Registration
No. 033-22128-D
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
SB-2
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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$.001
Common Stock
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5,000,000,000
shares
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$5,000,000
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$0.001
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$0.001
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$
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.
The
registrant hereby amends this registration statement as may be necessary to
update pertinent information contained herein. Once this offering has closed,
the registrant shall complete a filing in accordance with Section 8(a) of the
Securities Act of 1933.
NEXIA
HOLDINGS, INC.
5,000,000,000
shares of $0.001 par value Common Stock
Purchase
Price of $0.001 per share
The
Offering:
Public
Price $0.001
$5,000,000
Underwriting
Discount *
Proceeds
to Nexia Holdings, Inc.
$4,750,000
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 $80,000. There
is
no arrangement to place the proceeds from this offering in an escrow, trust
or
similar account.
Our
company, Nexia Holdings, Inc., is a Nevada corporation engaged in the business
of real estate investment. We currently own and operate several buildings in
the
greater Salt Lake City, Utah area.
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 sell
our properties from time to time as favorable circumstances may
permit.
*
Refer to page 20, PLAN of DISTRIBUTION, Dutchess Private
Equities Fund, L. P., Second Paragraph for discount information.
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 December 13, 2005, the last reported sale price of the common stock
on the OTC Bulletin Board was $0.0002 per share.
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.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved these securities or determined whether the information
in this prospectus is truthful or complete. It is a criminal offense for anyone
to inform you otherwise.
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=s
securities laws.
Nexia
Holdings, Inc.
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
(801)
575-8073
Offering
of
5,000,000,000
Shares
of Common
Stock
PROSPECTUS
December
15, 2005
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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8
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8
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17
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17
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18
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18
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20
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21
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21
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23
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24
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25
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26
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27
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28
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32
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35
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36
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37
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102
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103
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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 7.
OUR
BUSINESS
Nexia’s
current operations consist of the acquisition, leasing and selling of real
estate. Nexia currently owns and operates a 38,000 square foot retail/office
building, a 15,000 square foot 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.
THE
OFFERING
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Securities
Offered.
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5,000,000,000
shares of common stock.
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Selling
Shareholders.
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Dutchess
Private
Equities Fund, L.P.
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Shares
of Common Stock Outstanding.
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Before
Offering
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3,539,945,834
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After
Offering
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8,539,945,834
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Nexia
has
entered into a series of investment agreements with Dutchess Private Equities
Fund (the “Investment Agreement”); 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. 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 during this registered offering is
likely to suffer a dilution of his or her investment depending on how many
of
these securities are re-sold by Dutchess prior to the purchase by the investor.
For more information on the dilutive effect of this offering, please see the
discussions in this Prospectus at pages thirteen and fifteen.
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Use
of Proceeds
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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.
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Risk
Factors
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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.
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OTC
Bulletin Board Common Stock Symbol
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“NEXH”
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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 12/31/2004
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Nine
months ended 9/30/05
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Revenue
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$
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634,089
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$
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254,702
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Gain/loss
from operations
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(3,493,029
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)
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(839,306
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)
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Net
Income (loss)
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(3,004,155
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)
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(3,802
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)
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Income
(loss) per common share
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(0.03
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)
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-
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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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90,299,865
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3,053,249,863
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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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(51,334
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)
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$
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(598,345
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)
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Total
assets
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4,006,060
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4,097,985
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|||||
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Total
liabilities
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3,549,330
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2,942,132
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|||||
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Shareholders
equity
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441,415
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1,053,354
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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
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:
| $ |
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);
|
| $ |
prospective
tenants'
perceptions of a building's
safety, convenience and attractiveness, or the overall appeal of
a
particular building;
|
| $ |
the
property owner's
ability to provide adequate management, maintenance and
insurance;
|
| $ |
expenses
for periodically renovating, repairing and re-letting
spaces;
|
| $ |
rising
operating costs for our properties (including real estate taxes and
utilities), which we may not be able to pass through to tenants because
of
their leases;
|
| $ |
falling
operating costs for competing properties, which would allow them
to
undercut our rental rates;
|
| $ |
rising
unemployment rates in the area, which may reduce the demand for rental
space;
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| $ |
adverse
changes in zoning laws, tax laws, or other laws affecting real estate
or
businesses in the area;
|
| $ |
damage
from earthquakes or other natural
disasters;
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| $ |
mortgage
interest rates and the availability of
financing.
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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. Accordingly, 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 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.
Fixed
costs cannot be reduced if circumstances lower rental incomes from a
building.
Our
ability to fund the fixed costs related to a building, such as mortgage
payments, insurance costs, maintenance, security, landscaping and costs normally
paid by a tenant occupying space in a building could not be paid by Nexia in
the
event that rental income from a building was lowered due to vacancy, bankruptcy
of tenants or if competition for tenants depressed rental rates in the market
for any building owned by Nexia.
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, and our ability to operate would be severely affected by any increase
in
the costs associated with leasing our property.
The
majority of Nexia’s current real estate holdings are located in the Salt Lake
City, Utah market making the Company vulnerable to changes in economic
conditions in that market.
