenant is liable for its own
utilities.
In
late
2004, the Company occupied a portion of the second floor as its main offices
for
which remodeling work was mostly completed during the year ended 2004. The
Company occupies a total of 3,600 square feet and has space that includes a
conference room and office space for the legal, accounting and executive
employees of the Company. The renovations of the second floor incurred expenses
totaling approximately $500,000 as of September 30, 2005.
In
early
2003, Wasatch refinanced the main loan on the Wallace-Bennett Building. The
terms of this loan package provided for a loan in the total amount of $850,000,
an interest rate on the loan of 7.5%, with monthly payments of $8,800. The
loan
had a term of three years, and was due on August 10, 2006. The loan was
personally guaranteed by Richard D. Surber, Nexia's President and C.E.O. Of
the
loan proceeds $202,920 was set aside for construction or capital improvements
to
the buildings securing the loan, all of which have been utilized during the
second floor renovation and other upgrades to the building.
Wasatch,
on or about August 25, 2006, closed on a $1,000,000 refinancing of the
Wallace-Bennett Building with a new loan secured by the building. The terms
of
the loan include a total loan in the sum of $1,000,000; a term of 10 years,
with
an interest rate of 7.125% fixed for ten years and would provide for monthly
payments based upon a 30 year amortization. The loan was personally guaranteed
by Richard D. Surber, Nexia's President and C.E.O. Proceeds from the new
financing were used to retire the prior loan secured by the building in the
sum
of $812,053 and included a cash payment of $149,572 to Wasatch. Wasatch intends
to improve the remaining upper floor space as office space, studio locations
and
production space for low impact business. The terms set forth above, reclassify
the loan held by Wasatch Capital from short-term debt to long-term debt which
has substantially increased Nexia’s working capital.
Management
believes that the building is adequately insured.
Downtown
Development, Corp. ("DDC")
DDC,
a
99.08% owned subsidiary of Nexia, owns a one story retail building located
at
1374 South State Street, Salt Lake City, Utah, which it purchased on December
1,
1999 for $535,000. The balance on the financing owing at December 15, 2005
was
$366,032. The building was appraised at $600,000 in November of 2002. In
December of 2002, DDC obtained permanent financing with Community First National
Bank; the loan bears interest at the rate of 7.16% per annum, with monthly
payments of $3,061, with a final balloon payment due on December 5, 2012
(estimated amount $260,800). The loan was personally guaranteed by Richard
D.
Surber, Nexia's President and C.E.O. The building is 7,000 square feet, one
story tall and constructed in the late 1960's. A bakery currently occupies
2,500
square feet of retail space under a lease in the building. DDC expended $34,100
through March 31, 2004 in renovations to the space occupied by the bakery
in the
property. The tenant is liable for its pro-rata shares of the taxes and
insurance for the building as well as its use of utilities. This figure does
not
include substantial improvements made by the tenant to the same portion of
the
property. The balance of the space in the building is currently not occupied
and
the search for a tenant is ongoing. DDC believes the property is adequately
insured. The retail space in the building competes for tenants with other
retail
space on State Street which is a commercial zone for over one mile in each
direction from the property. On December 23, 2004 a Second Deed of Trust
was
granted against this property in favor of Joseph Corso, Jr. as security for
a
debenture granted to Mr. Corso in the sum of $200,000.
DDC
on
August 18, 2006 closed on the purchase of a lot immediately adjacent to the
above described property and building located at 1374 South State Street.
The
total purchase price for the property was $250,000. This purchase price was
financed with a short term (90 days) loan. The additional property will provide
ample parking for current and future tenants of the building. DDC intends
to
begin making renovations to the entire property to take advantage of the
added
property and the potential for additional use by prospective
tenants.
On
September 21, 2006 DDC closed on refinancing of the loans on the building
and
lot on South State Street. A loan in the sum of $568,000 was secured from
Cyprus
Credit Federal Credit Union, the loan bears interest at the rate of 7% per
annum, with monthly payments of $3,778.92, with a final balloon payment due
on
September 22, 2016 (estimated amount $440,261). The loan was personally
guaranteed by Richard D. Surber, Nexia’s president. The remaining balance due to
Rich Investment, LLC in the sum of $57,000 was restated in a new note bearing
interest at the rate of 12% per annum, if the note is not paid in full with
60
days of its making, October 22, 2006, then monthly payments of $10,000 per
month
will be due on the 23rd
day of
each month until the entire balance, including interest has been paid in
full.
Management
believes the property held by DDC is adequately insured.
Kearns
Development Corporation. ("Kearns")
Kearns,
a
99% owned subsidiary of Nexia, owns one office building located on West Sams
Boulevard in Kearns, Utah (a suburb of the Greater Salt Lake area). The building
contains approximately 11,709 square feet of total floor space in a single
story. The building was purchased on November 29, 2000 for a total price of
$750,000. The purchase was financed with a $625,000 first mortgage from Brighton
Bank with an initial variable rate of 10.97% amortized over 25 years and monthly
payments of $5,632. The loan was personally guaranteed by Richard D. Surber,
Nexia's President and C.E.O. This property was refinanced on January 10, 2003,
$660,000 by Community First Bank, at an interest rate of 7.16%. Monthly payments
are $5,223 based upon a 20 year amortization with a balloon payment of the
remaining balance due on January 10, 2013 (estimated amount of $441,325). The
balance owing on this loan as of December 15, 2005 was $621,363. At the time
of
the refinancing, the building was appraised at $980,000.
The
building is leased to a tenant occupying 35% of the office space and generating
monthly rentals of $3,452 at an average rate of $10.25 per square foot, the
gross annual rental income from the building is $41,420. Kearns has no present
plans to renovate or improve the building. Management believes that the building
is adequately insured. The building competes for tenants with other office
space
in the Kearns area.
Management
believes that this building is adequately insured.
None
of
the financing for the above described properties provide for pre-payment
penalties.
|
|
SQUARE
|
MONTHLY
|
LEASE
|
TOTAL
VACANCY
|
|
|
NAME
|
TENANT
|
FEET
|
RENT
|
EXPIRATION
|
RATE
|
|
Downtown
Development
|
La
Brioche
|
2,500
|
$
1,875.00
|
31-Dec-06
|
|
|
|
Empty
|
4,500
|
$
-
|
||
|
Downtown
Totals:
|
7,000
|
$
1,875.00
|
64.29%
|
||
|
|
|||||
|
Kearns
Development
|
Deseret
Mutual Benefit Administrators
|
4,041
|
$
3,451.70
|
31-Mar-07
|
|
|
|
Empty
- Administrative Office of the Courts
|
3,550
|
$
-
|
31-Jan-06
|
|
|
|
Common
Area
|
1,723
|
|||
|
|
Empty
|
2,395
|
$
-
|
||
|
Kearns
Totals:
|
11,709
|
$
3,451.70
|
50.77%
|
||
|
|
|||||
|
Wasatch
Capital
|
Caffe
Molise
|
1,718
|
$
2,814.20
|
28-Feb-07
|
|
|
|
Caffe
Molise
|
840
|
$
910.00
|
VERBAL
|
|
|
|
Mynt
Lounge
|
1,900
|
$
2,609.34
|
28-Feb-10
|
|
|
|
Oxford
Shop
|
1,350
|
$
1,024.29
|
2/1/05:
Month-to-Month
|
|
|
|
Utah
Artist Hands
|
1,769
|
$
1,769.00
|
31-Jan-07
|
|
|
Nexia
Holdings, Inc. (2nd Floor)
|
3,600
|
$
4,500.00
|
31-Dec-07
|
||
|
Common
Area
|
200
|
$
-
|
|||
|
Diversified
Holdings X, Inc. (Unfinished on 2nd Floor)
|
4,704
|
$
1,568.00
|
31-Dec-07
|
||
|
Wasatch
Totals:
|
Rentable
Space Total:
|
16,081
|
$
15,194.83
|
0.00%
|
|
|
|
*
Unfinished/Nonrentable
space:
|
20,716
|
|||
|
|
Total
Square Feet (Wallace-Bennett Building):
|
36,797
|
|||
|
|
|||||
|
|
VACANCY
RATE:
|
30.02%
|
|||
|
TOTAL
VACANCY RATE (Unrentable sq. ft. included):
|
56.14%
|
||||
|
|
|||||
|
*
Unfinished/Nonrentable
space includes 3 floors of the Wallace-Bennett Building.
|
|||||
|
Nexia
Holdings Property
Projections
|
|
Description
of Information:
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
|||||
|
WASATCH
CAPITAL CORP.
|
|||||||||||
|
Occupancy
Rate:
|
100%
|
100%
|
|||||||||
|
#
of tenants occupying 10%+
|
all
tenants
|
all
tenants
|
|||||||||
|
Type
of businesses
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
|||||||||
|
Average
rent/square ft.
|
$14.37
|
$11.34
|
|||||||||
|
Schedule
of lease expirations
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
See
’05 10KSB I.2
|
|||||
|
#
of leases to expire
|
1
|
0
|
2
|
2
|
0
|
1
|
|||||
|
Sq.
ft. of leases to expire
|
1,350
|
N/A
|
4,327
|
8,304
|
N/A
|
1,900
|
|||||
|
Annual
rents of expiring leases
|
$12,291
|
N/A
|
$65,918
|
$72,816
|
N/A
|
$34,212
|
|||||
|
Percentage
of leases expiring
|
12%
|
N/A
|
27%
|
52%
|
N/A
|
12%
|
|||||
|
Federal
tax basis
|
$1,448,794
|
|
|||||||||
|
Rate
|
2.56%
- 16.7%
|
|
|||||||||
|
Method
|
S.L.
|
|
|||||||||
|
Life
claimed perspectively
|
6
-
39 years
|
|
|||||||||
|
Annual
realty taxes
|
$26,560
|
|
|||||||||
|
|
|
||||||||||
|
|
|||||||||||
|
DOWNTOWN
DEVELOPMENT
|
|
||||||||||
|
Occupancy
Rate:
|
35.7%
|
35.7%
|
|||||||||
|
#
of tenants occupying 10%+
|
1
|
1
|
|||||||||
|
Type
of businesses
|
bakery
|
bakery
|
|||||||||
|
Average
rent/square ft.
|
$9.00
|
$9.00
|
|||||||||
|
Schedule
of lease expirations
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
|||||||||
|
#
of leases to expire
|
0
|
1
|
|||||||||
|
Sq.
ft. of leases to expire
|
N/A
|
2,500
|
|||||||||
|
Annual
rents of expiring leases
|
N/A
|
$22,500
|
|||||||||
|
Percentage
of leases expiring
|
N/A
|
100%
|
|||||||||
|
Federal
tax basis
|
$465,056
|
|
|||||||||
|
Rate
|
2.56%
- 16.7%
|
|
|||||||||
|
Method
|
S.L.
|
|
|||||||||
|
Life
claimed perspectively
|
6
-
39 years
|
||||||||||
|
Annual
realty taxes
|
$6,025
|
||||||||||
|
|
|||||||||||
|
|
|||||||||||
|
KEARNS
DEVELOPMENT
|
|
||||||||||
|
Occupancy
Rate:
|
67%
|
35.7%
|
|||||||||
|
#
of tenants occupying 10%+
|
2
|
1
|
1
|
||||||||
|
Type
of businesses
|
offices
|
office
|
office
|
||||||||
|
Average
rent/square ft.
|
$14.33
|
$14.95
|
$10.25
|
||||||||
|
Schedule
of lease expirations
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
see
'05 10KSB I. 2
|
||||||||
|
#
of leases to expire
|
1
|
1
|
1
|
||||||||
|
Sq.
ft. of leases to expire
|
2,395
|
3,550
|
4,041
|
||||||||
|
Annual
rents of expiring leases
|
$28,740
|
$53,056
|
$41,420
|
||||||||
|
Percentage
of leases expiring
|
30%
|
56%
|
44%
|
||||||||
|
Federal
tax basis
|
$773,410
|
||||||||||
|
Rate
|
2.56%
|
||||||||||
|
Method
|
S.L.
|
||||||||||
|
Life
claimed perspectively
|
39
years
|
||||||||||
|
Annual
realty taxes
|
$10,411
|
||||||||||
There
are no leases expiring after the year 2010
Contractual
Obligations
|
Contractual
Obligations
|
||||||||||||||||||||||
|
As
of June 30, 2006, we were subject to certain material contractual
payment
obligations as described in
|
||||||||||||||||||||||
|
the
table below.
|
||||||||||||||||||||||
|
Total
|
2006
|
2007
|
2008
|
2009
|
2010
|
Thereafter
|
||||||||||||||||
|
Mortgage
debt
|
$
|
1,771,564
|
$
|
838,563
|
$
|
33,696
|
$
|
36,188
|
$
|
38,867
|
$
|
41,743
|
$
|
782,507
|
||||||||
|
Vehicle
contract
|
14,680
|
10,090
|
4,590
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Operating
lease
|
||||||||||||||||||||||
|
obligation
|
45,399
|
13,363
|
9,138
|
9,138
|
9,138
|
4,622
|
-
|
|||||||||||||||
|
Convertible
debenture
|
110,685
|
-
|
110,685
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Convertible
debenture-derivative
|
163,163
|
-
|
163,163
|
-
|
-
|
|||||||||||||||||
|
$
|
2,105,491
|
$
|
862,016
|
$
|
321,272
|
$
|
45,326
|
$
|
48,005
|
$
|
46,365
|
$
|
782,507
|
|||||||||
|
Property
Acquisitions and Dispositions:
There
were no property acquisitions during the six months ended June
30,
2006.
On
August 18, 2006 our subsidiary Downtown Development Corporation
acquired
one-third of an acre adjacent to the existing building it owns
on State
Street in Salt Lake City. The newly acquired property has no buildings
or
other improvements and will be used to enhance the existing building’s
potential uses. The purchase price of $250,000 had short term financing
and has been combined with the existing building in a long-term
loan
package on both properties that closed on September 21, 2006.
In
April 2006, a 15,000 square foot office building in Salt Lake City,
Utah,
owned by Salt Lake Development Corporation, a subsidiary of the
Company,
was sold. The mortgage pay off was $545,071. In the same month,
a
condominium at Brian Head, a mountain recreation area near Cedar
City,
Utah, was sold. The mortgage pay off was
$25,369.
|
||||||||||||||||||||||
|
Detail
of Costs Associated With Rental Revenue,
|
|||||||||||||
|
Six
Months Ended June 30, 2006:
|
|||||||||||||
|
Six
Months Ended June 30,
|
Change
|
||||||||||||
|
Expense
Description
|
2006
|
2005
|
$
|
%
|
|||||||||
|
Mortgage
interest
|
$
|
75,451
|
$
|
99,041
|
$
|
(23,590
|
)
|
(23.80
|
)
|
||||
|
Depreciation
|
51,039
|
50,650
|
389
|
(.01
|
)
|
||||||||
|
Payroll
- mgt. and maintenance
|
20,794
|
43,085
|
(22,291
|
)
|
(51.74
|
)
|
|||||||
|
Utilities
|
17,137
|
31,871
|
(14,734
|
)
|
(46.23)
|
)
|
|||||||
|
Property
taxes
|
26,592
|
27,191
|
(599
|
)
|
(2.20
|
)
|
|||||||
|
Maintenance
and repairs
|
6,795
|
17,356
|
(10,561
|
)
|
(60.85
|
)
|
|||||||
|
Insurance
|
9,572
|
-
|
9,572
|
100.0
|
|||||||||
|
$
|
207,380
|
$
|
269,194
|
$
|
(61,814
|
)
|
(22.96
|
)
|
|||||
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The
Company's common stock is quoted on the OTC Bulletin Board under the symbol,
"NEXH". Trading in the common stock in the over-the-counter market has been
limited and sporadic and the quotations set forth below are not necessarily
indicative of actual market conditions. Further, these prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission and
may not
necessarily reflect actual transactions. The high and low bid prices for
the
common stock for the quarters indicated below of the years ended December
31,
2003, 2004, 2005 and the quarters ending March 31 and June 30, 2006 are as
follows:
|
YEAR
|
PERIOD
ENDING
|
HIGH
|
LOW
|
|
2003
|
March
31, 2003
|
$15.00
|
$4.00
|
|
June
30, 2003
|
$8.00
|
$0.50
|
|
|
September
30, 2003
|
$13.00
|
$1.00
|
|
|
December
31, 2003
|
$30.00
|
$6.00
|
|
|
2004
|
March
31, 2004
|
$1.50
|
$1.00
|
|
June
30, 2004
|
$5.80
|
$0.50
|
|
|
September
30, 2004
|
$0.80
|
$0.10
|
|
|
October
31, 2004
|
$0.10
|
$0.10
|
|
|
Post
reverse
|
December
31, 2004
|
$0.035
|
$0.0002
|
|
2005
|
March
31, 2005
|
$0.0006
|
$0.0001
|
|
June
30, 2005
|
$0.0002
|
$0.0001
|
|
|
September
30, 2005
|
$0.0003
|
$0.0001
|
|
|
December
31, 2005
|
$0.0003
|
$0.0001
|
|
|
2006
|
March
31, 2006
|
$0.0006
|
$0.0001
|
|
June
30, 2006
|
$0.0006
|
$0.0002
|
150,000
Shares of Series A Preferred Stock are issued and
outstanding.
There
is
only one holder of Series B Preferred Stock, Richard Surber, who holds 10
million shares.
There
are
four holders of Series C Preferred Stock, Joseph Corso, who holds 100,000
shares, John E. Fry, Jr. who holds 7,500 shares, Jared Gold who holds 50,000
shares, and Sean Pasinsky who holds 30,000.
Effective
November 22, 2004 a 1 for 1,000 reverse stock split of the common stock was
declared effective.
EXECUTIVE
COMPENSATION
|
SUMMARY
COMPENSATION TABLE
|
||||||||
|
Annual
Compensation
|
Long
Term Compensation
|
|||||||
|
Awards
|
Payouts
|
|||||||
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compen-sation ($)
|
Restricted
Stock Award(s)
($)
|
Securities
Underlying Options
SARs(#)
|
LTIP
pay-outs
($)
|
All
Other
Compen
sation
($)
|
|
Richard
Surber, President
|
2005
|
$150,000(3)
|
||||||
|
Richard
Surber, President
|
2004
|
$150,000
|
-
|
8,000
4
|
-
|
-
|
-
|
-
|
|
Richard
Surber, President
|
2003
|
51,0001
2
|
$32,248
|
-
|
-
|
-
|
-
|
-
|
|
Richard
Surber, President
|
2002
|
48,833
1
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(1)
During the years 2002, 2003 and 2004, Mr. Surber was paid a salary
by
Hudson Consulting Group, Inc. which was acquired as a subsidiary
by the
Company in February 2002.
|
||||||||
|
(2)
Of this amount $39,231 represents salary paid and $11,769 is accrued
but
unpaid salary due to Mr. Surber, which was paid during
2004.
|
||||||||
|
(3)
Of this amount $121,154 represents salary paid during 2005 and
$28,845 is
accrued but unpaid salary due to Mr. Surber as of December 31,
2005.
|
||||||||
|
(4)
The board of directors awarded Mr. Surber 8,000,000 shares of Class
B,
Preferred Stock with a value of
$8,000.
|
||||||||
Compensation
of Directors
In
August
of 2005, the Company made cash payments in the sum of $2,000 each to Mr. Einhorn
and Ms. Bernstein as compensation for their services as directors of the
Company. No set amount of compensation is set for the directors of the Company
and compensation is paid based upon the time and effort required of directors
on
an as needed basis. The most recent compensation delivered to directors prior
to
these cash payments was the issuance of 10,000 shares of restricted common
stock
in the first quarter of 2004 to Mr. Surber, Mr. Einhorn, Ms. Bernstein and
to
John E. Fry, Jr. Mr. Fry is no longer a director of the Company.
C
O N T E N T S
|
Report
of independent registered public accounting firm
|
49
|
|
|
|
|
Consolidated
balance sheets
|
51
|
|
|
|
|
Consolidated
statements of operations and other comprehensive loss
|
53
|
|
|
|
|
Consolidated
statements of stockholders’ equity
|
55
|
|
|
|
|
Consolidated
statement of cash flows
|
57
|
|
|
|
|
Notes
to the consolidated financial statements
|
59
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Nexia
Holdings, Inc. and Subsidiaries
Salt
Lake
City, Utah
We
have
audited the accompanying consolidated balance sheet of Nexia Holdings,
Inc. and
subsidiaries as of December 31, 2005 and the related consolidated statements
of
operations and other comprehensive loss, stockholders' equity and cash
flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these consolidated financial statements based on our audit.
We did
not audit the financial statements of Nexia Holdings, Inc. and subsidiaries
as
of December 31, 2004. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates
to the
amounts included in the period ending December 31, 2004, is based solely
on the
report of the other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards
require
that we plan and perform the audit to obtain reasonable assurance about
whether
the consolidated financial statements are free of material misstatement.