The
majority of Nexia’s current 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 may have 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. 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 35 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.
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 normal operating costs.
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 $80,000 per month, or $960,000
per year. We will need to raise additional funds within the next six 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.
We
do
not expect to pay dividends for some time, if at all.
No
dividends have been paid on the common stock in the past three years. We expect
that any income received from operations will be devoted to costs of operations
and growth. We do not expect to pay cash dividends in the near future. Payment
of dividends would depend upon the company’s profitability at the time, cash
available for those dividends and other factors.
The
Series B Preferred Stock held by Richard Surber creates an anti-takeover or
change of control limitation.
The
eight
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.
Such
an event would include a vote by the board of directors to conduct a reverse
split of the common stock. This effectively gives him a veto over any attempt
to
take over or change control of the Company. The shares held by Mr. Surber thus
have a strong anti-takeover effect. Their issuance was to compensate Mr. Surber
for serving as the personal guarantor of the loans used to acquire the majority
of the real estate holdings currently under the Company’s control.
Risks
Related to Investment
Richard
Surber currently holds voting control of Nexia through his ownership of voting
preferred stock.
Through
Mr. Surber’s ownership of 8,000,000 shares of the Series B Preferred Stock of
the Company, he holds voting rights equal to 4,000,000,000 shares of common
stock. Currently, 3,539,945,834 shares of common stock are issued and
outstanding. Mr. Surber holds voting control of any issue presented to the
shareholders for a vote of the common stock. 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.
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.
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 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 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.
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 state's
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 "penny
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;
|
| · |
"boiler
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
September 30, 2005, the net tangible book value of our shares of common stock
was $545,354 or approximately $0.0002 per share, based on 3,539,945,834 shares
outstanding.
Upon
completion of this offering, if 100% of the offered shares are sold, the net
tangible book value of the 8,539,945,834 shares to be outstanding will be
$5,555,354 or approximately $0.0007 per share. The net tangible book value
of
the shares held by our existing stockholders will increase by $0.0005 per share
without any additional investment on their part. You would experience an
immediate dilution from $0.0010 per share to $0.0007 per share.
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. 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.
|
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%
|
5,000,000,000
|
58%
|
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.
|
Priority
|
Use
of Proceeds
|
Est'd
Cost
|
|
1
|
Costs
of offering
|
$
80,000
|
|
2
|
Working
capital
|
$
1,930,000
|
|
3
|
Improvement
to existing real estate
holdings
|
$
1,080,000
|
|
4
|
Acquisition
of real estate
|
$
1,660,000
|
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 also
occurs because of the lower book value of the 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
September 30, 2005, the net tangible book value of our shares of common stock
was $545,354 or approximately $0.0002 per share, based on 3,539,945,834
shares.
Upon
completion of this offering, if 100% of the offered shares are sold,
(5,000,000,000) the net tangible book value of the 8,539,945,834 shares to
be
outstanding will be $5,555,354 or approximately $0.0007 per share. The net
tangible book value of the shares held by our existing stockholders will be
increased by $0.0005 per share without any additional investment on their part.
You will incur an immediate dilution from $0.0010 per share to $0.0007 per
share.
Upon
completion of this offering, if 75% of the offered shares are sold,
(3,750,000,000) the net tangible book value of the 7,289,945,834 shares to
be
outstanding will be $4,305,354, or approximately $0.0006 per share. The net
tangible book value of the shares held by our existing stockholders will be
increased by $0.0004 per share without any additional investment on their part.
You will incur an immediate dilution from $0.0010 per share to $0.0006 per
share.
Upon
completion of this offering, if 50% of the offered shares are sold,
(2,500,000,000) the net tangible book value of the 6,039,945,834 shares to
be
outstanding will be $3,455,354 or approximately $0.0005 per share. The net
tangible book value of the shares held by our existing stockholders will be
increased by $0.0003 per share without any additional investment on their part.
You will incur an immediate dilution from $0.0010 per share to $0.0005 per
share.
Upon
completion of this offering, if 25% of the offered shares are sold,
(1,250,000,000) the net tangible book value of the 4,789,945,834 shares to
be
outstanding will be $1,805,354 or approximately $0.0004 per share. The net
tangible book value of the shares held by our existing stockholders will be
increased by $0.0002 per share
without
any additional investment on their part. You will incur an immediate dilution
from $0.0010 per share to $0.0004 per share.
Upon
completion of this offering, if 5% of the offered shares are sold, (250,000,000)
the net tangible book value of the 3,789,945,834 shares to be outstanding will
be $805,354 or approximately $0.0002 per share. The net tangible book value
of
the shares held by our existing stockholders will not be increased. You will
incur an immediate dilution from $0.0010 per share to $0.0002 per
share.