An
audit includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, based on our audit and the report of other auditors, the consolidated
financial statements referred to above present fairly, in all material
respects,
the financial position of Nexia Holdings, Inc. and subsidiaries as of December
31, 2005, and the results of their consolidated operations and other
comprehensive loss and cash flows for the year ended December 31, 2005,
in
conformity with accounting principles generally accepted in the United
States of
America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note 2 to the accompanying
consolidated financial statements, the Company has incurred cumulative
operating
losses through December 31, 2005 of $13,275,599, and has a working capital
deficit of $971,535 at December 31, 2005, all of which raise substantial
doubt
about its ability to continue as a going concern. Management's plan in
regard to
these matters is also discussed in Note 2. These financial statements do
not
include any adjustments that might result from the outcome of this uncertainty.
/s/
De
Joya Griffith & Company, LLC
CERTIFIED
PUBLIC ACCOUNTANTS
Henderson,
NV
April
17,
2006, except for Notes 19 through 24, as to which the date is October 10,
2006
REPORT
OF INDEPENDENT PUBLIC ACCOUNTING FIRM
Board
of
Directors
Nexia
Holdings, Inc. and Subsidiaries
Salt
Lake
City, Utah
We
have
audited the accompanying consolidated balance sheet of Nexia Holdings,
Inc. and
Subsidiaries as of December 31, 2004 and the related consolidated statements
of
operations and other comprehensive income, stockholders’ equity and cash flows
for the year the ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining
on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the
overall consolidated financial statement presentation. We believe that
our audit
provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Nexia
Holdings,
Inc. and Subsidiaries as of December 31, 2003 and the consolidated results
of
their operations and other comprehensive income, and their cash flows for
the
year ended December 31, 2004 in conformity with United States generally
accounting principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 to
the
consolidated financial statements, the Company has generated significant
losses
from operations, has an accumulated deficit of $13,228,622 and has a working
capital deficit of $51,335 at December 31, 2004, which together raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regards to these matters are also described in Note 2 to
the December 31, 2004 consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
As
discussed in Note 16, the 2004 consolidated financial statements have been
restated to correct an error in the accounting treatment and disclosure
regarding certain convertible debt arrangements.
/s/
HJ
& Associates, LLC
HJ
&
Associates, LLC
Salt
Lake
City, Utah
May
13,
2005, except for Note 16 which the date is April 20, 2006, except for Notes
19
and 21 through 24, for which the date is October 10,
2006
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
December
31
|
December
31
|
||||||
|
ASSETS
|
2005
|
2004
|
|||||
|
|
(Restated)
|
||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
160,440
|
$
|
152,413
|
|||
|
Restricted
cash (Note 1)
|
-
|
80,078
|
|||||
|
Accounts
and notes receivable, trade, net of allowance of $18,870 and $103,466
respectively
|
36,833
|
108,404
|
|||||
|
Accounts
receivable - related parties
|
7,342
|
23,808
|
|||||
|
Notes
receivable - net of allowance of $345,000 and
|
|||||||
|
$315,950
respectively (Note 4)
|
13,164
|
137,799
|
|||||
|
Inventory
|
35,435
|
-
|
|||||
|
Prepaid
expenses
|
28,191
|
18,783
|
|||||
|
Marketable
securities (Note 6)
|
250,873
|
44,549
|
|||||
|
TOTAL
OF CURRENT ASSETS
|
532,278
|
565,834
|
|||||
|
PROPERTY
AND EQUIPMENT (Note 5)
|
|||||||
|
Property
and equipment, net
|
3,094,373
|
2,935,052
|
|||||
|
Land
|
689,295
|
489,295
|
|||||
|
|
|
||||||
|
TOTAL
NET PROPERTY AND EQUIPMENT
|
3,783,668
|
3,424,347
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Loan
costs, net
|
3,970
|
15,879
|
|||||
|
TOTAL
OTHER ASSETS
|
3,970
|
15,879
|
|||||
|
TOTAL
ASSETS
|
$
|
4,319,916
|
$
|
4,006,060
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets, (Continued)
|
|||||||
|
December
31
|
December
31
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
2005
|
2004
|
|||||
|
(Restated)
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
233,606
|
$
|
243,441
|
|||
|
Accounts
payable - related parties
|
29,731
|
-
|
|||||
|
Accrued
liabilities
|
293,687
|
209,480
|
|||||
|
Unearned
rent
|
-
|
23,094
|
|||||
|
Deferred
revenue
|
988
|
356
|
|||||
|
Refundable
deposits
|
15,892
|
15,041
|
|||||
|
Convertible
debenture
|
-
|
5,000
|
|||||
|
Current
maturities of long-term debt (Note 9)
|
929,908
|
120,757
|
|||||
|
TOTAL
CURRENT LIABILITIES
|
1,503,812
|
617,169
|
|||||
|
LONG-TERM
LIABILTIES
|
|||||||
|
Convertible
debenture derivative (Notes 15 & 16)
|
85,714
|
-
|
|||||
|
Convertible
debenture (Notes 15 & 16)
|
16,440
|
200,000
|
|||||
|
Long-term
debt Note 9)
|
1,524,339
|
2,732,161
|
|||||
|
TOTAL
LONG-TERM LIABILITIES
|
1,626,493
|
2,932,161
|
|||||
|
TOTAL
LIABILITIES
|
3,130,305
|
3,549,330
|
|||||
|
MINORITY
INTEREST
|
226,426
|
15,315
|
|||||
|
STOCKHOLDERS'
EQUITY (Note 7)
|
|||||||
|
Preferred
Series B stock, $0.001 par value, 50,000,000 shares
|
|||||||
|
authorized,
8,000,000 shares issued and outstanding
|
8,000
|
8,000
|
|||||
|
Preferred
Series C stock, $0.001 par value, 5,000,000 shares
|
|||||||
|
authorized,
100,000 shares issued and outstanding
|
100
|
100
|
|||||
|
Common
stock $0.001 par value, 10,000,000,000 shares authorized,
|
|||||||
|
3,539,945,030
and 1,747,945,834 shares issued (post reverse split)
|
|||||||
|
and
outstanding, respectively
|
3,539,946
|
1,747,946
|
|||||
|
Additional
paid-in capital
|
10,808,402
|
12,312,814
|
|||||
|
Treasury
stock -29,138 and 29,138 shares
|
|||||||
|
at
cost, respectively
|
(100,618
|
)
|
(100,618
|
)
|
|||
|
Stock
subscriptions receivable
|
(11,325
|
)
|
(375,009
|
)
|
|||
|
Other
comprehensive Gain/(Loss) (Note 6)
|
(5,721
|
)
|
(6,767
|
)
|
|||
|
Accumulated
deficit
|
(13,275,599
|
)
|
(13,145,051
|
)
|
|||
|
Total
Stockholders’ Equity
|
963,185
|
441,415
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
|||||||
|
EQUITY
|
$
|
4,319,916
|
$
|
4,006,060
|
|||
|
The
accompanying notes are an integral integral part of these consolidated
financial statements.
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Operations and Other Comprehensive
(Loss)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31
|
|||||||
|
2005
|
|
2004
|
|||||
|
(Restated)
|
|||||||
|
REVENUE
|
|||||||
|
Rental
revenue
|
$
|
257,627
|
$
|
512,456
|
|||
|
Rental
revenue - related party
|
23,723
|
-
|
|||||
|
Sales
- Salon and Retail
|
123,869
|
-
|
|||||
|
Consulting
revenue
|
10,525
|
121,633
|
|||||
|
TOTAL
REVENUE
|
415,744
|
634,089
|
|||||
|
COST
OF REVENUE
|
|||||||
|
Cost
associated with rental revenue
|
143,605
|
697,371
|
|||||
|
Depreciation
and amortization associated with rental revenue
|
117,996
|
126,610
|
|||||
|
Interest
associated with rental revenue
|
174,046
|
231,158
|
|||||
|
Cost
of sales - Salon and Retail
|
50,607
|
-
|
|||||
|
Cost
associated with consulting revenue
|
-
|
1,069,329
|
|||||
|
TOTAL
COST OF REVENUE
|
486,254
|
2,124,468
|
|||||
|
GROSS
LOSS (Note 19)
|
(70,510
|
)
|
(1,490,379
|
)
|
|||
|
EXPENSES
|
|||||||
|
Impairment
of marketable securities
|
-
|
194,194
|
|||||
|
General
and administrative expense
|
714,286
|
1,799,041
|
|||||
|
Depreciation
expense
|
14,731
|
9,415
|
|||||
|
TOTAL
EXPENSES
|
729,017
|
2,002,650
|
|||||
|
OPERATING
LOSS
|
(799,527
|
)
|
(3,493,029
|
)
|
|||
|
OTHER
INCOME (EXPENSE)
|
|||||||
|
Interest
expense
|
(52,938
|
)
|
(31,521
|
)
|
|||
|
Interest
expense - accretion of debt
|
(16,440
|
)
|
-
|
||||
|
Interest
income
|
43,488
|
5,493
|
|||||
|
Income
from litigation settlement (Note 20)
|
206,500
|
-
|
|||||
|
Gain
on sale of commercial real estate (Note 12)
|
756,471
|
-
|
|||||
|
Gain
on sale of subsidiaires (Note 21)
|
-
|
528,192
|
|||||
|
Gain
(loss) on marketable securities
|
-
|
36,918
|
|||||
|
Unrealized
gain related to adjustment of derivative
|
|||||||
|
liability
to fair value of underlyng security (Note 16)
|
114,286
|
-
|
|||||
|
Other
expense - Forgive debt
|
(305
|
)
|
-
|
||||
|
Other
income
|
64
|
26,187
|
|||||
|
TOTAL
OTHER INCOME
|
1,051,126
|
565,269
|
|||||
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
251,599
|
(2,927,760
|
)
|
||||
|
MINORITY
INTEREST IN INCOME (LOSS)
|
65,368
|
(7,176
|
)
|
||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
186,231
|
(2,920,584
|
)
|
||||
|
DISCONTINUED
OPERATIONS
|
|||||||
|
Loss
from discontinued operations expenses
|
(308,207
|
)
|
-
|
||||
|
Depreciation
expense
|
(8,572
|
)
|
-
|
||||
|
LOSS
FROM DISCONTINUED OPERATIONS (Note 17)
|
(316,779
|
)
|
-
|
||||
|
NET
LOSS
|
(130,548
|
)
|
(2,920,584
|
)
|
|||
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|||||||
|
Change
in unrealized gain (loss) on marketable securities (Note
6)
|
1,046
|
(5,905
|
)
|
||||
|
TOTAL
COMPREHENSIVE LOSS
|
$
|
(129,502
|
)
|
$
|
(2,926,489
|
)
|
|
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||||
|
NEXIA HOLDINGS, INC. AND
SUBSIDIARIES
|
|||||||
|
Consolidated Statements of Operations
and Other Comprehensive Loss
|
|||||||
|
(Continued)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
(Restated)
|
|||||||
|
Net
income (loss) per common share, basic and diluted:
|
|||||||
|
|
|||||||
|
Income
(loss) before minority loss
|
$
|
0.0001
|
$
|
(0.0204
|
)
|
||
|
Minority
interest in income
|
-
|
-
|
|||||
|
Net
income (loss) before discontinued operations
|
0.0001
|
(0.0204
|
)
|
||||
|
|
|||||||
|
Loss
from discontinued operations
|
(0.0001
|
)
|
(0.0120
|
) | |||
|
|
|||||||
|
Net
loss per weighted average common shares outstanding
|
$
|
-
|
$
|
(0.0324
|
)
|
||
|
|
|||||||
|
Weighted
average shares outstanding - basic & diluted
|
3,171,129,396
|
90,299,865
|
|||||
|
|
|||||||
|
|
|||||||
|
(Weighted
average shares outstanding for year 2004
|
|||||||
|
have
been adjusted retroactively to reflect
|
|||||||
|
a
reverse stock split on November 1, 2004
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
NEXIA
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
12/31/2004
Post
Reverse Split
|
|||||||||||||||||||||||||||||||||||||
|
Stock
|
Expenses
|
Variable
|
Other
|
Total
|
|||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Treasury
|
Subscription
|
Prepaid
with
|
Deferred
|
Comprehen-sive
|
Accumulated
|
Stockholders
|
|||||||||||||||||||||||||||||
|
Description
|
Shares
|
Amount
|
Shares
|
Amount
|
APIC
|
Stock
|
Receivable
|
Common
Stock
|
Consul-ting
|
Income
(Loss)
|
Deficit
|
Equity
|
|||||||||||||||||||||||||
|
Balance
at December 31, 2003
|
-
|
$
|
-
|
348,503
|
$
|
349
|
$
|
10,497,138
|
$
|
(100,618
|
)
|
$
|
(28,000
|
)
|
$
|
(13,333
|
)
|
$
|
-
|
$
|
(862
|
)
|
$
|
(10,224,467
|
)
|
$
|
130,207
|
||||||||||
|
Series
B preferred stock issued for services
|
8,000,000
|
8,000
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
8,000
|
|||||||||||||||||||||||||
|
Series
C preferred stock issued for cash
|
100,000
|
100
|
-
|
-
|
49,900
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
|||||||||||||||||||||||||
|
Cancellation
of common stock for subscription receivable
|
-
|
-
|
(700
|
)
|
(1
|
)
|
(6,999
|
)
|
-
|
7,000
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
|
Common
Stock issued for services
|
-
|
-
|
1,640,139
|
1,640
|
888,757
|
-
|
-
|
-
|
-
|
-
|
-
|
890,397
|
|||||||||||||||||||||||||
|
Common
Stock issued for building improvements and services
|
-
|
-
|
74,006,000
|
74,006
|
(23,806
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
50,200
|
||||||||||||||||||||||||
|
Common
Stock issued for stock option exercise to employees
|
-
|
-
|
61,711,100
|
61,711
|
109,620
|
-
|
-
|
-
|
-
|
-
|
-
|
171,331
|
|||||||||||||||||||||||||
|
Common
stock issued for stock option exercise to consultants
|
-
|
-
|
82,748,400
|
82,748
|
87,773
|
-
|
(32,363
|
)
|
-
|
-
|
-
|
-
|
138,158
|
||||||||||||||||||||||||
|
Receipt
of subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
43,821
|
-
|
-
|
-
|
-
|
43,821
|
|||||||||||||||||||||||||
|
Amortization
of prepaid expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
13,333
|
-
|
-
|
-
|
13,333
|
|||||||||||||||||||||||||
|
Intrinsic
value of stock options issued to employees
|
-
|
-
|
-
|
-
|
582,251
|
-
|
-
|
-
|
-
|
-
|
-
|
582,251
|
|||||||||||||||||||||||||
|
Fair
value of options issued for prepaid consulting fees
|
-
|
-
|
-
|
-
|
43,988
|
-
|
-
|
-
|
(43,988
|
)
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
Adjustment
for revision of options issued values
|
-
|
-
|
-
|
-
|
488,195
|
-
|
-
|
-
|
-
|
-
|
-
|
488,195
|
|||||||||||||||||||||||||
|
Adjustment
for marketable securities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,534
|
)
|
-
|
(3,534
|
)
|
|||||||||||||||||||||||
|
Variable
Deferred Balance Expensed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
43,988
|
-
|
-
|
43,988
|
|||||||||||||||||||||||||
|
Common
stock issued for subscriptions receivable, consultants
|
-
|
-
|
450,118,500
|
450,119
|
(281,473
|
)
|
-
|
(168,646
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
Common
stock issued for subscriptions receivable, employees
|
-
|
-
|
651,126,024
|
651,126
|
(421,942
|
)
|
-
|
(229,184
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
Collection
of subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
32,363
|
-
|
-
|
-
|
-
|
32,363
|
|||||||||||||||||||||||||
|
Fair
value of options issued to consultants
|
-
|
-
|
-
|
-
|
474,140
|
-
|
-
|
-
|
-
|
-
|
-
|
474,140
|
|||||||||||||||||||||||||
|
Return
of common stock issued to a consultant
|
-
|
-
|
(250,000
|
)
|
(250
|
)
|
(12,250
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
(12,500
|
)
|
|||||||||||||||||||||
|
Common
stock issued for services to consultants
|
-
|
-
|
3,000,000
|
3,000
|
4,500
|
-
|
-
|
-
|
-
|
-
|
-
|
7,500
|
|||||||||||||||||||||||||
|
Common
stock issued for compensation to employees
|
-
|
-
|
133,197,366
|
133,197
|
(44,961
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
88,236
|
||||||||||||||||||||||||
|
Application
of restricted common stock issued to reduce debentures
liability
|
-
|
-
|
20,000,000
|
20,000
|
30,000
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
|||||||||||||||||||||||||
|
Common
stock issued to consultants to apply to accounts payable
|
-
|
-
|
270,300,000
|
270,300
|
(152,549
|
)
|
117,751
|
||||||||||||||||||||||||||||||
|
Proceeds
from consultant option stock sales applied to accounts
payable
|
-
|
-
|
-
|
-
|
533
|
-
|
-
|
-
|
-
|
-
|
-
|
533
|
|||||||||||||||||||||||||
|
Round
up fraction shares resulting from 11-01-2004 reverse stock
split
|
-
|
-
|
502
|
1
|
(1
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
Change
in other comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,371
|
)
|
(2,371
|
)
|
||||||||||||||||||||||||
|
Net
consolidated loss for year ended December 31, 2004 -
Restated
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,920,584
|
)
|
(2,920,584
|
)
|
|||||||||||||||||||||||
|
Balance
at December 31, 2004-Restated
|
8,100,000
|
$
|
8,100
|
1,747,945,834
|
$
|
1,747,946
|
$
|
12,312,814
|
$
|
(100,618
|
)
|
$
|
(375,009
|
)
|
$
|
-
|
$
|
-
|
$
|
(6,767
|
)
|
$
|
(13,145,051
|
)
|
$
|
441,415
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
NEXIA
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
12/31/2005
|
|||||||||||||||||||||||||||||||
|
Post
Reverse Split (11/01/2004)
|
|||||||||||||||||||||||||||||||
|
Number
|
Number
|
Stock
|
Other
|
Total
|
|||||||||||||||||||||||||||
|
of
Preferred
|
Pre-ferred
|
of
Common
|
Common
|
Treasury
|
Subscriptions
|
Comprehen-sive
|
Retained
|
Stockholders
|
|||||||||||||||||||||||
|
Description
|
Shares
|
Stock
|
Shares
|
Stock
|
APIC
|
Stock
|
Receivable
|
Income
- (Loss)
|
Deficit
|
Equity
|
|||||||||||||||||||||
|
Balance
forward, Dec 31, 2004-Restated
|
8,100,000
|
$
|
8,100
|
1,747,945,834
|
$
|
1,747,946
|
$
|
12,312,814
|
$
|
(100,618
|
)
|
$
|
(375,009
|
)
|
$
|
(6,767
|
)
|
$
|
(13,145,051
|
)
|
$
|
441,415
|
|||||||||
|
Common
stock issued for services
|
-
|
-
|
996,750,000
|
996,750
|
(876,725
|
)
|
-
|
-
|
-
|
-
|
120,025
|
||||||||||||||||||||
|
Common
stock issued to EquitiLink, LLC (Rule 144 legend, Restr.)
|
-
|
-
|
100,000,000
|
100,000
|
(80,000
|
)
|
-
|
-
|
-
|
-
|
20,000
|
||||||||||||||||||||
|
Receipt
of cash on subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
396,691
|
-
|
-
|
396,691
|
|||||||||||||||||||||
|
Return
of common stock issued to J. Fry, Jr. on 11/12/2004
|
-
|
-
|
(8,000,000
|
)
|
(8,000
|
)
|
(12,000
|
)
|
-
|
-
|
-
|
-
|
(20,000
|
)
|
|||||||||||||||||
|
Fair
value of options issued for past services
|
-
|
-
|
-
|
-
|
11,875
|
-
|
-
|
-
|
-
|
11,875
|
|||||||||||||||||||||
|
Intrinsic
value of options issued for past services
|
-
|
-
|
-
|
-
|
44,875
|
-
|
-
|
-
|
-
|
44,875
|
|||||||||||||||||||||
|
Common
stock issued for options exercised
|
-
|
-
|
400,000,000
|
400,000
|
(365,500
|
)
|
-
|
(34,500
|
)
|
-
|
-
|
-
|
|||||||||||||||||||
|
Common
stock issued to contractors applied to accounts payable
|
-
|
-
|
203,250,000
|
203,250
|
(153,608
|
)
|
-
|
-
|
-
|
-
|
49,642
|
||||||||||||||||||||
|
Common
stock issued to contractor for building improvements
|
-
|
-
|
50,000,000
|
50,000
|
(40,000
|
)
|
-
|
-
|
-
|
-
|
10,000
|
||||||||||||||||||||
|
Proceeds
from options stock applied to accounts payable
|
-
|
-
|
-
|
-
|
7,985
|
-
|
-
|
-
|
-
|
7,985
|
|||||||||||||||||||||
|
Change
in comprehensive loss to December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,046
|
-
|
1,046
|
|||||||||||||||||||||
|
Proceeds
for stock issued to R. Liebsch on 07/06/2005 greater than amount
shown as
applied to Accounts Payable above, requiring an adjustment to Common
APIC
|
-
|
-
|
-
|
-
|
3,685
|
-
|
-
|
-
|
-
|
3,685
|
|||||||||||||||||||||
|
Common
stock issued to Barry Burbank (restricted)
|
-
|
-
|
50,000,000
|
50,000
|
(45,000
|
)
|
-
|
-
|
-
|
-
|
5,000
|
||||||||||||||||||||
|
Apply
stock subscription receivable balance for Grant Anea (stock issued
11/12/2004) to Hallmark accounts payable. No evidence stock has
been sold
as of 12/31/2005.