The
following table compares the differences of your investment in our shares with
the investment of our existing stockholders.
|
EXISTING
STOCKHOLDERS
|
||||
|
Price
per share
|
$
|
0.0010
|
||
|
Net
tangible book value per share before offering.
|
$
|
0.0002
|
||
|
Net
tangible book value per share after offering, assuming all shares
are
sold
|
$
|
0.0007
|
||
|
Net
Increase in tangible book value to existing stockholders after
offering
assuming all shares are sold
|
$ | 0.0005 | ||
|
Number
of shares outstanding before the offering
|
3,539,945,834
|
|||
|
Number
of shares after offering held by existing stockholders
|
3,539,945,834
|
|||
|
Percentage
of ownership after offering
|
41.5
|
%
|
||
|
PURCHASERS
OF SHARES IN THIS OFFERING IF ALL SHARES SOLD
|
||||
|
Price
per share
|
$
|
0.0010
|
||
|
Dilution
per share
|
$
|
0.0003.
|
||
|
Capital
contributions
|
$
|
5,000,000
|
||
|
Number
of shares after offering held by public investors
|
8,139,792,403
|
|||
|
Percentage
of ownership after offering
|
94.1
|
%
|
||
|
PURCHASERS
OF SHARES IN THIS OFFERING IF 75% OF SHARES SOLD
|
||||
|
Price
per share
|
$
|
0.0010
|
||
|
Dilution
per share
|
$
|
0.0004
|
||
|
Capital
contributions
|
$
|
3,750,000
|
||
|
Number
of shares after offering held by public investors
|
6,889,792,403
|
|||
|
Percentage
of ownership after offering
|
93.1
|
%
|
||
|
PURCHASERS
OF SHARES IN THIS OFFERING IF 50% OF SHARES SOLD
|
||||
|
Price
per share
|
$
|
0.0010
|
||
|
Dilution
per share
|
$
|
0.0005
|
||
|
Capital
contributions
|
$
|
2,500,000
|
||
|
Number
of shares after offering held by public investors
|
5,639,792,403
|
|||
|
Percentage
of ownership after offering
|
91.7
|
%
|
||
|
PURCHASERS
OF SHARES IN THIS OFFERING IF 25% OF SHARES SOLD
|
||||
|
Price
per share
|
$
|
0.0010
|
||
|
Dilution
per share
|
$
|
0.0006
|
||
|
Capital
contributions
|
$
|
1,250,000
|
||
|
Number
of shares after offering held by public investors
|
4,389,792,403
|
|||
|
Percentage
of ownership after offering
|
89.6
|
%
|
||
|
PURCHASERS
OF SHARES IN THIS OFFERING IF 5% OF SHARES SOLD
|
||||
|
Price
per share
|
$
|
0.0010
|
||
|
Dilution
per share
|
$
|
0.0008
|
||
|
Capital
contributions
|
$
|
250.000
|
||
|
Number
of shares after offering held by public investors
|
3,389,792,403
|
|||
|
Percentage
of ownership after offering
|
86.8
|
%
|
||
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
$80,000. 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. The Company has prepared a Motion for Summary Judgment and filed
it
with the Court.
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.
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
66
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 and shell companies. Mr.
Surber was not named as a respondent in any of those SEC
proceedings.
Gerald
Einhorn, 66,
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.
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 December 15, 2005, 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 December 15, 2005, there were 3,539,945,834 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
|
8,000,000
(3)
|
100%
|
|
|
Common
Stock
($0.001
par value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
91,937
Direct
12,862
Indirect(1)
|
0.003%
|
|
|
Common
Stock
($0.001
par value)
|
Gerald
Einhorn, VP & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
10,000
|
>0.001%
|
|
|
Common
Stock
($0.001
par value)
|
Adrienne
Bernstein, Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
12,957
|
>0.001%
|
|
|
Common
Stock
($0.001
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
($0.001
par
value)
|
Hudson
Consulting Group, Inc.
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
9,905(2)
|
>0.001%
|
|
|
Common
Stock
($0.001
par value)
|
Joseph
Corso, Jr.
167
Zock Road
Cuddlebackville,
NY 12719
|
500,000,000
|
13.55%
|
|
|
Common
Stock
($0.001)
par Value
|
Directors
and Executive Officers as a Group
|
127,756
|
0.003%
|
|
(1)
The
shares owned by Hudson Consulting Group, 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 12,862 shares of the
Company's common stock by virtue of his position as an officer and director
of
Hudson Consulting Group, Inc. (9,905 shares), and Oasis International Hotel
& Casino, Inc. (2,655 shares). Mr. Surber personally owns 91,037
shares.
(3)
Series "B" has voting rights of 500 to 1 of the common stock, these shares
give
Mr. Surber 4,000,000,000 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.
DESCRIPTION
OF SECURITIES
Common
Stock
As
of
December 15, 2005, the number of issued and outstanding shares of the Company's
common stock was 3,539,945,834. The number of common stock shares authorized
is
10,000,000,000. 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 December 15, 2005, there were approximately 795 shareholders of
record.
Dividends:
The Company has not declared a cash dividend during the fiscal years ending
December 31, 2003 and 2004.
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
December 15, 2005, 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. 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
August
25, 2005 the Company signed an agreement to issue 165,000 shares of Series
C
Preferred Stock to the then existing shareholders of Axis Labs, Inc. in exchange
for 100% of the issued and outstanding common stock of Axis Labs, Inc. This
agreement was later cancelled.
Dividends:
The Company has not declared a cash dividend for the Series A Convertible
Preferred Stock during the fiscal year ended December 31, 2004. 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.
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, L.L.C. Certified Public Accountants, as stated in their report
appearing herein dated May 13, 2005.
On
December 1, 2005, HJ & Associates, L.L.C. (the “Former Accountant”) resigned
as the auditors for the Company.
On
December 8, 2005, Bongiovanni & Associates, P.A. (the “New Accountant”) of
17111 Kenton Drive, Suite 204-B, Cornelius, North Carolina 28031 was retained
as
the auditors for the Company.
Refer
to
the “CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES” section, on page 97 , 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.
During
2002, the CEO and president of the Company, received 1,570,513 shares of Axia,
a
related party, as additional collateral for the loans he personally guaranteed
for the Company's
subsidiary. Later in 2002, the Company refinanced the loan and he kept the
shares issued to him. The shares have been expensed as loan fees and were valued
at $0.26 per share which was the trading price for Axia for a total value of
$408,333 and is considered a payable to Axia. The shares were later returned
for
cancellation.
In
the
first quarter of 2002, the Company entered into a Stock Purchase Agreement
("Agreement")
with
Axia Group, Inc. ("Axia"),
pursuant to which the Company issued to Axia 255,100,000 restricted shares
of
the Company's
common
stock in exchange for essentially all of the assets and liabilities of Axia
including a portfolio of securities, real estate holdings and publicly reporting
shell-companies. The shares issued to Axia equaled approximately 82% of the
issued and outstanding shares of the Company after the close of the transaction.
Axia on December 10, 2002 spun-off those 255,100,000 shares of the
Company's
common
stock to Axia's
shareholders on a pro rata basis. This transaction was first reported in the
Company's
Form
8-K filed on February 26, 2002.
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 holds a 60% ownership interest in Landis LLC.
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.
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
Our
decision to invest in Salt Lake area properties was influenced by several
factors, including the following: 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.
Significant
Growth.
According to the Mid-Year 2005 Market Review of Commerce CRG published by
national real estate broker Cushman & Wakefield, the Salt Lake City office
market "posted
particularly dramatic gains, with a ten percent drop in overall vacancy since
the end of last year and the highest levels of absorption seen since
2001."
The
overall vacancy rate declined to 13.72% in July of 2005, a 10% drop from
year-end figures. The likely closing of a major office center in the central
business district is expected to reduce available space by 33% 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 27.05% for the
first
six months of 2005 compared to an overall vacancy rate of 15.04% for the central
business district. However, for retail space, lease rates for Class A space
have
reached record highs and may encourage new 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 plan to acquire sufficient
inventory of commercial rental properties that revenues will increase to provide
for operating costs of all property held by the Company and allow for future
sales and acquisitions as opportunities are found or developed.
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.
Employees
Nexia
currently employees six 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.
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.
Results
of Operations
Revenues
Year
ended December 31, 2004. Gross
revenues for the fiscal year December 31, 2004 and 2003 were $634,089 and
$787,585 respectively. The decrease in revenues is due in part to a decrease
in
rental revenues as a result of the divestiture of Wichita Development
Corporation and Salt Lake Development Corporation in July of 2003 which were
two
of our operating real estate subsidiaries, and a decrease in financial
consulting revenues.
Nine
months ended September 30, 2005. Gross
revenues for the three and nine month periods ended September 30, 2005, were
$46,880 and $254,702 as compared to $185,647
and $489,091 for the same three and nine month periods ended September 30,
2004.
The reduction in three and nine month revenues of $138,767 and $234,389
respectively is due to the reduction in revenue realized from the sale of real
estate holdings and the ending of consulting revenue.
Expenses
Year
ended December 31, 2004. General
and administrative expenses for December 31, 2004 and 2003 were $1,808,456
and
$710,304, respectively. The increase in expenses is partially a result of the
expenses incurred by the Company from its use of stock and stock options as
a
form of compensation for its employees, consultants and contractors and
increases in the number of employees during the year, which have subsequently
been reduced.
Nine
months ended September 30, 2005. General
and administrative expenses for the three and nine month periods ended September
30, 2005, were $165,860 and $717,314 compared to $192,955 and $1,052,374 for
the
same periods in 2004. The decreases in three and nine month expenses of $27,095,
or 14%, and $335,060, or 31.8%, respectively are due primarily to the continued
reductions in staff and operating expenses for the Company during 2005 compared
to the comparable period in 2004.
Depreciation
and amortization expenses for the nine months ended September 30, 2005, was
$93,145 compared to $99,574 for same period in 2004. The decrease in the nine
month expense of $6,429, or 6.5%, were the result of the sale of the Glendale
Plaza property in April of 2005.
Nexia
expects expenses as a percent of revenues to remain constant or decrease through
2005 as Nexia steps up its effort to streamline operations and eliminate
non-performing assets as well as acquire additional properties and decrease
expenses through the elimination of its financial consulting
operations.