|
-
|
-
|
-
|
-
|
-
|
-
|
1,493
|
-
|
-
|
1,493
|
|||||||||||||||||||||
|
Common
stock, originally issued to Hudson Consulting Group, part of Nexia
Holdings, Inc. consolidated group, returned and cancelled
|
-
|
-
|
(804
|
)
|
(1
|
)
|
1
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Net
consolidated loss for year ended December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(130,548
|
)
|
(130,548
|
)
|
|||||||||||||||||||
|
Rounding
|
-
|
-
|
-
|
1
|
-
|
-
|
-
|
-
|
-
|
1
|
|||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||
|
Balance
at December 31, 2005
|
$
|
8,100,000
|
$
|
8,100
|
$
|
3,539,945,030
|
$
|
3,539,946
|
$
|
10,808,402
|
$
|
(100,618
|
)
|
$
|
(11,325
|
)
|
$
|
(5,721
|
)
|
$
|
(13,275,599
|
)
|
$
|
963,185
|
|||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||||||||||||||||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
(Restated)
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
|
Net
loss
|
$
|
(130,548
|
)
|
$
|
(2,920,584
|
)
|
|
|
Adjustments
to reconcile net (loss)
|
|||||||
|
to
net cash used in operating activities:
|
|||||||
|
Impairment
of marketable securities
|
155
|
194,194
|
|||||
|
Change
in minority interest
|
211,111
|
(7,176
|
)
|
||||
|
Depreciation
expense
|
129,390
|
123,845
|
|||||
|
Amortization
of lease/loan costs
|
11,909
|
12,180
|
|||||
|
Intrinsic
and fair value of stock options issued
|
56,751
|
1,696,362
|
|||||
|
Issued
common stock for services
|
86,519
|
972,654
|
|||||
|
Issued
Preferred Series B stock for services
|
-
|
8,000
|
|||||
|
Expenses
paid with common stock
|
-
|
13,330
|
|||||
|
Revaluation
of variable deferred consulting
|
-
|
45,600
|
|||||
|
Allowance
for bad debts
|
80,574
|
950
|
|||||
|
Accretion
of convertible debenture
|
16,440
|
-
|
|||||
|
Gain
on sale of retail shopping plaza
|
(756,471
|
)
|
-
|
||||
|
Gain
from sale of investments
|
-
|
(36,918
|
)
|
||||
|
Gain
from sale of subsidiaries
|
-
|
(528,192
|
)
|
||||
|
Restricted
stock received in litigation settlement
|
(154,000
|
)
|
-
|
||||
|
Unrealized
gain related to adjustment of derivative
|
|||||||
|
to
fair value of underlying security
|
(114,286
|
)
|
-
|
||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
95,217
|
(81,625
|
)
|
||||
|
Accounts
receivable, related parties
|
16,466
|
12,952
|
|||||
|
Notes
receivable
|
(202
|
)
|
-
|
||||
|
Inventory
|
(35,435
|
)
|
-
|
||||
|
Prepaid
expenses
|
(9,408
|
)
|
(18,684
|
)
|
|||
|
Capitalized
loan costs
|
-
|
22,180
|
|||||
|
Accounts
payable
|
39,190
|
55,254
|
|||||
|
Accounts
payable, related parties
|
29,731
|
-
|
|||||
|
Accrued
liabilities
|
87,559
|
78,956
|
|||||
|
Unearned
rent
|
(23,094
|
)
|
(5,361
|
)
|
|||
|
Deferred
revenue
|
632
|
(8,602
|
)
|
||||
|
Refundable
deposits
|
851
|
(500
|
)
|
||||
|
Deferred
gain on sale of subsidiary
|
-
|
(21,770
|
)
|
||||
|
Current
portion of WVDEP liability
|
-
|
(20,000
|
)
|
||||
|
Net
cash used in operating activities
|
(360,949
|
)
|
(412,955
|
)
|
|||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
|
Issuance
of note receivable
|
-
|
(124,840
|
)
|
||||
|
Proceeds
from note receivable
|
-
|
6,790
|
|||||
|
Correction
of duplicate entry, previous period
|
539
|
-
|
|||||
|
Cash
paid for securities investments
|
(47,431
|
)
|
(34,757
|
)
|
|||
|
Purchase
of marketable securities - restricted
|
(4,002
|
)
|
-
|
||||
|
Purchase
of property, plant and equipment
|
(551,371
|
)
|
(359,222
|
)
|
|||
|
Proceeds
from sale of retail shopping plaza
|
1,745,021
|
-
|
|||||
|
Proceeds
from sale of marketable securities
|
-
|
195,608
|
|||||
|
Acquisition
of SL Development
|
(903,603
|
)
|
-
|
||||
|
Net
cash provided by (used) in investing activities
|
239,153
|
(316,421
|
)
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows, (Continued)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
(Restated)
|
||||||
|
Payments
on long-term debt
|
$ |
(106,311
|
)
|
$ |
(88,508
|
)
|
|
|
Proceeds
from issuance of long-term debt
|
110,914
|
295,507
|
|||||
|
Proceeds
from issuance of convertible debenture
|
-
|
200,000
|
|||||
|
Issuance
of Preferred Series C stock for cash
|
-
|
50,000
|
|||||
|
Receipt
of stock subscriptions receivable
|
396,691
|
43,821
|
|||||
|
Old
stock subscription receivable reclassified
|
1,493
|
- | |||||
|
Issuance
of common stock for stock options exercised
|
38,506
|
371,974
|
|||||
|
Pay
off convertible debenture
|
(5,000
|
)
|
(5,000
|
)
|
|||
|
Pay
off note payable, sale of retail shopping plaza
|
(938,255
|
)
|
-
|
||||
|
Mortgage
assumed, acquisition of S. L. Development
|
551,707
|
-
|
|||||
|
Net
cash provided by financing activities
|
49,745
|
867,794
|
|||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(72,051
|
)
|
138,418
|
||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
232,491
|
94,073
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
160,440
|
$
|
232,491
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF INFORMATION
|
|||||||
|
CASH
PAID FOR:
|
|||||||
|
Interest
|
$
|
243,424
|
$
|
262,679
|
|||
|
Income
taxes
|
$
|
-
|
$
|
-
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
|
|||||||
|
FINANCING
ACTIVITIES:
|
|||||||
|
Preferred
stock issued for services
|
$
|
-
|
$
|
8,000
|
|||
|
Common
stock issued for services
|
$
|
86,519
|
$
|
898,818
|
|||
|
Intrinsic
and fair value of options issued
|
$
|
56,751
|
$
|
-
|
|||
|
Common
stock issued for subscription receivable
|
$
|
34,500
|
$
|
417,830
|
|||
|
Common
stock issued for variable deferred consulting
|
$
|
-
|
$
|
43,988
|
|||
|
Common
stock issued for building improvements
|
$
|
10,000
|
$
|
141,564
|
|||
|
Common
stock issued and applied on vendor accounts payable
|
$
|
49,642
|
$
|
172,605
|
|||
|
Unrealized
gain on adjustment of derivative
|
|||||||
|
to
fair value of underlying security
|
$
|
(114,286
|
)
|
$
|
-
|
||
|
The
accompanying notes are an integral part of these consolidated
financial
statements
|
|||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES
a.
Organization
Nexia
Holdings,
Inc.
(Nexia or The Company) was incorporated under the laws of the State of Colorado
on April 20, 1987 as Metropolitan Acquisition Corporation. On
October
5, 2000, Nexia merged with a Nevada corporation with the same name, effectively
changing its state of domicile from Colorado to Nevada.
Nexia’s
current operating subsidiaries are Diversified Holdings I, Inc., Downtown
Development Corporation, Wasatch Capital Corporation, Canton Industrial
Corporation of Salt Lake City Inc., West Jordan Real Estate Holdings, Inc.,
Salt
Lake Development, Inc., Landis LLC and Kearns Development Corporation.
b.
Basis
of Consolidation
The
consolidated financial statements include the accounts of Nexia Holdings,
Inc.
and subsidiaries that are more than 50% owned. In addition, Nexia consolidates
variable interest entities for which it is deemed to be the primary beneficiary.
Nexia’s share of earnings or losses of associates, in which at least 20% of the
voting securities is owned, is included in the consolidated operating results
using the equity method of accounting.
Diversified
Holdings I, Inc. (DHI), a Nevada corporation is a 99% owned subsidiary of
Nexia.
DHI was formed on March 22, 1996. DHI is a holding company which has majority
ownership of the following subsidiaries:
Wasatch
Capital Corporation (WCC), a Utah corporation, was incorporated on June 10,
1991. WCC owns a commercially rented building in downtown Salt Lake City.
DH1
owned 100% and 98% of Wasatch common stock as of December 31, 2005 and 2004
respectively. On September 16, 2004 Wasatch issued one million shares of
its
common stock to DH1 in total satisfaction of its outstanding debt to
DH1.
West
Jordan Real Estate Holdings, Inc. (WJREH), was formed on June 7, 1994 in
Utah
for the purpose of acquiring, owning and managing a specific property. WJREH
sold its real estate holdings on April 20, 2005.
Salt
Lake
Development Corporation (SLD), a Nevada corporation, was incorporated on
February 15, 1996 and is the successor to the interests and title of the
Utah
corporation of the same name to an office building located at 268 West 400
South
Salt Lake City, Utah. SLDC is 98% owed by DHI.
Kearns
Development Corporation (Kearns), a Nevada corporation, was incorporated
February 16, 1996 as Cyber Studio, Inc. On April 4, 2001, its name was changed
to Kearns Development Corporation. During 2000, Kearns purchased a commercially
rented building in Kearns, Utah. Kearns is owned 90.7% by
DHI.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Downtown
Development Corporation (Downtown) was incorporated by the Company on November
30, 1999 in Utah as A-Z South State Corporation. On August 22, 2001, its
name
was changed to Downtown Development Corporation. Downtown owns a commercially
rented building in Salt Lake City, Utah, and is 99.8% owned by DH1.
Canton
Industrial Corporation of Salt Lake City (CICSLC), a Utah corporation, was
incorporated on September 29, 1993 for the purpose of acquiring, owning and
managing a specific property. CICSLC sold the property in December 1998, and
currently holds a promissory note from the purchaser, secured by a deed of
trust
on the property, in the amount of $255,000, bearing interest at 8%, principal
and interest due August 10, 2002. CICSLC is 80% owned by DHI and 10% owned
by
Nexia.
Landis
LLC, a Utah limited liability company (Landis) was organized on May 4, 2005
for
the purpose of operating an AvedaTM
Lifestyle Salon. DHI acquired a 20% interest in exchange for a $100,000 cash
investment. Nexia’s president, Richard Surber, holds a 60% interest in Landis
and is the sole operating member of Landis LLC. Landis’ operations have been
consolidated in these statements based upon the common control of Nexia and
Landis by Richard Surber.
c.
Accounting Method
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets
and
the liquidation of liabilities in the normal course of business.
d.
Compensating Cash Balances
The
Company's
subsidiary, West Jordan Real Estate Holdings, Inc. signed a note payable.
As
part of the note, WJREH agreed to deposit $3,750 monthly into a bank account
to
be used for capital improvements, tenant improvements and leasing commissions.
The account balance was $80,078 at December 31, 2004. This note was paid
in full
as part of the sale of Glendale Plaza by WJREH and the cash balance in the
capital improvements bank account was paid to WJREH during 2005, reducing
the
balance on December 31, 2005 to $0.
e.
Provision for Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Net
deferred tax assets consist of the following components as of December 31,
2005
and 2004:
|
2005
|
|
2004
|
|
||||
|
|
|
|
|
(Restated)
|
|||
|
Deferred
tax assets
|
|||||||
|
NOL
Carryover
|
$
|
4,762,891
|
$
|
4,697,711
|
|||
|
|
|||||||
|
Capital
(gain) loss
|
(
95,351
|
)
|
661,050
|
||||
|
Other
|
50,545
|
36,820
|
|||||
|
|
|||||||
|
Deferred
tax liabilities:
|
-
|
-
|
|||||
|
Valuation
allowance
|
(4,718,085
|
)
|
(5,395,581
|
)
|
|||
|
Net
deferred tax asset
|
$ |
-
|
$ |
-
|
|||
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2005 and 2004 due
to
the following:
|
|
2005
|
|
2004
|
|
|||
|
|
|
|
|
(Restated)
|
|||
|
Book
loss
|
$
|
(130,548
|
)
|
(2,920,584
|
)
|
||
|
Bad
debt
|
30,500
|
-
|
|||||
|
Asset
impairments
|
155
|
194,194
|
|||||
|
Other
(Charitable contribution)
|
11,725
|
3,120
|
|||||
|
Stock
for services/option expense
|
133,268
|
1,685,573
|
|||||
|
Valuation
allowance
|
(45,100)
|
1,037,697
|
|||||
|
|
- | - | |||||
At
December 31, 2005, the Company had net operating loss carryforwards of
approximately $8,558,175 that may be offset against future taxable income
from
the year 2004 through 2024. No tax benefit has been reported in the December
31,
2005 consolidated financial statements since the potential tax benefit
is offset
by a valuation allowance of the same amount. The Company has not filed
its’ 2005
tax return as of the date of filing of this Form 10-KSB.
Due
to
the change in ownership provisions of the Tax Reform Act of 1986, net operating
loss carryforwards for Federal income tax reporting purposes are subject
to
annual limitations. Should a change in ownership occur, net operating loss
carryforwards may be limited as to use in future years.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
f.
Fixed
Assets and Depreciation
Fixed
assets are stated at cost. Expenditures that materially increase the life
of the
assets are capitalized. Ordinary maintenance and repairs are charged to expense
as incurred. When assets are sold, or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized at that time. Depreciation is computed on the
straight line method for financial statement purposes over the following
useful
lives:
Building
and
improvements
15-39
Years
Furniture,
equipment and fixtures
5-10
Years
Vehicles
5
Years
Computer
equipment and
software 3
years
g.
Revenue Recognition
The
Company recognizes revenue from its three main sources of revenue as
follows:
Rental
Revenue
Rental
revenues are recorded in the period in which they are earned in accordance
with
rental agreements and lease contracts. Rent payments are typically due by
the
1st of each month. Occasionally, the Company will receive rent payments at
the
end of preceding months for the following months rent. The Company will record
these as unearned rent until such time as the rent has been
earned.
Sales
- Salon and Consulting Revenue
The
Company ceased providing consulting services in 2004. There may be a small
amount of consulting from time to time. There was a nominal amount of revenue
received in 2005 from consulting. The amount of deferred revenue at December
31,
2005 related to consulting services for which the Company received restricted
securities was $988 compared to $256 for the year 2004. This represents the
fair
value of the portion of the available for sale securities for which revenue
was
deferred at December 31, 2005.
Landis,
LLC, a hair and beauty salon began operating in November 2005. The Company,
through a subsidiary, has a 20% investment in the salon. It is included in
the
consolidated financial statements because the Company president and CEO is
the
major partner in the salon business. The salon records revenue on the accrual
basis of accounting.
h.
Marketable Securities
The
Company follows the provisions of SFAS 115 regarding marketable securities.
The
Company>s
securities investments that are bought and held principally for the purpose
of
selling
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings.
Securities
investments that the Company has the positive intent and ability to hold to
maturity are classified as held-to-maturity securities and recorded at amortized
cost in investments and other assets. Securities investments not classified
as
either held-to-maturity or trading securities are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value in investments and other assets on the balance sheet, with the change
in fair value during the period excluded from earnings and recorded net of
tax
as a separate component of equity. All marketable securities held by the Company
have been classified as available-for-sale securities.
i.
Stock-based
Compensation
The
Company applies Accounting Principles Board (“APB”) Opinion NO. 25, “Accounting
for Stock Issued to Employees, and Related Interpretations”, in accounting for
stock options issued to employees. Under APB No. 25, employee compensation
cost
is recognized when estimated fair value of the underlying stock on date
of the
grant exceeds exercise price of the stock option. For stock options and
warrants
issued to non-employees, the Company applies SFAS No. 123, “Accounting for
Stock-Based Compensation”. SFAS No. 123 requires the recognition of compensation
cost using a fair value based method whereby compensation cost is measured
at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Stock issued for
compensation is valued using the market price of the stock on the date
of the
related agreement.
The
following table represents the effect on net loss and loss per share if the
Company had applied the fair value based method and recognition provisions
of
Statement of Financial Accounting Standards (SFAS) No. 123 to stock-based
employee compensation:
|
2005
|
|
2004
|
|
||||
|
|
|
Restated
|
|||||
|
|
|||||||
|
Net
loss, as reported
|
$
|
(130,548
|
)
|
$
|
(2,920,584
|
)
|
|
|
Add:
Stock based employee compensation expense
|
|||||||
|
included
in reported loss, net of related tax effects
|
44,875
|
857,717
|
|||||
|
Deduct:
Total stock-based employee compensation
|
|||||||
|
expense
determined under fair value based methods
|
|||||||
|
for
all awards, net of related tax effects
|
0
|
(202,474
|
)
|
||||
|
Pro
forma net loss
|
$
|
(85,673
|
)
|
$
|
(2,265,341
|
)
|
|
|
Net
loss per common share
|
|||||||
|
Basic
loss as reported
|
$
|
0.00
|
$
|
(0.00
|
)
|
||
|
Basic
loss pro forma
|
$
|
(0.00
|
)
|
$
|
(0.0007
|
)
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
j.
Environmental Compliance and Remediation
The
Company determines potential liability on a site by site basis and records
a
liability when its existence is probable and reasonably estimable. Expenditures
that do not have a future economic benefit are expensed as incurred.
Expenditures that extend the life of the related property or mitigate or prevent
future environmental contamination are capitalized.
k.
Impairment of Long-Lived Assets
The
Company evaluates its long-lived assets in accordance with Statement of
Financial Accounting Standard No. 144, "Accounting
for the Impairment or Disposal of Long Lived Assets".
The
Company recognizes impairment losses as the difference between historical
cost
and fair value of the asset, less costs to sell, when management determines
that
events and circumstances indicate a need to assess impairment, and when that
assessment indicates that historical cost materially exceeds fair value,
less
costs to sell. There was no impairment expense of long-lived assets for the
years ended December 31, 2005 and 2004.
l.
Advertising Expense
The
Company expenses advertising costs as incurred. Advertising expense was $15,516
and $2,232 for the years ended December 31, 2005 and 2004,
respectively.
m. Basic
Loss Per Common Share
The
computation of basic loss per share of common stock is based on the weighted
average number of shares outstanding during the period.
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
|
2004
|
|||||
|
|
(Restated)
|
||||||
|
Numerator:
|
|||||||
|
Income
(loss) before minority interest
|
$
|
251,599
|
$
|
(2,927,760
|
)
|
||
|
Minority
interest
|
65,368
|
7
,176
|
|||||
|
Net
income (loss) before discontinued
|
|||||||
|
Operations
|
186,231
|
(2,920,584
|
)
|
||||
|
Discontinued
operations
|
(316,779
|
)
|
-
.
|
||||
|
Net
loss
|
$
|
(130,548
|
)
|
$
|
(2,920,584
|
)
|
|
|
Denominator:
|
|||||||
|
weighted
average shares
|
|||||||
|
outstanding
|
3,171,129,396
|
90,299,865
|
|||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
Loss
per weighted average
|
|||||||
|
common
share:
|
|||||||
|
Income
(loss) per common share before
|
|||||||
|
minority
interest
|
$
|
0.0001
|
$
|
(0.0324
|
)
|
||
|
Minority
interest in income (loss) per
|
|||||||
|
common
share
|
-
|
-
|
|||||
|
|
|||||||
|
Net
income (loss) per common share before
|
|||||||
|
discontinued
operations
|
0.0001
|
(0.324
|
)
|
||||
|
Loss
per common share on
|
|||||||
|
discontinued
operations
|
(0.0001
|
)
|
-
|
||||
|
Net
loss per common share, basic
|
$
|
-
|
$
|
(0.0324
|
)
|
||
The
Company computes net loss per share in accordance with SFAS No. 128, “Earnings
per share” (SFAS 128) and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under
the provisions of SFAS 128 and SAB 98, basic net loss per share is computed
by
dividing the net loss available to common stockholders for the period by
the
weighted average number of shares of common stock outstanding during the
period.