Income
/ Losses
Year
ended December 31, 2004. Nexia
recorded an operating loss of $3,493,029 at December 31, 2004, as compared
to an
operating loss of $1,107,042 at December 31, 2003. Nexia recorded a net loss
of
$3,004,155 for December 31, 2004, compared to a net loss of $901,825 for
December 31, 2003. Nexia's losses increased as a result of the reduced level
of
financial consulting operations and losses incurred from the use of stock and
stock options as compensation for the majority of its employees.
Nine
months ended September 30, 2005. Nexia
recorded operating losses of $208,494 and $839,306 for the three and nine month
periods ended September 30, 2005, compared to losses of $390,041 and $1,798,694
for the comparable periods in the year 2004. The decreases in three and nine
month operating losses of $181,547, or 46.5%, and $959,388, or 53.3%,
respectively were the result of the reduction of general and administrative
costs, reduction of costs from discontinued consulting activities and limited
losses resulting from worthless marketable securities in 2005 compared to
2004.
Nexia
recorded net losses of $242,941 and $3,802 for the three and nine month periods
ended September 30, 2005, as compared to net losses of $301,576 and $1,450,812
for the comparable periods in 2004. The reduction in the amount of net losses,
reported above, is attributable primarily to the gain recognized on the sale
of
the Glendale shopping center in the amount of $756,471 and income from
settlement of litigation totaling $181,500. The Company also recorded a decrease
in expenses as a result of issuing fewer shares of common stock for services
rendered by employees and contractors during the first nine months of 2005.
Nexia
may
not operate at a profit through fiscal 2005. Since Nexia=s
activities are tied to its ability to operate its real estate properties at
a
profit, future profitability or its revenue growth tends to follow changes
in
the real estate market. There can be no guarantee that profitability or revenue
growth can 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
September 30, 2005, Nexia had current assets of $651,660 and $4,087,985 in
total
assets compared to current assets of $565,834 and total assets of $4,006,060
as
of December 31, 2004. Nexia had net working capital deficit of $598,345 at
September 30, 2005 as compared to a net working capital deficit of $51,335
at
December 31, 2004. The decrease in working capital is due primarily to the
classification as a current liability of the loan on the Wallace and Bennett
building held by Wasatch Capital Corporation due to a short term construction
loan in the amount of approximately $280,000 of the total mortgage balance
of
$827,913 maturing in May of 2006.
Nine
months ended September 30, 2005. Net
cash
provided by operating activities was $366,056 for the nine months ended
September 30, 2005, compared to net cash used by operating activities of $63,665
for the nine months ended September 30, 2004. The increase of cash provided
in
the sum of $429,721 resulted primarily from reduced expenses and profit from
the
Glendale Plaza sale during the nine month period ended September 30,
2005.
Cash
used
in investing activities was $269,284 for the nine months ended September 30,
2005, compared to cash used by investing activities of $303,951 for the
comparable nine month period in 2004. The decrease of $34,667 was primarily
the
result of the Glendale Plaza sale during the nine month period ended September
30, 2005.
Cash
provided by financing activities was $14,224 for the nine months ended September
30, 2005, compared to cash provided of $367,058 for the nine months ended
September 30, 2004. The decrease of $352,834 was due primarily to the pay off
of
the mortgage note payable on the Glendale Plaza during the nine months ended
September 30, 2005.
Due
to
Nexia's
debt
service on real estate holdings and willingness to acquire properties with
negative cash flow shortages, Nexia may experience occasional cash flow
shortages. To cover these shortages we may need to issue shares of 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 negotiated for an equity line of credit
with Dutchess, as set forth herein.
The
following is a summary schedule of stockholders' equity and changes, for the
nine months ended September 30, 2005 and 2004. The numbers show the effect
of
the November 1, 2004 reverse split.
|
Nine
Months Ended
|
|||||||
|
September
30
|
|||||||
|
2005
|
2004
|
||||||
|
(Unaudited)
|
(Unaudited)
|
||||||
|
BALANCE
DECEMBER 31, 2004 AND 2003
|
$
|
441,415
|
$
|
44,705
|
|||
|
Common
stock issued for services
|
146,160
|
153,267
|
|||||
|
Common
stock issued to directors for services
|
-
|
480,000
|
|||||
|
Common
stock issued to employees for options exercised
|
27,366
|
40,690
|
|||||
|
Common
stock issued to contractors for options exercised
|
11,140
|
36,000
|
|||||
|
Intrinsic
value of options issued to employees for past services
|
95,134
|
124,400
|
|||||
|
Fair
value of options issued to contractors for past services
|
36,360
|
-
|
|||||
|
Proceeds
from contractors' share of proceeds from sale of option
|
|||||||
|
shares
applied to accounts payable
|
7,985
|
-
|
|||||
|
Receipt
of cash on subscriptions receivable
|
373,516
|
21,000
|
|||||
|
Return
of common stock from a director who resigned
|
(20,000
|
)
|
-
|
||||
|
Amortization
of expenses prepaid with common stock
|
-
|
13,333
|
|||||
|
Change
in comprehensive loss
|
(15,227
|
)
|
624
|
||||
|
Net
consolidated loss for three months ended March 31
|
(419,114
|
)
|
(751,565
|
)
|
|||
|
BALANCE
MARCH 31
|
684,735
|
162,454
|
|||||
|
Common
stock issued for services
|
-
|
15,660
|
|||||
|
Common
stock issued for building improvements
|
-
|
19,200
|
|||||
|
Common
stock issued to employees for options exercised
|
-
|
99,410
|
|||||
|
Common
stock issued to contractors for options exercised
|
-
|
73,144
|
|||||
|
Intrinsic
value of options issued to employees for past services
|
-
|
128,850
|
|||||
|
Proceeds
from contractors' share of proceeds from sale of option
|
|||||||
|
shares
applied to accounts payable
|
-
|
7,466
|
|||||
|
Amortization
of expenses prepaid with common stock
|
-
|
7,600
|
|||||
|
Receipt
of cash on subscriptions receivable
|
15,000
|
-
|
|||||
|
Change
in comprehensive loss
|
(8,361
|
)
|
(4,372
|
)
|
|||
|
Net
consolidated income for three months ended June 30
|
658,253
|
(397,671
|
)
|
||||
|
BALANCE
JUNE 30
|
1,349,627
|
111,741
|
|||||
|
Preferred
stock issued for services
|
-
|
8,000
|
|||||
|
Common
stock issued for services
|
15,000
|
187,766
|
|||||
|
Common
stock issued to employees for options exercised
|
19,500
|
19,500
|
|||||
|
Common
stock issued to contractors for options exercised
|
-
|
40,462
|
|||||
|
Intrinsic
value of options issued to employees for past services
|
10,500
|
55,949
|
|||||
|
Fair
value of options issued to contractors for past services
|
-
|
87,786
|
|||||
|
Adjust
fair and intrinsic value of options issued
|
(85,243
|
)
|
|||||
|
Increase
in stock subscriptions receivable
|
(19,500
|
)
|
-
|
||||
|
Proceeds
from contractors' share of proceeds from sale of option
|
|||||||
|
shares
applied to accounts payable
|
-
|
19,306
|
|||||
|
Amortization
of expenses prepaid with common stock
|
-
|
36,388
|
|||||
|
Change
in comprehensive loss
|
6,411
|
214
|
|||||
|
Net
consolidated loss for three months ended September 30
|
(242,941
|
)
|
(301,576
|
)
|
|||
|
|
|
||||||
|
BALANCE
SEPTEMBER 30
|
$
|
1,053,354
|
$
|
265,536
|
|||
DESCRIPTION
OF PROPERTY
Location
and Description
Wasatch
Capital Corporation ("Wasatch")
Wasatch,
a 99% 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. 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.
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
has a term of three years, resulting in a due date of May 10, 2006. The loan
was
personally guaranteed by Richard D. Surber, Nexia's President and C.E.O. Of
the
loan proceeds $202,920 has been 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
intends to improve the remaining upper floor space as office space, studio
locations and production space for low impact business. The balance due on
the
existing note on June 30, 2005 was $848,485.
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. 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. 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.
Kearns
Development Corporation. ("Kearns")
Kearns,
a
90.7% 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. 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 two major tenants occupying 67% of the office space and
generating monthly rentals of $7,873 at an average rate of $12.10 per square
foot, the gross annual rental income from the building is $94,476. 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.
Salt
Lake Development, Inc. (“SLD”)
SLD,
a
98% owned subsidiary of Diversified Holdings I, Inc., a wholly owned subsidiary
of Nexia, owns an office building located at 268 West 400 South in Salt Lake
City, Utah. Diversified Holdings I, Inc. acquired a controlling interest in
SLD
through the release and settlement of debt owed by SLD’s former parent
corporation, Diversified Financial Resources Corporation and a cash payment
of
$20,000. The building is two stories with 15,000 (14,347 net rentable) square
feet of office space. SLD originally purchased the property on March 6, 1998,
by
exercising its option to purchase the property through the payment of $418,762.
SLD financed the purchase price and borrowed an additional sum of $222,489,
which is secured by the property. At December 15, 2005, the outstanding debt
on
the property was $547,012. The building is currently vacant and competes with
other office space in the central business district of Salt Lake City. SLD
is of
the opinion that this property is adequately covered by insurance. Agreements
have been entered into to market the property for sale and sales efforts are
being currently conducted. The building was appraised in August of 1998 for
$910,000.