The calculation of diluted net loss per share gives effect to common stock
equivalents; however, potential common shares are excluded if their effect
is
antidilutive. For the years ended December 31, 2005 and 2004, options were
excluded from the computation of diluted loss per share because their effect
would be antidilutive.
The
equivalent common shares for the outstanding convertible debenture, subject
to
accounting for derivatives, have been excluded from the calculation of
diluted
net loss per share.
n.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
o.
Newly
Issued Accounting Pronouncements
During
the year ended December 31, 2005, the Company adopted the following accounting
pronouncements:
FASB
Interpretation No. 46 (revised)“Consolidation
of Variable Interest Entities - an interpretation of ARB No. 51” - In December
2003 FASB issued this revision in which this Interpretation explains how to
identify variable interest entities and how an enterprise assesses its interests
in a variable interest entity to decide whether to consolidate that entity.
FASB
believes that the accounting for variable interest entities has become
“fragmented and incomplete”. Its purpose is not to restrict the use of variable
interest entities. Instead it seeks to improve financial reporting by those
enterprises that are involved with variable interest entities. The adoption
of
FIN 46R did not have a material impact on the Company’s financial
statements.
65
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
The consolidated financial statements include the accounts of Nexia Holdings, Inc. and subsidiaries that are more than 50% owned. In addition, Nexia consolidates variable interest entities for which it is deemed to be the primary beneficiary. Nexia’s share of earnings or losses of associates, in which at least 20% of the voting securities is owned, is included in the consolidated operating results using the equity method of accounting.
FASB
Interpretation No. 47“Accounting
for Conditional Asset Retirement Obligations - an interpretation of FASB
Statement No. 143” - In March 2005 FASB issued this interpretation to clarify
timing issues with liability recognition for legal obligations associated
with
the retirement of a tangible long-lived asset when the timing and (or)
method of
settlement of the obligation are conditional on a future event. It also
clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections” (“SFAS 154”). SFAS 154 replaces Accounting Principles
Board Opinion No. 20 “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements-An Amendment
of
APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. SFAS 154
requires “retrospective application” of the direct effect of a voluntary change
in accounting principle to prior periods’ financial statements where it is
practicable to do so. SFAS 154 also redefines the term “restatement” to
mean the correction of an error by revising previously issued financial
statements. SFAS 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005 unless
adopted early. We do not expect the adoption of SFAS 154 to have a material
impact on its consolidated financial position, results of operations
or cash
flows, except to the extent that the statement subsequently requires
retrospective application of a future item.
In
February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155, Accounting
for Certain Hybrid Financial Instruments
(“SFAS
No. 155”), which amends Statement of Financial Accounting Standards
No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS
No. 133”) and Statement of Financial Accounting Standards No. 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
(“SFAS
No. 140”). SFAS No. 155 permits fair value measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise
would
require bifurcation, establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing embedded derivatives.
We expect the adoption of SFAS 155 to have a material impact on
its consolidated financial position, results of operations or cash
flows.
In
March
2006, the FASB issued Statement of Financial Accounting Standards No. 156,
Accounting
for Servicing of Financial Assets (“SFAS
No. 156”), which amends FASB Statement No. 140 (“SFAS No. 140”). SFAS 156 may be
adopted as early as January 1, 2006, for calendar year-end entities, provided
that no interim financial statements have been issued. Those not choosing
to
early adopt are required to apply the provisions as of the beginning of the
first fiscal year that begins after September 15, 2006 (e.g., January 1,
2007,
for calendar year-end entities). The intention of the new statement is to
simplify accounting for separately recognized servicing assets and liabilities,
such as those common with mortgage securitization activities, as well as
to
simplify
efforts to obtain hedge-like accounting. Specifically, the FASB said FAS
No. 156 permits a servicer using derivative financial instruments to report
both
the derivative financial instrument and related servicing asset or liability
by
using a consistent measurement attribute, or fair value. We do not expect
the adoption of SFAS 155 to have a material impact on its consolidated
financial position, results of operations or cash flows.
p.
Presentation
Certain
amounts have been reclassified in the December 31, 2004 financial statements
to
conform to the December 31, 2005 presentation.
66
NOTE
2
- GOING
CONCERN
The
Company's consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable
to a
going concern which contemplates the realization of assets and liquidation
of
liabilities in the normal course of business. The Company has incurred
cumulative operating losses through December 31, 2005 of $13,275,599, and
has a
working capital deficit of $971,534 at December 31, 2005 all of which raise
substantial doubt about the Company's
ability
to continue as a going concern.
Primarily,
revenues have not been sufficient to cover the Company's
operating costs. Management's
plans
to enable the Company to continue as a going concern include the
following:
•
Increasing
revenues from rental properties by implementing new marketing
programs
|
•
|
Making
certain improvements to certain rental properties in order to make
them
more marketable
|
|
•
|
Reducing
expenses through consolidating or disposing of certain subsidiary
companies
|
|
•
|
Raising
additional capital through private placements of the Company's
common stock
|
|
•
|
Purchasing
revenue producing real estate
|
|
•
|
Decreasing
payroll expenses and use of options as
compensation
|
|
•
|
Using
stock and option-based compensation to cover payroll and other
permissible
labor costs
|
|
•
|
Refinancing
of the notes secured by the real property held by Wasatch Capital
Corporation would have a significant effect on the working capital
deficit
of the Company, such refinancing is being sought by
management.
|
|
•
|
Evaluating
and acquiring additional operations which may have a positive effect
on
the cash flow and profitability of
Nexia.
|
There
can
be no assurance that the Company can or will be successful in implementing
any
of its plans or that it will be successful in enabling the company to
continue
as
a
going concern. The Company's
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE
3 -
RELATED PARTY TRANSACTIONS
Richard
Surber has at various times been appointed to serve as an officer or director
for some clients of Nexia. These appointments have been disclosed to the members
of the board and the approval of the board of directors has been granted in
each
of these cases. As payment for services provided to these corporations, Surber
has received securities of those corporations, and these transactions have
been
disclosed to the board of directors in each case.
Mr.
Surber is licensed to practice law in the State of California and occasionally
represents corporate clients on various corporate matters. Mr. Surber has
disclosed the fact that he, on occasion, does act as counsel to several
companies for which he receives fees for the legal services
provided.
67
On
January 29, 2004 the Company, and/or its subsidiaries entered into the following
agreements to settle debts and obligations with Axia Group, Inc., a related
party of which Richard Surber, President of the Company, also served as an
officer and director:
| 1. |
Diversified
Holdings I, Inc. accepted the assignment of certain rights to securities
with a stated value of $50,000 due in the settlement of Axia's litigation
claim against America West Securities and Robert
Kay.
|
| 2. |
Diversified
Holdings, I, Inc. also accepted an assignment of Axia's rights (presently
being litigated) against Kevin Sheff for the recovery of 10,000 post-split
shares of Axia Group, Inc.'s common
stock.
|
| 3. |
As
settlement of compensation due under a May 2, 2003 Consultant Agreement
with Hudson Consulting Group, Inc., Axia Group Inc. transferred 9,100,012
(pre-reverse split) shares of Nexia common stock to
Hudson.
|
| 4. |
A
full release and settlement of all claims against Axia Group, Inc.
was
signed by Nexia Holdings, Inc., Wasatch Capital, Inc., Hudson Consulting
Group, Inc. and West Jordan Real Estate Holdings,
Inc.
|
The
end
result of the agreements was to resolve and settle all claims against Axia
Group, Inc. held by the named entities, all subsidiaries of Nexia Holdings,
Inc.
Richard Surber, President of the Company, was formerly an officer and director
of Axia Group, Inc. The purpose of the above described transaction was to settle
the various claims and resolve the debts and obligations that existed between
Axia and the Company and its subsidiaries.
On
September 28, 2004, the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under Section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28,
2004.
In
November of 2005, the Company acquired a 20% equity interest in Landis LLC
for a
$100,000 cash payment. Landis operates an AvedaTM
lifestyle salon that features AvedaTM
products
for retail sale. Landis LLC is controlled by Nexia’s Chief Executive Officer,
Richard Surber, who owns a 60% interest in Landis. Nexia has consolidated
Landis
for accounting purposes because of its ownership interest and common
control.
On
March
30, 2006 Wasatch Capital Corporation and Diversified Holdings X, Inc, a related
party doing business as Black Chandelier agreed to a joint venture operation
in
which 50% of the net profits from Black Chandelier’s internet sales will be paid
to Wasatch as a result of allowing Black Chandelier the use of equipment
and
space located in the Wallace Bennett buildings owned by Wasatch one of the
Company’s subsidiaries. The bulk of these assets were seized for failure to pay
rent and are currently being used in furtherance of the joint venture
operation.
NOTE
4 -
NOTES RECEIVABLE
|
2005
|
|
2004
|
|||||
|
Notes
receivable from an individual, with interest at 8%, due August
10, 2002,
|
|||||||
|
secured
by a building
|
$
|
255,000
|
$
|
255,000
|
|||
|
Note
receivable from an individual for the sale of a vehicle with
interest
|
|||||||
|
at
6.99%, due in 60 monthly payments of $900, secured by
vehicle
|
13,064
|
34,249
|
|||||
|
Note
from a corporation, with interest at 115%, due in four monthly
|
|||||||
|
payments
of $31,250, plus interest and unsecured
|
-
|
100,000
|
|||||
|
Note
receivable from a company, non-interest bearing, due on demand,
|
|||||||
|
unsecured
|
90,100
|
64,500
|
|||||
|
358,164
|
453.749
|
||||||
|
Allowance
for doubtful accounts
|
(345,000
|
)
|
(315,950
|
)
|
|||
|
Total
Notes Receivable
|
$
|
13,164
|
$
|
137,799
|
|||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
At
December 31, 2005, three of the notes were in default (two of the notes were
from the same debtor). The Company has taken legal action against Creating
Marketing Group, Inc. and its president.
NOTE
5 -
FIXED ASSETS
|
Fixed
assets consist of the following at December 31, 2005 and 2004:
|
|||||||
|
2005
|
|
2004
|
|||||
|
Buildings
and improvements
|
$
|
3,482,048
|
$
|
3,510,066
|
|||
|
Furniture
and equipment
|
284,629
|
182,311
|
|||||
|
Vehicles
|
3,650
|
3,650
|
|||||
|
Accumulated
depreciation
|
(675,954
|
)
|
(760,975
|
)
|
|||
|
Total
property and equipment, net
|
3,094,373
|
2,935,052
|
|||||
|
Land
|
689,295
|
489,295
|
|||||
|
Total
fixed assets
|
$
|
3,783,668
|
$
|
3,424,347
|
|||
For
the
years ended December 31, 2005 and 2004, the Company recorded depreciation
expense of $129,390 and $123,845, respectively.
Certain
figures from the previous year have been re-classified to conform to the
current
year’s presentation. Such re-classification is for presentation purposes only
and has no effect on previously reported results.
NOTE
6 -
INVESTMENT IN MARKETABLE EQUITY SECURITIES
|
The
following is a summary of the Company's investment in available-for-sale
securities as of December 31, 2005
|
||||||||||
|
|
Available-for-Sale
|
|||||||||
|
|
Gross
|
|
Gross
|
|
|
|
||||
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|||
|
|
|
Profit
|
|
Losses
|
|
Value
|
||||
|
|
||||||||||
|
2005
|
|
2005
|
||||||||
|
|
||||||||||
|
Equity
securities -
|
||||||||||
|
free
trading
|
$
|
-
|
$
|
$
5,721
|
$
|
250,873
|
||||
|
Equity
securities -
|
||||||||||
|
restricted
|
-
|
-
|
-
|
|||||||
|
|
||||||||||
|
|
$ | - |
$
|
$
5,721
|
$
|
250,873
|
||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Changes
in the unrealized loss on available-for-sale securities during the years ended
December 31, 2005 and 2004 reported as a separate component of
stockholders'
equity
are as follows:
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
|
2004
|
|||||
|
|
|||||||
|
Beginning
Balance
|
$
|
(6,767
|
)
|
$
|
(862
|
)
|
|
|
Increase
in unrealized holding gains
|
|||||||
|
(losses)
|
1,046
|
(5,905
|
)
|
||||
|
Ending
Balance
|
$
|
(5,721
|
)
|
$
|
(6,767
|
)
|
|
During
the years ended December 31, 2005 and 2004, the Company recognized $155 and
$194,194, respectively, in permanent impairment expense on marketable
securities.
NOTE
7 -
PREFERRED STOCK AND COMMON STOCK
Preferred
The
Company has authorized up to 50,000,000 shares of preferred stock with a par
value of $.001 per share. The preferred stock can be issued in various series
with varying dividend rates and preferences.
As
of
April 15, 2006, the number of shares of Series A Convertible Preferred Stock
issued and outstanding is none. The Series A Convertible Preferred Shares have
voting rights which equate to 100 shares of common stock for every 1 Series
A
Preferred share and may be converted into $10 worth of common stock. A total
of
10,000,000 shares have been designated and authorized as Series A Preferred
Shares of a total number of 50,000,000 authorized shares of preferred
stock.
On
August
25, 2004, the Company filed with the Nevada Secretary of State a Certificate
of
Designation of the Rights and Preferences of Preferred Stock of Nexia Holdings,
Inc. This designation created 10,000,000 shares, par value $0.001, of Series
B
Convertible Preferred Stock, out of the 50,000,000 authorized shares of
preferred stock of the Company. The Series B Preferred Stock holds voting rights
equal to 500 shares of common stock for each share of the Series B Preferred
Stock issued, the shares do not have any conversion rights into common stock
or
any other class of stock of the Company. This filing was reported on an 8-K
filing made on August 31, 2004.
On
September 28, 2004, the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28,
2004.
On
November 8, 2004, the Company filed with the Nevada Secretary of State a
Certificate of Designation of the Rights and Preferences of Preferred Stock
of
Nexia Holdings, Inc. designated as Series C Preferred Stock. The designation
of
5,000,000 shares of the 50,000,000 authorized as Series C Preferred Stock
provides that the Series C shares will hold conversion rights into shares of
the
common stock of the Company equal in value to $5.00 per share and are subject
to
redemption by the Company upon a $5.00 cash payment. The Series C Preferred
Shares hold no voting rights. This filing was reported on a Form 8-K filing
made
on November 10, 2004.
On
November 10, 2004 an agreement was entered into with Joseph Corso, Jr. to sell
him 100,000 shares of its Series C Preferred Stock in exchange for a cash
payment of $50,000. These shares had not been registered for sale and the
exchange was handled as a private sale exempt from registration under section
4(2) of the Securities Act of 1933. This exchange was reported on a Form 8-K
filing made on November 12, 2004.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Common
Stock
The
Company, in early 2004 increased the number of authorized common shares from
1,000,000,000 to 10,000,000,000 shares of common stock with a par value of
$0.001 per share. On October 19, 2004 the Company carried out a reverse stock
split of the issued and outstanding shares of common stock on the basis of
1 one
share for 1,000 outstanding shares. This reverse stock split was carried
out
without reducing the number of authorized shares.
The
Company has not declared a cash dividend for any of its classes of stock
during
the fiscal year ended December 31, 2005.
NOTE
8
B
OUTSTANDING STOCK OPTIONS
As
permitted by FASB Statement 123 "Accounting
for Stock Based Compensation B
Transition and Disclosure"
(SFAS
No. 123), the Company elected to measure and record compensation cost relative
to employee stock option costs in accordance with Accounting Principles Board
("APB")
Opinion
25, "Accounting
for Stock Issued to Employees",
and
related interpretations and make pro forma disclosures of net income
and earnings per share as if the fair value method of valuing stock
options had
been
applied. Under APB opinion 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market price of
the
underlying common stock on the date of grant.
On
February 1, 2005, the Board of Directors of the Company amended the “2004
Benefit Plan of Nexia Holdings, Inc.” as originally adopted on January 12, 2004
for the 8th
time to
increase the number of shares of common stock that the Company may issue under
the terms of the plan to its employees, consultants, contractors, advisors
or
other individual persons to 3,503,650,000 shares, post November 1, 2004,
reverse-split shares.
On
February 4, 2005, the Board of Directors of the Company adopted the “2005
Benefit Plan of Nexia Holdings, Inc.” under which the Company may issue stock or
stock options to employees, consultants, advisors or other individual persons.
The total number of shares covered by the 2005 plan is 1,000,000,000 shares
of
the Company’s common stock. This plan expires on the earlier of the date that is
five years from the date the plan was adopted or the date on which the one
billionth share is issued.
During
2004, the Company granted employees, consultants, advisors and others
1,246,425,823 options to purchase common stock at a floating option price set
at
75% the market price at the time of exercise, resulting in the recording of
$1,275,738 in compensation expense for the intrinsic value and fair
values.
During
2005, the Company granted employees, consultants, advisors and others
1,000,000,000 options to purchase common stock at a floating option price
set at
either 65% or 75% of the market price at the time of exercise, resulting
in the
recording of $57,250 in compensation expense for the intrinsic value and
fair
values.
On
March
21, 2006, the Board of Directors of the Company adopted the “2006 Benefit Plan
of Nexia Holdings, Inc.” under which the Company may issue stock or stock
options to employees, consultants, advisors or other individual persons.
The
total number of shares covered by the 2006 plan is 500,000,000 shares of
the
Company’s common stock. This plan expires on the earlier of the date that is
five years from the date the plan was adopted or the date on which the five
hundred millionth share is issued.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
A
summary
of the status of the Company's
stock
option plans as of December 31, 2005 and 2004 and changes during the years
is
presented below. The stated number of options reflect the effect of the November
1, 2004 reverse stock split:
|
|
|
2005
|
2004
|
||||||||||
|
|
Weighted
|
Weighted
|
|||||||||||
|
Average
|
Average
|
||||||||||||
|
Exercise
|
Exercise
|
||||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
||||||||||
|
Outstanding,
beginning of year
|
722,500
|
$
|
0.001
|
-
|
$
|
-
|
|||||||
|
Granted
|
1,000,000,000
|
0.00016
|
1,246,425,823
|
0.001
|
|||||||||
|
Exercised,
expired, cancelled
|
(1,000,587,500
|
|
0.00016
|
(1,245,703,323
|
)
|
0.001
|
|||||||
|
Outstanding
end of year
|
135,000
|
$
|
0.001
|
722,500
|
$
|
0.001
|
|||||||
|
Exercisable
|
135,000
|
$
|
0.001
|
722,500
|
$
|
0.001
|
|||||||
The
Company determined the fair value of the stock option issued during the periods
at the grant dates using the fair market value on the dates of the options
granting, less the 75% shares of cash to be received by the Company for the
option purchase price.
The
outstanding end of year options at December 31, 2005 and 2004 are all options
issued in 2004. The outstanding end of year option price is an average price
per
options issued in 2004.
NOTE
9 -
LONG-TERM DEBT
On
January 9, 2003, Kearns Development Corporation refinanced the underlying debt
associated with certain land and real property. The new debt obligation is
for
$660,000 with an interest rate of 7.16% and monthly installment payments of
$5,223 through January 9, 2013 at which time the remaining unpaid balance is
due
and payable in full. This debt obligation is secured by a first trust deed
on
the land and building and is personally guaranteed by the president of the
Company. Proceeds from this refinancing were used to retire the previous debt
associated with the land and real property having an outstanding balance of
$615,012 at December 31, 2002.
On
January 30, 2003, West Jordan Real Estate Holdings, Inc. entered into a capital
lease for a photocopy machine. The lease has a term of 5 years, calls for a
$1,056 advance payment with monthly payments of $352 and an option to purchase
the photocopy machine for fair market value at the end of the lease. The lease
has an outstanding balance of $7,261 at December 31, 2005.
On
March
14, 2003, West Jordan Real Estate Holdings, Inc. executed a promissory note
with
an unrelated individual to borrow $30,000 to be repaid on or before March 14,
2004. The obligation bears interest at a rate of 4% and is unsecured. In
connection with this debt transaction, the Company issued to this individual
5,000 shares of the
72
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Company's
common
stock as additional consideration for making the loan. The shares have
been
valued at fair market value on the date of the transaction, $10.00 per
share or
$50,000 in total. This amount was recognized as current balance costs and
was
amortized over the 12 month life of the loan. This loan was paid in full
in
April of 2005.