Contractual
Obligations
|
Contractual
Obligations
|
||||||||||||||||||||||
|
As
of September 30,2005, we were subject to certain material contractual
payment obligations as described in the
table below.
|
||||||||||||||||||||||
|
|
||||||||||||||||||||||
|
Payments
Due by Period
|
||||||||||||||||||||||
|
Remainder
of
|
||||||||||||||||||||||
|
Total
|
2005
|
2006
|
2007
|
2008
|
2009
|
Thereafter
|
||||||||||||||||
|
Mortgage
debt
|
$
|
2,386,923
|
$
|
43,492
|
$
|
885,350
|
$
|
55,375
|
$
|
58,720
|
$
|
62,706
|
$
|
1,281,280
|
||||||||
|
Vehicle
contract
|
20,913
|
2,423
|
9,816
|
8,674
|
-
|
-
|
-
|
|||||||||||||||
|
Unsecured
note
|
3,908
|
2,908
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Operating
lease
|
||||||||||||||||||||||
|
obligation
|
9,284
|
924
|
3,960
|
3,960
|
440
|
-
|
-
|
|||||||||||||||
|
Convertible
debenture
|
200,000
|
-
|
-
|
200,000
|
-
|
-
|
-
|
|||||||||||||||
|
$
|
2,621,028
|
$
|
50,747
|
$
|
899,126
|
$
|
268,009
|
$
|
59,160
|
$
|
62,706
|
$
|
1,281.280
|
|||||||||
|
Property
Acquisitions:
|
||||||||||||||||||||||
|
In
August 2005 we signed an agreement to acquire 99% of the common stock
of
Salt Lake Development Corporation.
|
||||||||||||||||||||||
|
The
Corporation owns a 15,000 square foot office building in Salt Lake
City,
UT. The unpaid mortgage balance, as of the date of acquisition was
$551,707.11. The interest rate is 7.70%, and monthly payments are
$5,341.43.
|
||||||||||||||||||||||
|
Detail
of Costs Associated With Rental Revenue
|
|||||||||||||||||||||||||
|
ended
September 30,2005
|
|||||||||||||||||||||||||
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||
|
|
|
Change
|
|
|
Change
|
||||||||||||||||||||
|
Expense
Description
|
2005
|
2004
|
$%
|
2005
|
2004
|
$%
|
|||||||||||||||||||
|
Mortgage
interest
|
$
|
41,889
|
$
|
55,771
|
$
|
(13,882
|
)
|
(24.9
|
)
|
$
|
140,930
|
$
|
171,085
|
$
|
(30,155
|
)
|
(17.6
|
)
|
|||||||
|
Depreciation
|
24,509
|
34,496
|
(9,987
|
)
|
(29.0
|
)
|
93,145
|
99,574
|
(6,429
|
)
|
(6.5
|
)
|
|||||||||||||
|
Payroll
- mgt. and maint.
|
10,540
|
46,896
|
(36,356
|
)
|
(77.5
|
)
|
53,625
|
203,044
|
(149,419
|
)
|
(73.6
|
)
|
|||||||||||||
|
Utilities
|
8,528
|
15,472
|
(6,944
|
)
|
(44.9
|
)
|
40,399
|
49,299
|
(8,900
|
)
|
(18.1
|
)
|
|||||||||||||
|
Property
taxes
|
13,841
|
16,858
|
(3,017
|
)
|
(21.8
|
)
|
41,032
|
28,283
|
12,749
|
45.0
|
|||||||||||||||
|
Maint.
And repairs
|
6,801
|
615
|
6,186
|
1,005.9
|
24,157
|
10,057
|
14,100
|
140.2
|
|||||||||||||||||
|
Building
lease
|
-
|
19,964
|
(19,964
|
)
|
(100.0
|
)
|
-
|
19,964
|
(19,964
|
)
|
(100.0
|
)
|
|||||||||||||
|
Other
expenses
|
-
|
690
|
(690
|
)
|
(100.0
|
)
|
-
|
765
|
(765
|
)
|
(100.0
|
)
|
|||||||||||||
|
$
|
106,108
|
$
|
190,762
|
$
|
(84,654
|
)
|
(44.4
|
)
|
$
|
393,288
|
$
|
582,071
|
$
|
(188,783
|
)
|
(32.4
|
)
|
||||||||
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 and through June 30, 2005 are as follows:
|
YEAR
|
PERIOD
ENDING
|
HIGH
|
LOW
|
|
2003
|
March
31, 2003
|
$0.015
|
$0.004
|
|
June
30, 2003
|
$0.008
|
$0.0005
|
|
|
September
30, 2003
|
$0.013
|
$0.001
|
|
|
December
31, 2003
|
$0.030
|
$0.006
|
|
|
2004
|
March
31, 2004
|
$0.015
|
$0.001
|
|
June
30, 2004
|
$0.0058
|
$0.0005
|
|
|
September
30, 2004
|
$0.0008
|
$0.0001
|
|
|
October
31, 2004
|
$0.0001
|
$0.0001
|
|
|
Post
reverse
|
December
31, 2004
|
$0.035
|
$0.0002
|
|
2005
|
March
31, 2005
|
$0.0006
|
$0.0001
|
|
2005
|
June
30, 2005
|
$0.0002
|
$0.0001
|
|
2005
|
September
30, 2005
|
$0.0003
|
$0.0001
|
Shareholders:
As of December 15, 2005, there were approximately 795 shareholders of record
of
the Company’s common stock.
No
Shares
of Series A Preferred Stock are issued and outstanding.
There
is
only one holder of Series B Preferred Stock, Richard Surber who holds 8 million
shares.