The
Company's long-term debt consists of the following at December 31, 2005 and
2004:
|
|
2005
|
|
2004
|
||||
|
Note
payable bearing interest at 8%, monthly payments of
|
|||||||
|
$13,487,
due on demand or in monthly payments through
|
|||||||
|
July
2012, secured by first trust deed on land and buildings.
|
$
|
-
|
$
|
958,416
|
|||
|
Note
payable bearing interest at 7.15%, monthly payments
|
|||||||
|
of
$5,223 through January 2013, secured by first trust deed
|
|||||||
|
on
land and building, guaranteed by the Company's president
|
|||||||
|
and
CEO. The note was amended in December 2004 to
|
|||||||
|
remove
the “on demand” clause.
|
612,388
|
630,203
|
|||||
|
Mortgage
payable bearing interest at 7.5%, monthly payments
|
|||||||
|
of
$8,875 through May 2008, then lump sum balloon payment
|
|||||||
|
due,
secured by first trust deed on land and building, and
|
|||||||
|
guaranteed
by the Company's
President and CEO.
|
827,938
|
798,056
|
|||||
|
Note
payable bearing interest at 7.16%, monthly payments
|
|||||||
|
of
$3,061, in monthly payments through December 2012,
|
|||||||
|
secured
by deed of trust on land and buildings and guaranteed
|
|||||||
|
by
the Company’s President and CEO. The note was amended
|
|||||||
|
in
December 2004 to remove the “on demand” clause.
|
366,057
|
376,820
|
|||||
|
Note
payable bearing interest at 6.99%, monthly payments
|
|||||||
|
of
$900, due November 2007, secured by vehicle.
|
19,395
|
27,784
|
|||||
|
Notes
payable, bearing interest at 4%, due January 14, 2005,
|
|||||||
|
unsecured.
|
2,922
|
21,353
|
|||||
|
Mortgage
payable bearing interest at 8.25%, monthly
|
|||||||
|
payments
of $304, due September 2016, secured by
|
|||||||
|
first
trust deed on building.
|
25,579
|
27,964
|
|||||
|
Capital
lease payable in monthly payments of $330 through
|
|||||||
|
January
2008, secured by leased equipment.
|
7,266
|
12,322
|
|||||
|
Mortgage
payable bearing interest at 8.125%, monthly payments
|
|||||||
|
Of
$5,331, due February 2029, secured by first trust deed on Building
.
|
547,012
|
-
|
|||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
Capital
lease payable in monthly installments of $1,122 through December
2010 and secured by the leased equipment.
|
45,690 | - | |||||
|
2,454,247
|
2,852,918
|
||||||
|
Less
current portion
|
|
(929,908
|
)
|
(120,757
|
)
|
||
|
|
$
|
1,524,339
|
$
|
2,732,161
|
Scheduled
principal reductions are as follows:
|
Year
Ending December 31:
|
||||
|
|
||||
|
2006
|
$
|
929,908
|
||
|
2007
|
76,438
|
|||
|
2008
|
67,609
|
|||
|
2009
|
72,485
|
|||
|
2010
|
77,437
|
|||
|
Thereafter
|
1,230,370,
|
|||
|
|
$
|
2,454,247
|
||
At
December 31, 2005, the Company was current on all notes payable.
10
-
TREASURY STOCK
The
Company accounts for its treasury stock at cost. Treasury stock includes all
shares of the Company owned by the Company and its subsidiaries. At December
31,
2005, there were 20,038,340 (pre-reverse split) shares of common stock reflected
as treasury stock at a cost of $100,618.
|
NOTE
11 -
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company and various subsidiary companies have filed suit seeking recovery of
assets and other redress relating to the sale of assets, subsidiary companies
or
the performance of consulting services. The ultimate outcome of these various
actions and their potential impact, if any, on the Company=s
consolidated financial statements is not presently determinable.
NOTE
12 -
SIGNIFICANT EVENTS
In
May
2004, Hudson Consulting, a subsidiary of the Company, sold its stock investment
in Caye Chapel for $90,573. There was a net gain on the sale of $36,918 after
payments of Caye Chapel creditors from the sale proceeds, as agreed to in the
contract of sale.
In
September 2004 the Company’s subsidiary, Diversified Holdings I, Inc., recorded
rental expense of $105,000 for rent on the 400 South office building for 2004
until the date of move in November 2004, in
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
accordance
with an agreement with Diversified Financial Resources Corporation. The contra
entry was a Gain on Sale of Subsidiary, Wichita Development Corporation, to
recognize part of the gain from the sale.
On
December 31, 2004, the stock of four subsidiary companies was sold to We are
Electric, LLC, an unrelated company, for $100. The four subsidiaries were Golden
Opportunity Development Corporation, Canton Tire Recycling of West Virginia,
Inc., Canton’s Wild Horse Ranch-II and Oasis International Hotel and Casino,
Inc.
On
the
basis of a written agreement, the intercompany account balances of the retained
Nexia companies with the four companies sold were forgiven. This resulted
in a
net forgiveness of debt income to the retained Nexia companies of $1,470,541.
The sale of the four subsidiaries resulted in a net gain on sale of subsidiaries
of $242,352.
In
April
of 2005 West Jordan Real Estate Holdings Corporation , (WJRHC) sold the Glendale
Plaza Shopping Center for a cash price of $1,860,000 and paid off the
outstanding loan on the property in the sum of $952,665.92. There was a
recognized gain on the sale of $756,471. As this was the only operating asset
of
WJRHC, this entity will be discontinued in 2006.
Landis
LLC, is a Utah limited liability company (Landis) and was organized for the
purpose of operating an AvedaTM
Lifestyle Salon. DHI acquired a 20% interest in exchange for a $100,000 cash
investment. Nexia’s president, Richard Surber, holds a 60% interest in Landis
and is the sole operating member of the LLC. Landis operations have been
consolidated in these statement based upon the common control of Nexia and
Landis. The Company holds a 20% interest in Landis, LLC
The
loan
secured by the Wallace-Bennett building held by Wasatch Capital Corporation
is
due on May 10, 2006. The Company and Wasatch are seeking to refinance or
extend
this loan package. The current loan balance as of April 20, 2006 of $813,940
is
being carried as a current liability.
NOTE
13 -
SEGMENT INFORMATION
Nexia
Holdings, Inc. has identified two reportable segments in which it operates
based
on the services it provides, using the guidelines set forth in SFAS No. 131,
Information “Disclosures about Segments of an Enterprise and Related
Information”. The reportable segments are as follow - real estate operations
(“Real Estate”), which includes primarily the purchase, sale and rental of
commercial real estate and sales - salon and consulting (“Sales-Salon and
Consulting”), which is primarily a new salon business. The Company has phased
out consulting. There was a small amount of consulting revenue in 2005 and
no
related expenses.
Common
overhead costs are included in the Consulting and other segment as other
expenses.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
Summarized
financial information concerning reportable segments is shown in the following
table:
|
For
the year
|
Sales
- Salon
|
Real
|
||||||||||||||
|
Ended
Dec. 31,
|
and
Consulting
|
Estate
|
Total
|
|||||||||||||
|
Revenues
|
2005
|
$
|
134,394
|
$
|
281,351
|
$
|
415,745
|
|||||||||
|
2004
|
121,633
|
512,456
|
634,089
|
|||||||||||||
|
|
||||||||||||||||
|
Cost
of revenues (including
|
2005
|
(50,607
|
)
|
(435,647
|
)
|
(486,254
|
)
|
|||||||||
|
mortgage
interest)
|
2004
|
(1,069,329
|
)
|
(1,055,139
|
)
|
(2,124,468
|
)
|
|||||||||
|
|
||||||||||||||||
|
Expenses
|
2005
|
(137,873
|
)
|
(591,144
|
)
|
(729,017
|
)
|
|||||||||
|
2004
|
(1,349,885
|
)
|
(652,765
|
)
|
(2,002,650
|
)
|
||||||||||
|
|
||||||||||||||||
|
Miscellaneous
expense
|
2005
|
-
|
(241
|
)
|
(241
|
)
|
||||||||||
|
2004
|
-
|
(26,187
|
)
|
(26,187
|
)
|
|||||||||||
|
|
||||||||||||||||
|
Interest
Income
|
2005
|
22
|
43,466
|
43,488
|
||||||||||||
|
2004
|
5,493
|
-
|
5,493
|
|||||||||||||
|
|
||||||||||||||||
|
Interest
expense (not
|
2005
|
(618
|
)
|
(
68,769
|
)
|
(69,378
|
)
|
|||||||||
|
mortgage
expense)
|
2004
|
-
|
(31,521
|
)
|
(31,521
|
)
|
||||||||||
|
|
||||||||||||||||
|
Income
from litigation settlement
|
2005
|
-
|
206,500
|
206,500
|
||||||||||||
|
2004
|
-
|
-
|
-
|
|||||||||||||
|
|
||||||||||||||||
|
Gain
on sale of real estate
|
2005
|
-
|
756,471
|
756,471
|
||||||||||||
|
2004
|
-
|
-
|
-
|
|||||||||||||
|
|
||||||||||||||||
|
Income
(loss) on sale of subsidiaries
|
2005
|
-
|
-
|
-
|
||||||||||||
|
2004
|
-
|
528,192
|
528,192
|
|||||||||||||
|
|
||||||||||||||||
|
Unrealized
gain - convertible
|
2005
|
-
|
114,286
|
114,286
|
||||||||||||
|
debenture
derivative
|
2004
|
-
|
-
|
-
|
||||||||||||
|
|
||||||||||||||||
|
Loss
from discontinued operations
|
2005
|
-
|
(316,779
|
)
|
(316,779
|
)
|
||||||||||
|
2004
|
-
|
-
|
-
|
|||||||||||||
|
|
||||||||||||||||
|
Net
income (loss) applicable to
|
2005
|
(57,035
|
)
|
308,634
|
251,599
|
|||||||||||
|
segment
|
2004
|
(2,761,621
|
)
|
(166,139
|
)
|
(2,927,760
|
)
|
|||||||||
|
|
||||||||||||||||
|
Minority
share of income (loss)
|
2005
|
(3,015
|
)
|
68,383
|
65,368
|
|||||||||||
|
2004
|
-
|
(7,176
|
)
|
(7,176
|
)
|
|||||||||||
|
|
||||||||||||||||
|
Total
assets
|
2005
|
395,996
|
3,923,920
|
4,319,916
|
||||||||||||
|
(net
of intercompany accounts)
|
2004
|
471,584
|
3,534,476
|
4,006,060
|
||||||||||||
|
|
||||||||||||||||
|
Property
and equipment acquisitions
|
2005
|
330,460
|
1,124,514
|
(1
|
)
|
1,454,974
|
||||||||||
|
2004
|
6,308
|
358,453
|
364,761
|
|||||||||||||
|
|
||||||||||||||||
|
Depreciation
and amortization
|
2005
|
5,507
|
135,792
|
141,299
|
||||||||||||
|
2004
|
4,965
|
131,060
|
136,025
|
|||||||||||||
|
(1)
Includes $903,603 from acquisition of Salt Lake Development corporation
on
August 8, 2005
|
||||||||||||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
14 -
STOCK SUBSCRIPTIONS RECEIVABLE
|
The
Company had stock subscriptions receivable of $11,325 and $375,009
at
December 31, 2005 and 2004
respectively.
|
NOTE
15
B
CONVERTIBLE DEBENTURES
On
October 31, 2003, the Company issued two convertible debentures for $30,000
each. The debentures accrue interest at 18% per annum, are due November 1,
2004
and
are
convertible at any time after 45 days into common stock at a conversion equal
to
70% of the average closing bid price of the common stock for the three
trading
days immediately proceeding the date of election. The Company recognized a
beneficial conversion feature debt discount of $11,609 which was fully amortized
to
interest expense by December 31, 2003.
All
except $5,000 of the debentures were paid by cash or issuing Nexia stock as
of
December 31, 2004, and the $5,000 balance was paid in January 2005.
On
November 1, 2004, the Company issued a convertible debenture for $200,000.
The
debenture accrues interest at 24% per annum, is due November 1, 2007 and
is
convertible,
except for $5,000, anytime after one year into common stock at a price equal
to
70% of the average closing bid price of the common stock for three
trading
days immediately preceding the date of election.
NOTE
16 -
CONVERTIBLE DEBENTURE DERIVATIVE AND CORRECTION OF 2004 FINANCIAL
STATEMENTS
The
convertible debenture issued on November 1, 2004, and described in detail
in
NOTE 15 - CONVERTIBLE DEBENTURES, could be converted into Nexia common
stock
effective November 1, 2005 and became subject to accounting required for
derivatives.
This
transaction, to the extent that it is to be satisfied with common stock
of the
Company, would normally be included as equity obligations. In this instance,
however, due to the indeterminate number of shares which might be issued
under
the embedded convertible host debt conversion feature, the Company is required
to record a liability relating to the embedded convertible feature of the
convertible debenture payable (included in long-term liabilities as a
"Convertible debenturederivative").
The
accompanying financial statements comply with current requirements relating
to
embedded derivatives as described in FAS 133, EITF 98-5 and APB 14 as follows:
The
Company allocated the proceeds received to the convertible debt derivative
with
the initial allowable derivative recording.
Subsequent
to to the initial allowable derivative recording, the increase in the intrinsic
value of the embedded derivative in the conversion feature of the convertible
debenture are accrued as adjustments to the liabilities at December 31,
2005.
The
expense relating to the increase in the fair value of the Company's stock,
reflected in the change in the fair value of the derivative (noted above),
is
included as another comprehensive income item as an unrealized gain or
loss
arising from convertible financing on the Company's balance sheet.
Accreted
principal of $16,440 as of December 31, 2005.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
The
following table summarizes the various components of the convertible debenture
as of December 31, 2005:
|
Convertible
debenture
|
|
$
|
16,440
|
|
|
Convertible
debenture derivative
|
|
|
85,714
|
|
|
|
|
|
102,154
|
|
|
Adjustment
of convertible debenture derivative to fair value
|
|
|
114,286
|
|
|
Accretion
of principal related to convertible debenture
|
|
|
(16,440
|
)
|
|
Total
convertible debenture
|
|
$
|
200,000
|
|
Subsequent
to the issuance of the December 31, 2004 consolidated financial statements,
the
Company determined that these Convertible Debentures issued in November 2004
had
not been accounted for properly. A beneficial conversion feature totaling
$83,571 had been recognized at the time the debt was issued in 2004 when
the
conversion feature was not yet in effect until November 2005, as previously
discussed. In addition, the provisions of EITF - 00-27 and ABP 14 were utilized
not considering the derivative features of the convertible debt requiring
consideration of the provisions of EITF 00-19 and FAS 133. The effect of
the
correction of this error reduced additional paid-in capital by $83,571 and
also
reduced interest expense, net loss and total comprehensive loss by a corresponding
amount in the December 31, 2004 consolidated financial statements, as
restated.
NOTE
17
B
DISCONTINUED OPERATIONS
On
April
21, 2005, West Jordan Real Estate Holdings, Inc.(WJREH) a consolidated
subsidiary of Nexia sold Glendale Plaza, a commercial retail strip mall in
Salt
Lake City, to an unrelated party, and WJREH ceased to be an operating
company.
Hudson
Consulting Group, Inc., a consolidated subsidiary of the Company, discontinued
providing any consulting services in early 2005. Hudson was, and continued
to
be, the main operating company in the Nexia consolidated group. This
responsibility was primarily being the employer entity which involved hiring
and
terminating
employees, paying salaries and wages and preparing periodic payroll tax returns
and paying the taxes. Hudson ceased all activities as of December 31, 2005,
and
its functions were transferred to another company in the Nexia Consolidated
Group.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
The
following is a summary of the combined companies’ operating loss and other
income from discontinued operations for the year ended December 31,
2005:
|
For
the Years Ended
|
||||
|
|
|
December
31,
|
|
|
|
|
|
2005
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
Rental
Revenue
|
|
$
|
39,218
|
|
|
Consulting
Revenue
|
|
|
1,848
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
41.066
|
|
|
|
|
|
|
|
|
COST
OF REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
Cost
associated with rental revenue
|
|
|
79,714
|
|
|
Interest
expense associated with rental revenue
|
|
|
26,444
|
|
|
Cost
associated with consulting revenue
|
|
|
-
.
|
|
|
|
|
|
|
|
|
TOTAL
COST OF REVENUE
|
|
|
106,158
|
|
|
|
|
|
|
|
|
GROSS
MARGIN (DEFICIT)
|
|
|
(65,092
|
)
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
General
and administrative expense
|
|
|
261,645
|
|
|
|
|
|
|
|
|
TOTAL
EXPENSES
|
|
|
261,645
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(326,737
|
)
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
Interest
expense
|
|
|
(2,214
|
)
|
|
Interest
income
|
|
|
8,828
|
|
|
Gain
on sale of marketable securities
|
|
|
212
|
|
|
Other
income
|
|
|
3,132
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
9,958
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
|
|
(316,779
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST IN INCOME (LOSS)
|
|
|
-
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS -
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(316,779
|
)
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
-
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
-
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE (LOSS)
|
|
$
|
-
|
|
No
income
tax benefit has been attributed to the loss from discontinued
operations.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
18 -
SUBSEQUENT EVENTS
On
April
19, 2006 a closing for the sale of the office building owned by SLD, located
at
268 West 400 South, Salt Lake City took place. The sales price was $850,000.
As
of the closing date the outstanding loan balance secured by this building
was
$553,548. The Company received net proceeds from the sale, after payment
of all
fees and costs of $238,646.
On
March
30, 2006, the Company and Diversified Holdings X, Inc dba Black Chandelier
agreed to a joint venture operation in which 50% of the net profits from
Black
Chandelier’s internet sales will be paid to Nexia as a result of allowing Black
Chandelier the use of equipment and space located in the Wallace Bennett
buildings owned by the Company’s subsidiary Wasatch Capital Corporation. The
bulk of these assets were seized for failure to pay rent and are currently
being
used in furtherance of the joint venture operation.
NOTE
19 -
CONSOLIDATED STATEMENTS OF OPERATIONS GROSS PROFIT (LOSS)
The
following schedule shows the comparative gross profit / (loss) for each of
the
operating segments of the Company, years ended December 31, 2005 and
2004
|
2005
|
2004
|
||||||
|
(Restated)
|
|||||||
|
Gross
loss from real estate operations
|
$
|
(154,297
|
)
|
$
|
(542,683
|
)
|
|
|
Gross
profit from sales - salon and retail
|
73,262
|
-
|
|||||
|
|
|
||||||
|
$
|
(81,035
|
)
|
$
|
(542,683
|
)
|
||
NOTE
20 -
INCOME FROM LITIGATION SETTLEMENTS
A
settlement was reached between a Nexia subsidiary, Diversified Holdings,
Inc.
(DH1), and Technoconcepts, Inc. on June 15, 2005. DH1 received $20,000 cash
and
35,000 shares of Technoconcepts common stock (restricted) valued at $154,000
on
June 15, 2005, a total settlement of $174,000.
A
settlement was reached in June 2005 between Diversified Holdings, Inc. (DH1)
and
West America Securities for $42,500 to satisfy a receivable written off as
part
of the 2003 audit. The settlement is payable in monthly installments. DH1
received $32,500 in 2005.
NOTE
21 -
GAIN ON SALE OF SUBSIDIARIES
A
Nexia
subsidiary, Diversified Holdings, Inc. (DH1), sold four inactive subsidiary
corporations to an unrelated company for $100 on December 31, 2004. Gain
of
$325,839 from the sale resulted from the effect of writing off intercompany
balances between the four subsidiary corporations and the other Nexia companies
as net gain from forgiveness of debt. The remaining profit from the sale
of
$202,353 on the books of Hudson Consulting Group, Inc., is included in
the 2004
loss of $1,085,455 from discontinued operations.
Nexia
Holdings, Inc.’s subsidiary, West Jordan Real Estate Holdings, Inc., sold its
commercial property on April 20, 2004. The gross sales price was $1,860,000,
and
net profit from the sale was $829,166. The net cash received was $785,030 after
payment of expenses of sale and the mortgage loan balance of $958,830. The
sale
eliminated the restriction on the use of a special savings account for build-out
and major repairs at the Glendale Plaza. The Company received the balance of
$50,911 for other uses.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Nexia
Holdings, Inc.’s subsidiary, West Jordan Real Estate Holdings, Inc. (WJREH)
received a promissory note dated May 11, 2005 for $230,000 from Diversified
Financial Resources Corporation and BTA Mineral Servitude Corporation, S.A.
DE
C.V., a foreign corporation. The annual interest rate is 8%, and it is due
in
full May 11, 2006 for principal and any accrued but unpaid interest. In the
event the note is not paid in full by the due date, monthly payments of not
less
than $5,000 shall commence on June 11, 2006 at an annual interest rate of 18%.
Security for the note is an assignment of royalty interest by BTA Mineral
Servitude corporation, S.A. DE C.V. to WJREH.
The
note
is to be considered full payment and satisfaction of two previous notes to
Nexia
Holdings, Inc. of $100,000 dated December 16, 2004 and $30,000 dated April
1,
2005 and an additional $100,000 in cash on the date of this note. WJREH issued
a
check for $130,000 to Nexia to be considered full payment of the balance of
the
two notes, originally totaling $130,000, and accrued interest.
NOTE
22
- IMPAIRMENT OF LONG-LIVED ASSETS
We
have
reviewed SFAS 144 and conditions which may result in impairment of long-lived
assets held to generate rental revenue. We have calculated undiscounted cash
flows expected to result from the rental of each property over time and the
estimated amount to be realized from the eventual disposition of each property.
We have concluded that the sum of the incoming cash stream from the two sources
will exceed the present carrying value and there is no impairment to be
recognized.
Market
values of similar properties sold recently in our geographic area and recent
appraisals of the properties exceed the carrying value of the
properties.
There
is
one exception to our comments about impairment. We sold an office building
in
Salt Lake City in April 2006 with a resulting book loss of $114,000. The
corporation which owned the building, Salt Lake Development Corporation (refer
to comments in item 82 below), was acquired in August 2005 for a small amount
of
cash and settling out a substantial amount of debt owed to companies in the
Nexia group by the previous owner of Salt Lake Development Corporation. It
was
determined by Company management that we had a better chance to recover the
debts by purchasing S.L. Dev. Corp. and selling the property than collecting
through legal action.
NOTE
23 -
OUTSTANDING STOCK OPTIONS
When
Nexia Holdings, Inc. issues options, they are valued at the closing fair
market
value of the stock on the date of issue. The options are signed on the date
they
are issued, forms to exercise the options are usually signed the same date
and
stock issue instructions are sent to the stock transfer agent the same day.
The
fair value of the options issued, less 75% of fair market value which is
the
recipient’s cost to be paid to Nexia, is the option expense recorded in the
Company’s books.
We
question if the “Fair Value Method” applies to how we issue options because the
options are issued, they are usually exercised the same day, stock certificates
are issued in about two days and they are cashless options because there
is no
money paid by the recipients until the stock is sold. Since the 2004 issue
of
options for which most options issued during the period of June through August
2004 were not exercised and all will have expired by June 30, 2006, there
have
been no options issued that were unexercised and outstanding at any quarter
end.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
We
chose
the method of valuing options issued at the market value on the date they
are
issued because we have a very small accounting staff which makes it difficult
and costly to make the time consuming Black Scholes calculations, and the
Nexia
stock price is extremely volatile which provides no assurance employees will
receive enough sales proceeds to cover their accrued
compensation.
The
135,000 exercisable options, shown as outstanding in Note 3 of the March
31,
2006 10-QSB, were issued to one person, and the options will have expired
by
June 30, 2006.
The
weighted-average fair value of stock options granted to employees during
the
periods ended December 31, 2005 and 2004, and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follow:
|
2005
|
|
2004
|
|||||
|
Significant
assumptions (weighted-average):
|
|||||||
|
Risk-free
interest rate at grant date
|
4.875
|
%
|
4.875
|
%
|
|||
|
Expected
stock price volatility
|
161
|
%
|
148
|
%
|
|||
|
Expected
dividend payout
|
-
|
-
|
|||||
|
Expected
option life - days (1)
|
181
|
55
- 547
|
|||||
| (1) |
The
expected option life is based on option expiration
dates.
|
If
the
Company recognized compensation expense for the outstanding stock options
in
accordance with SFAS No. 123 (revised), the Company’s net losses for the years
ended December 31, 2005 and 2004 would have been $(148,573) and $(3,010,665)
respectively and the net losses per share for the same years would have been
$(0.0000) and $(0.0333) respectively.
NOTE
24 -
ACQUISITION OF SALT LAKE DEVELOPMENT CORPORATION
The
following disclosures are made in accordance with SFAS 141:
ACQUISITIONS
On
August
8 , 2005, a wholly-owned subsidiary of the Company, Diversified Holdings
1,
Inc., acquired 99% of the outstanding common stock of Salt Lake Development
Corporation. The results of Salt Lake Development’s operations have been
included in the consolidated financial statements since that date. The primary
asset of Salt Lake Development Corporation is an office building in downtown
Salt Lake City. The purpose of the reacquisition was to sell the office building
as soon as possible to recover net debt owed to Nexia and several of its
subsidiaries by the former owner of Salt Lake Development Corporation. This
debt
was settled out in the purchase transaction as part of the cost of the
acquisition. The aggregate purchase price was $875,000, including $20,000
cash
paid for the stock, $307,966 of settled out debt owed by the former owner
of
Salt Lake Development Corporation and assumption of all of the debt of Salt
Lake
Development Corporation.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed at the date of acquisition:
|
Current
assets
|
$
|
9,799
|
||
|
Building,
improvements and land
|
903,602
|
|||
|
Total
assets acquired
|
913,401
|
|||
|
Current
liabilities
|
33,728
|
|||
|
Long-term
debt
|
551,707
|
|||
|
Total
liabilities assumed
|
585,435
|
|||
|
Net
assets acquired
|
$
|
327,966
|
The
following is supplemental information on a pro forma basis for the year 2005,
the year in which Salt Lake Development Corporation was acquired, and 2004
(comparative financial statements are presented) as if Salt Lake Development
had
been acquired at the beginning of 2004:
|
2005
|
|
|
2004
|
||||
|
Revenue
|
$
|
416,244
|
$
|
540,420
|
|||
|
Cost
of revenue and expenses
|
1,255,963
|
2,819,844
|
|||||
|
Operating
loss
|
(
839,719
|
)
|
(2,279,424
|
)
|
|||
|
Net
other income
|
458,638
|
362,916
|
|||||
|
Net
operating loss and other income
|
$
|
(381,081
|
)
|
$
|
(1,916,508
|
)
|
|
|
Net
loss from continuing
|
|||||||
|
operations
|
$
|
(377,916
|
)
|
$
|
(1,909,332
|
)
|
|
|
Income
(loss) from discontinued
|
|||||||
|
operations
|
$
|
371,159
|
$
|
(1,085,455
|
)
|
||
|
Net
loss
|
$
|
(6,757
|
)
|
$
|
(2,994,787
|
)
|
|
|
Net
income (loss) per common share, basic and diluted:
|
|||||||
|
Loss
|
$
|
(0.0001
|
)
|
$
|
(0.0212
|
)
|
|
|
Income
(loss) from discontinued
|
|||||||
|
operations
|
0.0001
|
(0.0120
|
)
|
||||
|
Net
loss per weighted average
|
|||||||
|
shares
outstanding
|
$
|
-
|
$
|
(0.0332
|
)
|
||
|
Weighted
average shares
|
|||||||
|
outstanding,
basic and diluted
|
3,172,129,396
|
90,299,865
|
NEXIA
HOLDINGS, INC.
Unaudited
Financial Statements
for
the
Period Ended
June
30, 2006
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
PAGE
|
|
|
|
|
Consolidated
Balance Sheets
|
85
|
|
|
|
|
Consolidated
Statements of Operations and Other Comprehensive Income
(Loss)
|
87
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
88
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
90
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
|
|
|
|
|
|
||
|
|
|
As
of
|
|
As
of
|
|
||
|
|
|
June
30,
|
|
December
31,
|
|
||
|
ASSETS
|
|
2006
|
|
2005
|
|
||
|
|
|
(Unaudited)
|
|
(Audited)
|
|
||
|
|
|
|
|
|
|
||
|
CURRENT
ASSETS
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Cash
and cash equivalents
|
|
$
|
138,472
|
|
$
|
160,440
|
|
|
Accounts
and notes receivable, trade - net of allowance
|
|
|
|
|
|
|
|
|
of
$17,870 and $18,870 respectively
|
|
|
23,636
|
|
|
36,833
|
|
|
Accounts
receivable - related parties (Note 6)
|
|
|
4,590
|
|
|
7,342
|
|
|
Notes
receivable - net of allowance of $345,000 and
|
|
|
|
|
|
|
|
|
$345,000
respectively
|
|
|
10,142
|
|
|
13,164
|
|
|
Inventory
|
|
|
34,398
|
|
|
35,435
|
|
|
Prepaid
expenses (Note 7)
|
|
|
2,078,706
|
|
|
28,191
|
|
|
Marketable
securities (Note 8)
|
|
|
535,820
|
|
|
250,873
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
2,825,764
|
|
|
532,278
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
2,408,950
|
|
|
3,094,373
|
|
|
Land
|
|
|
381,945
|
|
|
689,295
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NET PROPERTY AND EQUIPMENT
|
|
|
2,790,895
|
|
|
3,783,668
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
costs, net
|
|
|
6,183
|
|
|
3,970
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER ASSETS
|
|
|
6,183
|
|
|
3,970
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
5,622,842
|
|
$
|
4,319,916
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets Continued
|
|||||||
|
|
|
|
|
|
|
||
|
|
|
As
of
|
|
As
of
|
|
||
|
|
|
June
30,
|
|
December
31,
|
|
||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
2006
|
|
2005
|
|
||
|
|
|
(Unaudited)
|
|
(Audited)
|
|
||
|
|
|
|
|
|
|
||
|
CURRENT
LIABILITIES
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Accounts
payable
|
|
$
|
233,470
|
|
$
|
233,606
|
|
|
Accounts
payable - related parties (Note 6)
|
|
|
4,329
|
|
|
29,731
|
|
|
Accrued
liabilities
|
|
|
347,748
|
|
|
293,687
|
|
|
Deferred
revenue
|
|
|
299
|
|
|
988
|
|
|
Refundable
deposits
|
|
|
15,892
|
|
|
15,892
|
|
|
Current
maturities of long-term debt
|
|
|
862,017
|
|
|
929,908
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
1,463,755
|
|
|
1,503,812
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debenture derivative (Note 15)
|
|
|
163,163
|
|
|
85,714
|
|
|
Convertible
debenture
|
|
|
110,685
|
|
|
16,440
|
|
|
Long-term
debt
|
|
|
969,626
|
|
|
1,524,339
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LONG-TERM LIABILITIES
|
|
|
1,243,474
|
|
|
1,626,493
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
2,707,229
|
|
|
3,130,305
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST
|
|
|
229,900
|
|
|
226,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
Series A stock, $0.001 par value, 10,000,000
|
|
|
|
|
|
|
|
|
shares
authorized, no shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Series B stock, $0.001 par value, 10,000,000
|
|
|
|
|
|
|
|
|
shares
authorized, 8,000,000 issued and outstanding
|
|
|
8,000
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Series C stock, $0.001 par value, 5,000,000
|
|
|
|
|
|
|
|
|
shares
authorized, 100,000 shares issued and outstanding
|
|
|
100
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock $0.001 par value, 10,000,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
4,244,768,850 and 3,539,945,030 shares issued
|
|
|
|
|
|
|
|
|
(post
reverse split) and outstanding, respectively
|
|
|
4,244,769
|
|
|
3,539,946
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
10,341,947
|
|
|
10,808,402
|
|
|
|
|
|
|
|
|
|
|
|
Treasury,
29,138 and 29,138 shares at cost, respectively
|
|
|
(100,618
|
)
|
|
(100,618
|
)
|
|
|
|
|
|
|
|
|
|
|
Stock
subscriptions receivable
|
|
|
(111,366
|
)
|
|
(11,325
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive Gain (Loss) (Note 8)
|
|
|
482,500
|
|
|
(5,721
|
)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(12,179,619
|
)
|
|
(13,275,599
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
2,685,713
|
|
|
963,185
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
|
|
|
|
|
|
|
|
EQUITY
|
|
$
|
5,622,842
|
|
$
|
4,319,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||
|
Consolidated
Statements of Operations and Other Comprehensive
(Loss)
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
||||||||
|
|
|
June
30,
|
|
June
30,
|
|
||||||||
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|||||
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Unaudited)
|
|
||||
|
REVENUE
|
|
|
|
|
|
|
|
|
|
||||
|
Rental
revenue
|
|
$
|
42,361
|
|
$
|
111,186
|
|
$
|
88,565
|
|
$
|
207,822
|
|
|
Sales
- Salon and Retail
|
|
|
322,746
|
|
|
-
|
|
|
587,987
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
REVENUE
|
|
|
365,107
|
|
|
111,186
|
|
|
676,552
|
|
|
207,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
associated with rental revenue
|
|
|
20,037
|
|
|
36,579
|
|
|
80,890
|
|
|
119,503
|
|
|
Depreciation
and amortization associated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
rental revenue
|
|
|
18,580
|
|
|
28,891
|
|
|
51,039
|
|
|
50,650
|
|
|
Interest
associated with rental revenue
|
|
|
13,379
|
|
|
40,049
|
|
|
75,451
|
|
|
99,041
|
|
|
Cost
of sales - Salon and Retail
|
|
|
122,410
|
|
|
-
|
|
|
226,713
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COST OF REVENUE
|
|
|
174,406
|
|
|
105,519
|
|
|
434,093
|
|
|
269,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
INCOME (LOSS)
|
|
|
190,701
|
|
|
5,667
|
|
|
242,459
|
|
|
(61,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expense
|
|
|
853,271
|
|
|
179,921
|
|
|
1,183,188
|
|
|
551,454
|
|
|
Depreciation
expense
|
|
|
13,265
|
|
|
10,321
|
|
|
24,572
|
|
|
17,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
EXPENSES
|
|
|
866,536
|
|
|
190,242
|
|
|
1,207,760
|
|
|
569,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(675,835
|
)
|
|
(184,575
|
)
|
|
(965,301
|
)
|
|
(630,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,102
|
)
|
|
(13,112
|
)
|
|
(17,474
|
)
|
|
(26,038
|
)
|
|
Interest
expense - accretion of debt
|
|
|
(76,075
|
)
|
|
-
|
|
|
(92,102
|
)
|
|
-
|
|
|
Interest
income
|
|
|
22
|
|
|
14,421
|
|
|
83
|
|
|
33,163
|
|
|
Income
from litigation settlement
|
|
|
10,000
|
|
|
181,500
|
|
|
10,000
|
|
|
181,500
|
|
|
Gain
(loss) on disposal of assets
|
|
|
(72,787
|
)
|
|
756,471
|
|
|
(73,746
|
)
|
|
756,471
|
|
|
Gain
on marketable securities
|
|
|
2,306,950
|
|
|
2,259
|
|
|
2,301,967
|
|
|
1,691
|
|
|
Unrealized
loss related to adjustment of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivative
liability to fair value of underlying security
|
|
|
(163,163
|
)
|
|
-
|
|
|
(79,592
|
)
|
|
-
|
|
|
Other
income (expense)
|
|
|
7,386
|
|
|
(1,338
|
)
|
|
7,980
|
|
|
1,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
2,009,231
|
|
|
940,201
|
|
|
2,057,116
|
|
|
948,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE MINORITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
|
|
|
1,333,396
|
|
|
755,626
|
|
|
1,091,815
|
|
|
317,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST IN (INCOME) LOSS
|
|
|
27,382
|
|
|
(82,931
|
)
|
|
36,015
|
|
|
(78,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) FROM CONTINUING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS
|
|
|
1,360,778
|
|
|
672,695
|
|
|
1,127,830
|
|
|
239,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(25,905
|
)
|
|
-
|
|
|
(25,905
|
)
|
|
-
|
|
|
Depreciation
expense from discontinued operations
|
|
|
(5,945
|
)
|
|
-
|
|
|
(5,945
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM DISCONTINUED OPERATIONS
|
|
|
(31,850
|
)
|
|
-
|
|
|
(31,850
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
1,328,928
|
|
|
672,695
|
|
|
1,095,980
|
|
|
239,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain (loss) on marketable securities (Note
8)
|
|
|
549,929
|
|
|
(8,361
|
)
|
|
488,221
|
|
|
(23,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
1,878,857
|
|
$
|
664,334
|
|
$
|
1,584,201
|
|
$
|
215,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations and Other Comprehensive
Loss
(Continued)
|
|||||||||||||
|
For
the Three Months Ended
|
For
the Six Months Ended
|
||||||||||||
|
June
30,
|
June
30,
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
| NET INCOME PER COMMON SHARE, BASIC: | |||||||||||||
| Net income (before discontinued operationsand comprehensive income) | $ |
1,360,778
|
$ |
672,695
|
$ |
1,127,830
|
$ |
239,139
|
|||||
| Net income per share |
$
|
0.0003
|
$
|
0.0002
|
$
|
0.0003
|
$
|
0.0001
|
|||||
| Net income (before comprehensive income) |
$
|
1,328,928
|
$
|
672,695.0
|
$
|
1,095,980
|
$
|
239,139
|
|||||
| Net income per share |
$
|
0.0003
|
$
|
0.0002
|
$
|
0.0003
|
$
|
0.0001
|
|||||
| Total comprehensive income |
$
|
1,878,857
|
$
|
664,334
|
$
|
1,584,201
|
$
|
215,551
|
|||||
| Net income per share |
$
|
0.0005
|
$
|
0.0002
|
$
|
0.0004
|
$
|
0.0001
|
|||||
|
Weighted
average shares outstanding - basic
|
3,982,832,739
|
3,189,945,834
|
3,818,176,383
|
2,903,382,298
|
|||||||||
| NET INCOME PER COMMON SHARE, BASIC AND DILUTED: | |||||||||||||
| Net income (before discontinued operations | |||||||||||||
| and comprehensive income) |
$
|
1,360,778
|
$
|
672,695
|
$
|
1,127,830
|
$
|
239,139
|
|||||
| Net income per share |
$
|
0.0002
|
$
|
0.0001
|
$
|
0.0001
|
$
|
0.0000
|
|||||
| Net income (before comprehensive income) |
$
|
1,328,928
|
$
|
672,695
|
$
|
1,095,980
|
$
|
239,139
|
|||||
| Net income per share |
$
|
0.0002
|
$
|
0.0001
|
$
|
0.0001
|
$
|
0.0000
|
|||||
| Total comprehensive income |
$
|
1,878,857
|
$
|
664,334
|
$
|
1,584,201
|
$
|
215,551
|
|||||
| Net income per share |
0.0003
|
$
|
0.0001
|
$
|
0.0002
|
$
|
0.0000
|
||||||
| Weighted average shares outstanding - basic and diluted |
6,409,239,666
|
5,689,945,834
|
7,689,526,028
|
7,689,526,028
|
|||||||||
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows
|
|||||||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
For
the Six Months Ended
|
|
||||
|
|
|
June
30,
|
|
||||
|
|
|
2006
|
|
2005
|
|
||
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Net
income
|
|
$
|
1,095,980
|
|
$
|
239,139
|
|
|
Adjustments
to reconcile net (loss)
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change
in minority interest
|
|
|
3,474
|
|
|
78,970
|
|
|
Depreciation
expense
|
|
|
79,769
|
|
|
65,955
|
|
|
Amortization
of lease / loan costs
|
|
|
1,787
|
|
|
1,787
|
|
|
Intrinsic
and fair value of stock options issued
|
|
|
60,750
|
|
|
95,134
|
|
|
Issued
common stock for services
|
|
|
12,448
|
|
|
106,628
|
|
|
Allowance
for bad debts
|
|
|
(1,000
|
)
|
|
(950
|
)
|
|
Accretion
of convertible debenture
|
|
|
94,245
|
|
|
-
|
|
|
Gain
from forgiveness of note payable
|
|
|
|
|
|
|
|
|
Unrealized
loss related to adjustment of derivative
|
|
|
|
|
|
|
|
|
to
fair value of underlying security
|
|
|
77,449
|
|
|
-
|
|
|
Stock
certificate issued in 2003 returned and cancelled
|
|
|
(11,800
|
)
|
|
-
|
|
|
Gain
on sale of residential real estate
|
|
|
(35,083
|
)
|
|
-
|
|
|
Loss
on sale of commerical real estate
|
|
|
108,829
|
|
|
-
|
|
|
Net
gain on distribution of marketable securities (Note
7)
|
|
|
(2,301,967
|
)
|
|
-
|
|
|
Sale
of marketable securities (Note 7)
|
|
|
2,400,000
|
|
|
|
|
|
Prepaid
expense (Note 7)
|
|
|
(2,041,000
|
)
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
14,197
|
|
|
(11,675
|
)
|
|
Accounts
receivable - related parties
|
|
|
2,752
|
|
|
(46,846
|
)
|
|
Inventory
|
|
|
1,037
|
|
|
-
|
|
|
Prepaid
expenses
|
|
|
(9,515
|
)
|
|
(2,696
|
)
|
|
Marketable
securities
|
|
|
-
|
|
|
(1,651
|
)
|
|
Other
assets
|
|
|
-
|
|
|
1,787
|
|
|
Accounts
payable
|
|
|
(136
|
)
|
|
(104,323
|
)
|
|
Accounts
payable - related parties
|
|
|
(25,402
|
)
|
|
-
|
|
|
Accrued
liabilities
|
|
|
54,061
|
|
|
(8,110
|
)
|
|
Unearned
rent
|
|
|
-
|
|
|
(23,094
|
)
|
|
Deferred
revenue
|
|
|
(689
|
)
|
|
(40
|
)
|
|
Refundable
deposits
|
|
|
-
|
|
|
2,851
|
|
|
Convertible
debenture
|
|
|
-
|
|
|
(5,000
|
)
|
|
Net
cash provided by (used) in operating activities
|
|
|
(419,814
|
)
|
|
387,866
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of commercial real estate
|
|
|
802,126
|
|
|
-
|
|
|
Sale
of residential real estate
|
|
|
70,205
|
|
|
-
|
|
|
Sale
of marketable securities
|
|
|
105,241
|
|
|
-
|
|
|
Purchase
of property, plant and equipment
|
|
|
(33,073
|
)
|
|
(122,141
|
)
|
|
Cash
received on stock subscriptions receivable
|
|
|
|
|
|
|
|
|
in
excess of receivable
|
|
|
(1,576
|
)
|
|
-
|
|
|
Intercompany
balances forgiven and written
|
|
|
|
|
|
|
|
|
off
the books
|
|
|
7,117
|
|
|
-
|
|
|
Cash
loaned for note receivable
|
|
|
-
|
|
|
(132,000
|
)
|
|
Note
receivable from litigation settlement
|
|
|
-
|
|
|
(20,000
|
)
|
|
Purchase
of marketable securities - restricted
|
|
|
-
|
|
|
(4,002
|
)
|
|
Restricted
stock received in litigation settlement
|
|
|
-
|
|
|
(154,000
|
)
|
|
Adjustments
between notes receivable and
|
|
|
|
|
|
|
|
|
accounts
receivable balances
|
|
|
-
|
|
|
1,839
|
|
|
Sale
of retail shopping plaza
|
|
|
-
|
|
|
987,659
|
|
|
Correction
of duplicate entry, previous period
|
|
|
-
|
|
|
539
|
|
|
Net
cash provided by investing activities
|
|
$
|
950,040
|
|
$
|
557,894
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows Continued
|
|||||||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
For
the Six Months Ended
|
|
||||
|
|
|
June
30,
|
|
||||
|
|
|
2006
|
|
2005
|
|
||
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
||
|
|
|
|
|
|
|
||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Payments
on long-term debt
|
|
$
|
(50,336
|
)
|
$
|
(51,740
|
)
|
|
Proceeds
from issuance of long-term debt
|
|
|
790
|
|
|
65,224
|
|
|
Payoff
note payable, sale of commercial property
|
|
|
(545,071
|
)
|
|
-
|
|
|
Payoff
note payable, sale of condominium
|
|
|
(25,065
|
)
|
|
-
|
|
|
Payoff
note payable, sale of retail shopping plaza
|
|
|
-
|
|
|
(938,255
|
)
|
|
Receipt
of stock subscriptions receivable
|
|
|
71,388
|
|
|
388,516
|
|
|
Issuance
of common stock for stock options exercised
|
|
|
-
|
|
|
38,506
|
|
|
New
loan costs
|
|
|
(4,000
|
)
|
|
-
|
|
|
Collection
of note receivable
|
|
|
100
|
|
|
-
|
|
|
Net
cash used in financing activities
|
|
|
(552,194
|
)
|
|
(497,749
|
)
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(21,968
|
)
|
|
448,011
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
160,440
|
|
|
232,491
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
138,472
|
|
$
|
680,502
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
PAID FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
113,414
|
|
$
|
113,180
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
$
|
12,448
|
|
$
|
106,628
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
and fair value of options issued
|
|
$
|
60,750
|
|
$
|
95,134
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for subscriptions receivable
|
|
$
|
182,250
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for building improvements
|
|
$
|
-
|
|
$
|
22,287
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on adjustment of derivative
|
|
|
|
|
|
|
|
|
to
fair value of underlying security
|
|
$
|
(77,449
|
)
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE
1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The
accompanying unaudited consolidated financial statements for Nexia Holdings,
Inc. and Subsidiaries (the Company) have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America have been condensed or omitted in accordance with
such
rules and regulations. The information furnished in the interim consolidated
financial statements includes normal recurring adjustments and reflects all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of such financial statements. Although management believes the
disclosures and information presented are adequate to make the information
not
misleading, it is suggested that these interim consolidated financial statements
be read in conjunction with the Company’s most recent audited consolidated
financial statements and notes thereto included in its December 31, 2005
Annual
Report on Form 10-KSB. Operating results for the three months and six months
ended June 30, 2006 are not indicative of the results that may be expected
for
the year ending December 31, 2006.
NOTE
2 - GOING CONCERN
The
Company’s consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable
to a
going concern which contemplates the realization of assets and liquidation
of
liabilities in the normal course of business. The company has incurred
cumulative operating losses through June 30, 2006 of $12,179,619 which raises
substantial doubt about the Company’s ability to continue as a going concern.
This represents a decrease in the cumulative operating loss of $1,095,980
for
the six months ended June 30, 2006. The Company had a positive working capital
balance at June 30, 2006 of $1,362,009.
Revenue
has not been sufficient to cover the Company’s operating costs. Management’s
plans to enable the company to continue as a going concern include the
following:
|
·
|
Increase
revenue from rental properties by implementing new marketing
programs.
|
|
·
|
Acquire
additional operating companies in the retail sector.
|
|
·
|
Make
improvements to certain rental properties in order to make them
more
marketable.
|
|
·
|
Reduce
expenses through consolidating or disposing of certain subsidiary
companies.
|
|
·
|
Purchase
revenue producing real estate.
|
|
·
|
Raise
additional capital through private placements of the Company’s common
stock.
|
|
·
|
Use
stock and option-based compensation to cover payroll and other
permissible
labor costs.
|
|
·
|
Refinancing
of the note secured by the real property held by Wasatch Capital
Corporation which will improve the working capital of the Company
by
$900,000.
|
There
can
be no assurance that the Company can or will be successful in implementing
any
of its plans or that it will be successful in enabling the company to continue
as a going concern. The Company’s consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE
3 - OUTSTANDING STOCK OPTIONS
A
summary
of the status of the Company’s stock option plans as of June 30, 2006 and
December 31, 2005 and changes during those periods is presented below. The
numbers of options reflect the effect of the November 1, 2004 reverse stock
split:
|
|
|
Six
Months Ended
|
|
Year
Ended
|
|
||||||||
|
|
|
June
30, 2006
|
|
December
31, 2005
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Average
Exercise
|
|
Average
Exercise
|
|
||||||||
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Outstanding,
beginning
|
|
|
|
|
|
|
|
|
|
||||
|
of
period
|
|
|
135,000
|
|
$
|
0.001
|
|
|
722,500
|
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
350,000,000
|
|
|
0.000
|
|
|
1,000,000,000
|
|
|
0.00016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(350,000,000
|
)
|
|
0.000
|
|
|
(100,587,500
|
)
|
|
0.00016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(135,000
|
)
|
|
(0.001
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end of period
|
|
|
-
|
|
$
|
-
|
|
|
135,000
|
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
-
|
|
$
|
-
|
|
|
135,000
|
|
$
|
0.001
|
|
The
Company determined the fair value of the stock options issued during the periods
at the grant dates by using the Fair Market Value on the date of option grant
less the 75% share of cash received by the Company.
For
the
period ended June 30, 2006, the average price per share for outstanding options
was $0.001.
On
March
21, 2006, the Board of Directors of the Company adopted the “2006 Benefit Plan
of Nexia Holdings, Inc.” under which the Company may issue stock or stock
options to employees, consultants, advisors or other individual persons.
The
total number of shares covered by the 2006 plan is 500,000,000 shares of
the
Company’s common stock. This plan expires on the earlier of the date that is
five years from the date the plan was adopted or the date on which the five
hundred millionth share is issued.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE
4 - COMMON STOCK
During
the six months ended June 30, 2006, the Company issued 704,825,000 shares
of
common stock pursuant to the Company’s S-8 Registration Statement, valued at
$183,448.
NOTE
5 - JOINT VENTURE AGREEMENT
Wasatch
Capital Corporation, (“Wasatch”) a subsidiary of the Company, signed a joint
venture agreement with Diversified Holdings X, Inc., doing business as Black
Chandelier, a related party of which Richard Surber is the president, on
March
30, 2006. Wasatch shall receive one-half of all net profit from the web sale
of
products by Diversified Holdings X, Inc. in exchange for the use of the
equipment held by Wasatch and which equipment Diversified Holdings X, Inc.
is
allowed to use in production of its merchandise for sale. There was a net
loss
from website sales activity for the six months ended June 30, 2006, and there
was no income received by from this agreement. Additional information on
the
Black Chandelier business operations can be found on its website: www.blackchandelier.biz.
This is
a related party company. Refer to Note 17, Subsequent Events regarding the
acquisition of the assets, inventory and receivables of Diversified Holdings
X,
Inc. dba Black Chandelier.
NOTE
6 - RELATED PARTY TRANSACTIONS
Richard
Surber owns a 60% controlling interest in Landis, LLC. Richard Surber has
allowed Landis, LLC to use a line of credit guaranteed by him in the amount
of
$112,579 as of June 30, 2006. Refer to Note 17, Subsequent Events regarding
the
acquisition of Mr. Surber’s 60% interest in Landis, LLC by Diversified Holdings
I, Inc.
There
is
a receivable of $4,590 at June 30, 2006 from various related parties.
There
is
a payable of $4,329 at June 30, 2006 to various related parties. The charges
represent accounting services provided and payments to third parties by the
related parties.
NOTE
7 - PREPAID EXPENSES
Nexia’s
subsidiary, Diversified Holdings 1, Inc. (“DH1”) received 2,000,000 (post
reverse split) shares of Diversified Financial Resources Corporation (“DVFF”)
common shares in full settlement for debt (refer to Note 11, Settlement of
Debt). DH1 distributed 1,600,000 shares to investor relations firms and
consultants as compensation for their services. DH1 recognized gain of
$2,400,000 on the shares issued to consultants. Of the $2,400,000, $359,000
was
expensed as consulting fees, and the remaining $2,041,000 was recorded as
prepaid expense as of June 30, 2006 to be amortized as consulting fees expense
over the remaining life of the consulting contracts.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE 8
- INVESTMENT IN MARKETABLE EQUITY SECURITIES
The
following is a summary of the Company's investment in available-for-sale
securities as of June 30, 2006.
|
|
|
Available-for-Sale
|
|
||||
|
|
|
Gross
Unrealized
Gains
(Losses)
|
|
Fair
Value
|
|
||
|
|
|
|
|
|
|
||
|
|
|
2006
|
|
2006
|
|
||
|
|
|
|
|
|
|
||
|
Equity
securities, free trading
|
|
$
|
492,977
|
|
$
|
523,074
|
|
|
Equity
securities, restricted
|
|
|
(10,477
|
)
|
|
12,750
|
|
|
|
|
$
|
482,500
|
|
$
|
535,824
|
|
|
Changes
in the unrealized loss on available-for-sale securities during
the six
months ended June 30, 2006 and the year ended December 31, 2005,
reported
as a separate component of stockholders’ equity, are as
follows:
|
|
|
|
For
The
|
|
||||
|
|
|
Six
|
|
|
|
||
|
|
|
Months
|
|
Year
|
|
||
|
|
|
Ended
|
|
Ended
|
|
||
|
|
|
June
30,
|
|
December
31,
|
|
||
|
|
|
2006
|
|
2005
|
|
||
|
|
|
|
|
|
|
||
|
Beginning
balance
|
|
$
|
(5,721
|
)
|
$
|
(6,767
|
)
|
|
Increase
in unrealized holding gains (losses)
|
|
|
488,221
|
|
|
1,046
|
|
|
|
|
$
|
482,500
|
|
$
|
(5,721
|
)
|
During
the three months ended June 30, 2006 and the year ended December 31, 2005,
the
Company recognized $0 and $155 in permanent impairment expense on marketable
securities.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE 9
- CORPORATION CONSOLIDATED INCOME TAX RETURNS
Corporation
income tax returns have not been filed since the year ended December 31,
2001.
There have been losses in every year since 2001. The Company expects to file
income tax returns for the years 2002 through 2005 within one
year.
NOTE 10
- OFFICER SALARY
There
was
an accrued salary liability of $88,213 payable to Richard Surber, President
and
CEO, at June 30, 2006. Mr. Surber has been paid compensation of $22,439 through
June 30, 2006. Mr. Surber has elected to defer being paid most of his accrued
salary because of the Company’s need for additional cash to grow its holdings.
The Company anticipates that Mr. Surber’s salary will be paid current by the end
of 2006.
NOTE
11 - SETTLEMENT OF DEBT
In
June
2003, Nexia’s subsidiary, Diversified Holdings 1, Inc. (“DH1”), sold several
subsidiaries, which held real estate, to Diversified Financial Resources
Corporation (“DVFF”). DVFF issued restricted common stock with a guaranteed
liquidation value of not less than $1 per share. DVFF agreed to issue additional
shares or pay cash to ensure that Nexia would realize $1 million in cash
upon
selling the one million DVFF shares.
The
DVFF
shares were subject to several reverse stock splits, and the shares became
worthless. The DVFF stock was never recorded on the Nexia books.
Nexia’s
subsidiary, DH1, received 25 million shares of DVFF unrestricted common stock
from a settlement agreement dated June 1, 2006 to replace the stock received
in
2003, in full settlement for the debt. DH1 distributed 20 million shares
of the
DVFF unrestricted common stock, in June 2006, to investor relations firms
and
consultants as compensation for their services, as referenced in Note 12,
and
DH1 retained the remaining 5 million shares. There was a 1 to 12.5 reverse
split
of the DVFF stock on July 12, 2006, and Nexia’s post reverse holding was reduced
to 400,000 shares.
DH1
recorded the 400,000 DVFF shares at their fair market value of $505,000 at
June
30, 2006. DH1 recognized gain on the 20 million shares issued to consultants
of
$2,400,000 at June 30, 2006. Of the $2,400,000, $359,000 was expensed as
consulting fees, and the remaining $2,041,000 was recorded as prepaid expense
as
of June 30, 2006 to be amortized as consulting fees expense over the life
of the
consulting contracts.
DH1
received $10,000 in April 2006 from Mid America Capital as payment on a debt
by
West America Securities arising from a litigation settlement with DH1 in
a
previous year. The original recorded receivable was $50,000; however, it
was
written off as uncollectible in a year-end audit. Mid America Capital made
several payments in 2005 and the $10,000 received in 2006. Payments received
by
DHI at June 30, 2006 total $42,500. All of the payments have been recorded
as
income when received.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE
12 - CONSULTING CONTRACTS
On
June
1, 2006 Nexia signed consulting contracts with three investor relations or
consulting firms, one in the U.S.A. and two in the People’s Republic of China.
Compensation for these contracts was DVFF unrestricted common stock referred
to
in Note 10 - Settlement of Debt.
Two
of
the agreements are for the consultants to locate new business opportunities
and
develop potential manufacturers inside the People’s Republic of China. The third
agreement is for the consultant to advise on the business development of
DVFF in
the People’s Republic of China. The new owners of DVFF are Chinese. The
contracts rage for periods of six to ten months beginning June 1,
2006.
NOTE
13 - DISCONTINUED OPERATIONS
On
April
20, 2006, Salt Lake Development Corporation, a consolidated subsidiary of
Nexia,
sold its commercial building in Salt Lake City to an unrelated party, and
Salt
Lake Development Corporation ceased to be an operating company. The Company
was
dissolved on May 5, 2006.
NOTE
14 - CAPITAL RESOURCES
Nexia
signed an equity line of credit agreement with Dutchess Private Equities
Fund
(“Dutchess”) on August 15, 2005. The agreement provides that, following notice
to Dutchess, Nexia may put to Dutchess up to $10 million in shares of Nexia
common stock for a purchase equal to 95% of the lowest closing best bid price
on
the Over-the-Counter (“OTC”) Bulletin Board of Nexia common stock during the
five day period following the notice to Dutchess. The number of shares Nexia
will be permitted to put, pursuant to the agreement, will be either: (a)
200% of
the average daily volume of Nexia common stock for the ten day trading period
prior to the applicable put notice, multiplied by the average of the three
daily
closing “best bid” price immediately preceding the day Nexia issues the put, or
(b) $100,000; provided that in no event will the put amount be more than
$1,000,000 with respect to any single put (best bid is defined in the agreement
as the highest posted bid price for the common stock). Dutchess will resell
the
shares of common stock in the open market; resell the shares to other investors
through negotiated transactions or hold the shares in its portfolio. These
shares are to be made available subject to an SB-2 Registration Statement
that
has not been declared effective and for which the Company is currently drafting
amendments.
NOTE
15 - CONVERTIBLE DEBENTURE DERIVATIVE
The
Convertible Debenture Derivative balance of $163,163 at June 30, 2006 represents
the net change in value for the six months ended June 30,
2006.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
NOTE
16 - DEFERRED INCOME TAXES
Nexia’s
Statements of Operations shows net income of $1,095,980 for the six months
ended
June 30, 2006. As the prepaid consulting fees balance of $2,041,000 is amortized
as expense, the Company will end up with a net loss and no deferred tax asset
will result.
NOTE
17 - SUBSEQUENT EVENTS
On
July
13, 2006, Nexia entered into an agreement with TwinTrader.com LLC, located
in
Addison, Texas. Nexia paid $5,000 in cash for which TwinTrader will showcase
Nexia for up to 1 hour on a live, interactive show and interview, including
call
in capabilities during the live broadcast. TwinTrader will also archive and
maintain the recorded interview on the TwinTrader website. TwinTrader also
agreed to provide daily e-mail alerts to its member base covering significant
news releases by Nexia.
On
July
13, 2006, Nexia closed upon an agreement to acquire Mr. Surber’s 60% ownership
interest in Landis, LLC. As consideration for that acquisition, Nexia and
Diversified Holdings I, Inc. delivered to Mr. Surber (1) a promissory note
in
the amount of $250,000, bearing interest at the rate of 24% per annum, due
in
five annual payments, (2) issuance of 75,000 shares of Nexia’s Class A Preferred
Stock and (3) issuance of 2,000,000 shares of Nexia’s Class B Preferred Stock.
Landis, LLC, consisting of a single location in Salt Lake City, Utah, reported
revenue of $322,746 for the quarter ended June 30, 2006. An appracial is
being
performed to detirmine the fair value of Landis, LLC.
On
July
13, 2006, Diversified Holdings I, Inc. (DHI) by assignment from Canton
Industrial Corporation of Salt Lake City (CICSLC), settled all claims against
Vasilios Priskos arising out of the December 28, 1998 promissory note made
payable to CICSLC in the original face amount of $300,000. The payment of
$100,000 cash by Mr. Priskos was accepted as full and complete settlement
of the
remaining balance due under the said note and the real estate lien securing
the
note was released by DHI.
On
August
1, 2006, Nexia entered into an agreement with Stockgroup Media Inc., located
in
Vancouver, BC, Canada. Nexia paid $29,700 in cash to sign up for Stockgroup’s
6-Month Targeted Investor Awareness & Lead Generation Program. This program
will include assistance in the dissemination of Nexia’s press releases, a
company showcase on the Stockgroup’s websites, a SmallCap Executive Broadcast
featuring Richard Surber, listing on the InvestorMarketPlace and assistance
in
generating leads for potential investors in Nexia.
Subsequent
to the quarter ended June 30, 2006, the Board of Directors of the Company
authorized 1,000,000,000 additional shares of common stock to be issued pursuant
to the S-8 Registration Statement of the Company for the payment of obligations
owed to employees and contractors of the Company. On August 10, 2006 the
Company
filed an amendment to its S-8 Registration statement increasing the number
of
shares registered by one billion (1,000,000,000) shares.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2006
On
August
15, 2006, Gold Fusion Laboratories, Inc., (“GFL”) a subsidiary of the Company
signed an Asset Purchase Agreement with Diversified Holdings X, Inc. (“DHX”) to
acquire all of the assets, inventory and receivables held by DHX in the
operation of Black Chandelier, a fashion and lifestyle design operation (GFL
was
incorporated in Nevada on July 19, 2006). The compensation promised for this
acquisition consisted of a promissory note by GFL in the face amount of
$300,000, bearing interest at the rate of 24% per annum, with a maturity
of five
years. The Company agreed to issue DHX 70,000 shares of Series A Preferred
Stock. As Richard Surber is the president and sole shareholder of DHX the
transaction will be treated as a related party transaction. The transfer
is
expected to close on or before September 30, 2006. Black Chandelier operates
two
retail outlets in the Salt Lake City, Utah area and maintains a website for
the
online sale of its merchandise. Black Chandelier generated $225,010 in retail
sales from January 1, 2006 through August 13, 2006. The company expects to
contribute to the growth and expansion of Black Chandelier’s operations upon the
closing of this acquisition.
On
August
16, 2006 the company filed a Schedule 14C to increase its authorized shares
to
50 Billion and reduce the par value to $.0001.
Hallmark
Construction & Development, L.L.C. v. Wasatch Capital Corporation, Community
First National Bank, CUBCO, Inc. and John Does 1-10.
Action
was filed on or about August 18, 2005, in the Third Judicial District Court
of
Salt Lake County, State of Utah, Civil Case No. 050914860. Hallmark Construction
& Development LLC had filed suit against Wasatch Capital Corporation seeking
collection of $92,000 in alleged unpaid construction costs for the improvements
and work provided on the Wallace/Bennett buildings owned by Wasatch Capital.
In
June of 2006, Hallmark released the lien claim in full and assigned all claims
arising from the work on the building to Wasatch. The matter was subsequently
heard by the assigned arbitrator who entered a finding in favor of Wasatch
Capital, granting a judgment to Wasatch against Hallmark in the sum of
$99,791.12, which includes overpayment, damages for defective work, attorney
fees, costs, arbitration fees and provides for interest both pre and
post-judgment. A Motion to Confirm Arbitration Award has been filed with
the
Court and entry of a final order and judgment is expected
shortly.
NOTE
18 - ADJUSTMENT OF JUNE 30, 2006 STATEMENTS OF
OPERATIONS
During
preparation of the consolidated comparative statements of operations for
six
months to June 30, 2006, it was determined there was an error in the comparative
statement for three months to June 30, 2005. In the three months ended June
30,
2005 column of the June 30, 2005 statements of operation, other income
(expense), a line item titled Other Income - Debt forgiven showed an amount
of
($14,442). This was an incorrect line item and amount, and the line description
and amount were adjusted out of the June 30, 2006 consolidated comparative
statements of operations. It is the opinion of Company management that the
amount is immaterial and would have no effect on the three months ended June
30,
2005 net income per weighted average shares outstanding.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
On
December 1, 2005, HJ & Associates, LLC (the “Former Accountant”) resigned as
the auditors for the Company.
The
reports of the Former Accountant on the financial statements of the Company
for
each of the two most recent fiscal years, did not contain an adverse opinion
or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit
scope or accounting principles for the two most recent fiscal years and the
first two subsequent interim periods of 2005, except that the Former
Accountant’s opinion in its report on the Company’s financial statements
expressed substantial doubt with respect to the Company’s ability to continue as
a going concern for the last two fiscal years.
During
the Company’s two recent fiscal years and the subsequent interim periods through
the date of resignation, there were no reportable events as the term described
in Item 304(a)(1)(iv) of Regulation S-B except for the following:
The
Former Accountant advised management that the most recent interim report, the
10-QSB for the period ended September 30, 2005 was filed prior to the Former
Accountant completing its review and that they were requesting corrections
be
made to the consolidation and the accounting for the acquisition by the Company
of Salt Lake Development Corporation. This report has been amended and a
10-QSB/A was filed on December 14, 2005, with the Company’s new accountant
Bongiovanni & Associates, P.A. conducting the review, including changes to
the consolidation and accountings related to the acquisition of Salt Lake
Development Corporation.
During
the Company’s two most recent fiscal years and the subsequent interim period
through the date of resignation, there were no disagreements with the Former
Accountant on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved
to
the satisfaction of the Former Accountant, would have caused it to make
reference to the subject matter of the disagreement in connection with its
reports on these financial statements for those periods.
On
December 8, 2005, Bongiovanni & Associates, P.A. (“Bongiovanni”) of 17111
Kenton Drive, Suite 204-B, Cornelius, North Carolina 28031 was retained as
the
auditors for the Company.
In
making
the selection of Bongiovanni the Company’s management and board of directors
reviewed auditor independence issues and the absence of any pre-existing
business or commercial relationship with Bongiovanni and concluded that there
are no such relationships that would impair the independence of
Bongiovanni.
During
the two fiscal years ended December 31, 2003 and December 31, 2004 and through
December 8, 2005, the Company did not consult with Bongiovanni & Associates
regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii)
or Regulation S-B.
On
January 26, 2006, De Joya Griffith & Company, LLC. (“De Joya”) of 6330
McLeod Drive, Suite 1, Las Vegas, Nevada 89102 was retained as the auditors
for
Nexia Holdings, Inc. (the “Company”).
In
making
the selection of De Joya the Company’s management and board of directors
reviewed auditor independence issues and the absence of any pre-existing
business or commercial relationship with De Joya and concluded that there
are no
such relationships that would impair the independence of De Joya. The board
and
management of the Company concluded that the geographical proximity would
benefit the Company in working with De Joya and promote the timely completion
of
work requested from De Joya.
During
the two fiscal years ended December 31, 2003 and December 31, 2004 and through
January 24, 2006, the Company did not consult with De Joya Griffith &
company, LLC regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) or Regulation S-B.
On
January 26, 2006 the Company informed its prior accountant Bongiovanni &
Associates, P.A. that it was dismissed as the Company’s
auditors.
During
the Company’s two most recent fiscal years and the subsequent interim period
through the date of dismissal, there were no disagreements with Bongiovanni
on
any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of Bongiovanni, would have caused it to make reference to the
subject matter of the disagreement in connection with its reports on these
financial statements for those periods.
PART
II
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Sections
78.7502 and 78.751 of the Nevada Business Corporation Act, as amended, provide
for the indemnification of the Company's officers, directors, employees and
agents under certain circumstances as follows:
NRS
78.7502 DISCRETIONARY AND MANDATORY INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS: GENERAL PROVISIONS.
1.
A
corporation may indemnify any person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except
an
action by or in the right of the corporation, by reason of the fact that he
is
or was a director, officer, employee or agent of the corporation, or is or
was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests
of
the corporation, and, with respect to any criminal action or proceeding, had
no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon
a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he
had
reasonable cause to believe that his conduct was unlawful.
2.
A
corporation may indemnify any person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action or suit by or
in
the right of the corporation to procure a judgment in its favor by reason of
the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid
in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted
in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom,
to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action
or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for
such
expenses as the court deems proper.
3.
To the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim,
issue
or matter therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
NRS
78.751 AUTHORIZATION REQUIRED FOR DISCRETIONARY INDEMNIFICATION; ADVANCEMENT
OF
EXPENSES; LIMITATION ON INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
1.
Any
discretionary indemnification under NRS 78.7502 unless ordered by a court or
advanced pursuant to subsection 2, may be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the
director, officer, employee or agent is proper in the circumstances. The
determination must be made: (a) By the stockholders; (b) By the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) If a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding
so orders, by independent legal counsel in a written opinion; or (d) If a quorum
consisting of directors who were not parties to the action, suit or proceeding
cannot be obtained, by independent legal counsel in a written opinion.
2.
The
articles of incorporation, the bylaws or an agreement made by the corporation
may provide that the expenses of officers and directors incurred in defending
a
civil or criminal action, suit or proceeding must be paid by the corporation
as
they are incurred and in advance of the final disposition of the action, suit
or
proceeding, upon receipt of an undertaking by or on behalf of the director
or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
3.
The
indemnification and advancement of expenses authorized in or ordered by a court
pursuant to this section: (a) Does not exclude any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
the articles of incorporation or any bylaw, agreement, vote of stockholders
or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except
that
indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the
advancement of expenses made pursuant to subsection 2, may not be made to or
on
behalf of any director or officer if a final adjudication establishes that
his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action. (b) Continues for a person
who has ceased to be a director, officer, employee or agent and inures to the
benefit of the heirs, executors and administrators of such a
person.
Articles
of Incorporation.
The
Company's Amended and Restated Articles of Incorporation provide that the
personal liability of a director or officer of the Company to the Company or
its
stockholders for monetary damages for breach of fiduciary duty, for any action
taken or for any failure to take any action, as a director or officer, shall
be
eliminated to the fullest extent permissible under Nevada law, except for (a)
acts or omissions which involve intentional misconduct, fraud, infliction of
harm on the Company or its stockholders or a knowing violation of criminal
law,
(b) the payment of distributions
in violation of Section 78.300 of the Nevada Revised Statutes, or (c) the amount
of a financial benefit received by a director to which he is not entitled.
Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the Company, the Company has
been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities ( other than the payment by the Company of expenses incurred
or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer, or controlling person in connection with any securities
being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issues.
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the estimated expenses of this offering, all of
which
will be paid by Nexia:
SEC
Registration
Fee
$
633.50
Accounting
Fees and
Expenses
15,000.00
Legal
Fees and
Expenses
60,000.00
Printing
Expenses
1,000.00
Transfer
Agent and Registrar Fees and
Expenses
2,000.00
Miscellaneous
21,366.50
Total
$100,000.00
RECENT
SALES OF UNREGISTERED SECURITIES
In
March
of 2003, a Stock Purchase Agreement was entered into between Nexia Holdings,
Inc. and Chen Li, an individual resident of San Diego, California, whereby
Nexia
sold to Ms. Li Five Million (5,000,000) shares of restricted common stock
of
Nexia as consideration for Ms. Li making a loan in the sum of $30,000 to
Nexia's
subsidiary corporation, West Jordan Real Estate Holdings, Inc. The shares
were
valued at $5,000 at the time of issuance. The Company issued the shares pursuant
to section 4(2) of the Securities Act of 1933 in an isolated private transaction
by the Company which did not involve a public offering. The Company made
this
offering based on the following factors: (1) The issuance was an isolated
private transaction by the Company which did not involve a public offering,
being made to a single entity; (2) there was only one offeree who was issued
stock; (3) the offeree acquired the stock with investment intent; (4) there
were
no subsequent or contemporaneous public offerings of the stock; (5) the stock
was not broken down into smaller denominations; and (6) the negotiations
for the
issuance of the stock took place directly between the offeree and the
Company.
On
August
25, 2003, Nexia issued Three Million (3,000,000) shares of common stock to
The
Company Reporter, Inc. in exchange for a six-month contract for investor
relations services. The Company Reporter Inc. is a full service investor
relations firm specializing in growth stock. The shares were valued at $3,000
at
the time of issuance. The Company issued the shares with a restrictive legend
pursuant to section 4(2) of the Securities Act of 1933 in an isolated private
transaction by the Company which did not involve a public offering. The Company
made this offering based on the following factors: (1) The issuance was an
isolated private transaction by the Company which did not involve a public
offering, being made to a single entity; (2) there was only one offeree who
was
issued stock; (3) the offeree acquired the stock with investment intent;
(4)
there were no subsequent or contemporaneous public offerings of the stock;
(5)
the stock was not broken down into smaller denominations; and (6) the
negotiations for the issuance of the stock took place directly between the
offeree and the Company. The Company Reported, Inc. was a sophisticated investor
at the time of the issuance.
On
January 29, 2004, the board of directors authorized the issuance of 10,000
shares of the Company’s common stock to each of the Company’s directors, Richard
Surber, Gerald Einhorn, Adrienne Bernstein and John E. Fry, Jr. The stock
was
issued as compensation for the services provided by the directors and was
issued
with a restrictive legend and pursuant to Section 4(2) of the Securities
Act of
1933. The shares were valued at a total of $480,000. Each of the directors
was
considered a sophisticated investor based upon their positions with the
company.
On
April
8, 2004, the Company's
board
of directors authorized the issuance of 5,000,000 shares of the
Company's
common
stock to Ronald Friedman for advisory services rendered to the Company,
including arranging financing for the company and other advice to management.
The shares were issued with a restrictive legend and issued pursuant to Section
4(2) of the Securities Act of 1933 in a private transaction. The Company
made
this offering based on the following factors: (1) The issuance was an isolated
private transaction by the Company which did not involve a public offering,
being made to a single entity; (2) there was only one offeree who was issued
stock; (3) the offeree acquired the stock with investment intent; (4) there
were
no subsequent or contemporaneous public offerings of the stock; (5) the stock
was not broken down into smaller denominations; and (6) the negotiations
for the
issuance of the stock took place directly between the offeree and the Company.
Mr. Friedman is an accredited investor.
On
September 21, 2004, the Company authorized the issuance of 8,000,000 shares
of
its Series B Preferred Stock to Richard Surber. The shares were issued to
retain
Mr. Surber as a personal guarantor of certain mortgages for the Company and
valued at $8,000.
On
November 10 2004 the Company entered into an agreement with Joseph Corso,
Jr.
wherein the Company agreed to sell to Mr. Corso 100,000 shares of its recently
designated Series C Preferred Stock in exchange for a cash payment of $50,000.
The
Company issued 100,000,000 shares of its restricted common stock to Equitilink,
LLC on January 5, 2005 as compensation for public relations and communication
services performed by Equitilink for the benefit of the Company. The shares
were
issued pursuant to a written contract for services as more fully set forth
in
the January 7, 2005 Form 8-K filed by the Company. The services contracted
for
with Equitilink included the development, implementation and maintenance
of an
ongoing program to increase the investment community's awareness of the
Company’s activities and to stimulate the investment community's interest in the
Company. The transaction was handled as a private sale exempt from registration
under Section 4(2) of the Securities Act of 1993. The Company issued the
shares
pursuant to section 4(2) of the Securities Act of 1933 in an isolated private
transaction by the Company which did not involve a public offering. The Company
made this offering based on the following factors: (1) The issuance was an
isolated private transaction by the Company which did not involve a public
offering, being made to a single entity; (2) there was only one offeree who
was
issued stock; (3) the offeree acquired the stock with investment intent;
(4)
there were no subsequent or contemporaneous public offerings of the stock;
(5)
the stock was not broken down into smaller denominations; and (6) the
negotiations for the issuance of the stock took place directly between the
offeree, a sophisticated investor and the Company. The shares were valued
at
$10,000.
On
July
13, 2006, the Company approved and its subsidiary Diversified Holdings I,
Inc.
(“DHI”) executed an agreement with Richard Surber to acquire Mr. Surber’s 60%
ownership interest in Landis LLC, a Utah limited liability company. Richard
Surber is the president of the Company and was the proposing party for the
transaction. The Company will report this transaction as a related party
transaction. The independent directors of the Company both approved of the
deal
and an independent valuation of Landis LLC has been received by the Company
that
supports the value paid to Mr. Surber for his interest. In exchange for his
60%
ownership interest in Landis LLC Mr. Surber will receive the following
compensation, (1) a promissory note in the amount of $250,000, bearing interest
at the rate of 24% per annum, payments are due in five annual payments of
principal and interest, (2) 75,000 shares of Nexia’s Class A Preferred stock and
(3) 2,000,000 shares of Nexia’s Class B Preferred stock.
On
July
13, 2006, DHI signed an agreement with Seth Bullough to acquire his 5% ownership
interest in Landis LLC. In exchange for the transfer of that interest, the
Company agreed to delivery to Mr. Bullough 5,000 shares of its Series A
Preferred Stock.
On
August
15, 2006, Gold Fusion Laboratories, Inc., a wholly owned subsidiary of the
Company, signed an Asset Purchase Agreement with Richard Surber to acquire
ownership of the assets, inventory and receivables of the fashion operations
of
Diversified Holdings X, Inc., a corporation owned by Mr. Surber that owned
and
operated the Black Chandelier and related clothing operations. The consideration
for this transaction was a promissory note in the amount of $300,000, bearing
interest at the rate of 24% per annum, payments are due in five annual
installment and 70,000 shares of Nexia’s Class A Preferred stock. On September
18, 2006 an addendum to this agreement was approved by the parties that provided
for the issuance of 2,000,000,000 shares of the Company’s restricted common
stock be issued to Diversified Holdings X, Inc. as compensation for the
transfers made to Gold Fusion Laboratories.
On
September 18, 2006, the Company authorized the issuance of 50,000 shares
of
Nexia’s Class C Preferred Stock to Jared Gold and 30,000 shares of Nexia’s Class
C Preferred Stock to Sean Pasinsky in exchange for services provided to Gold
Fusion Laboratories, Inc. and the development and preservation of the operations
of Black Chandelier fashions and its related operations, including the opening,
designing and expansion of the retail operations of those entities. Series
C
Preferred Stock provides that the Series C shares will hold conversion rights
into shares of the common stock of the Company equal in value to $5.00 per
share
and are subject to redemption by the Company upon a $5.00 cash payment. The
Series C Preferred Shares hold no voting rights.
On
September 21, 2006, the Company authorized the issuance of 7,500 shares of
Nexia’s Class C Preferred Stock to John E. Fry, Jr. in exchange for service
provided to Gold Fusion Laboratories, Inc. and the potential expansion and
development of the business plans for Black Chandelier and its retail outlets.
Series C Preferred Stock provides that the Series C shares will hold conversion
rights into shares of the common stock of the Company equal in value to $5.00
per share and are subject to redemption by the Company upon a $5.00 cash
payment. The Series C Preferred Shares hold no voting rights.
On
September 26 2006 the Company authorized the delivery to Mr. Joseph Corso,
Jr.
Two Hundred Fifty Million (250,000,000) shares of restricted common stock
of the
Company stated par value of $0.0001. The issuance represents approximately
3.2%
of the currently issued and outstanding 7,814,768,850 shares of common stock
of
the Company. The issuances was carried out in partial satisfaction of the
“24%
Series A Senior Subordinated Convertible Redeemable Debenture Due November
1,
2007” debenture held by Mr. Corso, the debenture has a face value of $200,000
and the debentures were originally issued in November of 2004. The conversion
rate for the debentures is equal to 70% of the market value of common stock
at
the time of conversion and Mr. Corso has converted $52,500 of the value of
the
debenture. The transaction was handled as a private sale exempt from
registration under Section 4(2) of the Securities Act of
1993.
EXHIBITS
|
Exhibit No.
|
Page No.
|
|
|
|
||
|
Description
|
||
|
3(i)(a)
|
*
|
Articles
of Incorporation of the Company in Colorado, 1987. (Incorporated
by
reference to the Company's Form SB-2 as filed with the Securities
and
Exchange Commission on January 12, 2006).
|
|
3(i)(b)
|
*
|
Articles
of Amendment to change the name of the Company. (Incorporated by
reference
to the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
|
3(i)(c)
|
*
|
Articles
of Incorporation of Kelly’s Coffee Group, Inc. filed with the Secretary of
State of Nevada on August 3, 2000. (Incorporated by reference to
the
Company's Form SB-2 as filed with the Securities and Exchange Commission
on January 12, 2006).
|
|
3(i)(d)
|
*
|
Articles
of Merger merging Kelly’s Coffee Group, Inc., a Colorado Corporation into
Kelly’s Coffee Group, Inc., a Nevada Corporation, filed with the Secretary
of State of Colorado on September 22, 2000, and with the Secretary
of
State of Nevada on October 5, 2000. (Incorporated by reference
to the
Company's Form SB-2 as filed with the Securities and Exchange Commission
on January 12, 2006).
|
|
3(i)(e)
|
*
|
Restated
Articles of Incorporation of the Company. (Incorporated by reference
to
the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
|
3(i)(f)
|
|
*Amendment
to the Articles of Incorporation changing the Company’s name from Kelly’s
Coffee Group, Inc. to Nexia Holdings, Inc. (Incorporated by reference
to
the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
|
3(ii)
|
*
|
Bylaws
of Nexia Holdings, Inc. (Incorporated by reference to the Company's
Form
SB-2 as filed with the Securities and Exchange Commission on January
12,
2006).
|
|
4
|
*
|
Form
of certificate evidencing shares of "Common Stock” in the Company. .
(Incorporated by reference to the Company's Form SB-2 as filed
with the
Securities and Exchange Commission on January 12,
2006).
|
|
5
|
79
|
|
|
10(i)
|
81
|
|
|
10(ii)
|
97
|
|
|
10(iii)
|
110
|
|
|
21
|
131
|
|
|
23(i)
|
132
|
|
|
23(ii)
|
133
|
UNDERTAKINGS
|
A.
|
Insofar
as indemnification for liabilities arising under the Securities Act
of
1933 (the "Act")
may be permitted to directors, officers and controlling persons of
the
small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that, in the opinion of
the
Securities and Exchange Commission, such indemnification is against
public
policy as expressed in the Act and is, therefore,
unenforceable.
|
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter
has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
|
B.
|
For
the purpose of determining liability of the registrant (Nexia)
under the
Securities Act of 1933 to any purchaser in the initial distribution
of the
securities:
|
The
undersigned registrant undertakes that in a primary offering of securities
of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser,
if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to
the
purchaser and will be considered to offer or sell such securities to such
purchaser:
| (i) |
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424
(Section 230.424 of this
chapter);
|
| (ii) |
Any
free writing prospectus relating to the offering prepared by or
on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
| (iii) |
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant
or its
securities provided by or on behalf of the undersigned registrant;
and
|
| (iv) |
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing a Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Salt Lake City, State of Utah, on October 9, 2006.
| Nexia Holdings, Inc. | ||
| |
|
|
| By: | /s/ Richard Surber | |
|
Richard Surber
President
|
||
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/
Richard Surber
President
and
Director
October
9, 2006
Richard
Surber
/s/
Gerald Einhorn
Vice-President and
Director
October
9, 2006
Gerald
Einhorn
/s/
Adrienne Bernstein
Director
October
9, 2006
Adrienne
Bernstein
107