There
is
only one holder of Series C Preferred Stock, Joseph Corso who holds 100,000
shares of Series C Preferred Stock.
Dividends:
The Company has not declared a cash dividend during the fiscal years ending
December 31, 2003 and 2004.
EXECUTIVE
COMPENSATION
|
SUMMARY
COMPENSATION TABLE
|
||||||||
|
Annual
Compensation
|
Long
Term Compensation
|
|||||||
|
Awards
|
Payouts
|
|||||||
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compen-sation ($)
|
Restricted
Stock Award(s)
($)
|
Securities
Underlying Options
SARs(#)
|
LTIP
pay-outs
($)
|
All
Other
Compen
sation
($)
|
|
Richard
Surber, President
|
2004
|
$150,0003
|
-
|
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 $96,321 represents salary paid during 2004 and $53,537
is
accrued but unpaid salary
due
to Mr. Surber as of December 31, 2004.
|
||||||||
|
(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.
NEXIA
HOLDINGS, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
December
31, 2004
|
C
O
N T E N T S
|
|
|
Independent
Auditors’ Report
|
39
|
|
|
|
|
40
|
|
|
|
|
|
43
|
|
|
|
|
|
45
|
|
|
|
|
|
59
|
|
|
|
|
|
62
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
ASSETS
|
|||||||
|
December
31,
|
|||||||
|
2004
|
2003
|
||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
152,413
|
$
|
94,073
|
|||
|
Restricted
cash
|
80,078
|
-
|
|||||
|
Accounts
and notes receivable, trade, net
|
115,012
|
33,387
|
|||||
|
Related
party accounts receivable, net
|
-
|
12,952
|
|||||
|
Notes
receivable - net of allowance of $315,950 (Note 4)
|
154,999
|
36,949
|
|||||
|
Prepaid
expenses
|
18,783
|
99
|
|||||
|
Marketable
securities (Note 6)
|
44,549
|
205,400
|
|||||
|
TOTAL
OF CURRENT ASSETS
|
565,834
|
382,860
|
|||||
|
PROPERTY
AND EQUIPMENT (Note 5)
|
|||||||
|
Property
and equipment, net
|
2,935,052
|
2,570,691
|
|||||
|
Land
|
489,295
|
488,895
|
|||||
|
TOTAL
NET PROPERTY AND EQUIPMENT
|
3,424,347
|
3,059,586
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Loan
costs, net
|
15,879
|
38,059
|
|||||
|
TOTAL
OTHER ASSETS
|
15,879
|
38,059
|
|||||
|
TOTAL
ASSETS
|
$
|
4,006,060
|
$
|
3,480,505
|
|||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets (Continued)
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
December
31,
|
|||||||
|
2004
|
2003
|
||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
243,441
|
$
|
188,188
|
|||
|
Accrued
liabilities
|
209,480
|
130,524
|
|||||
|
Current
portion of WVDEP liability
|
-
|
20,000
|
|||||
|
Unearned
rent (Note 1)
|
23,094
|
28,455
|
|||||
|
Deferred
revenue (Note1)
|
356
|
8,958
|
|||||
|
Deferred
gain on sale of subsidiary
|
-
|
21,770
|
|||||
|
Refundable
deposits
|
15,041
|
15,541
|
|||||
|
Convertible
debentures (Note 15)
|
5,000
|
60,000
|
|||||
|
Current
maturities of long-term debt (Note 9)
|
120,757
|
1,213,859
|
|||||
|
TOTAL
CURRENT LIABILITIES
|
617,169
|
1,687,295
|
|||||
|
LONG-TERM
LIABILTIES
|
|||||||
|
Convertible
debenture (Note 9)
|
200,000
|
||||||
|
Long-term
debt
|
2,732,161
|
1,548,740
|
|||||
|
TOTAL
LONG-TERM LIABILITIES (Note 9)
|
2,932,161
|
1,548,740
|
|||||
|
TOTAL
LIABILITIES
|
3,549,330
|
3,236,035
|
|||||
|
MINORITY
INTEREST
|
15,315
|
199,765
|
|||||
|
COMMITTMENTS
AND CONTINGENCIES (Note 11)
|
-
|
-
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||
|
Consolidated
Balance Sheets (Continued)
|
||||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||
|
December
31,
|
||||||||||
|
2004
|
2003
|
|||||||||
|
STOCKHOLDERS
EQUITY (DEFICIT)
|
||||||||||
|
Preferred Series B stock, $0.001 par value, 50,000,000
shares
|
||||||||||
|
authorized,
5,000 shares issued and outstanding
|
|
8,000
|
-
|
|||||||
|
Preferred
Series C stock, $0.001 par value, 5,000,000 shares
|
||||||||||
|
authorized,
100,000 shares issued and outstanding
|
100
|
-
|
||||||||
|
Common
stock $0.001 par value, 2,503,650,000 shares authorized,
|
||||||||||
|
1,747,945,834
and 348,502,760 shares issued (post reverse split)
|
||||||||||
|
and
outstanding, respectively
|
1,747,946
|
348,503
|
||||||||
|
Additional
paid-in capital
|
12,396,385
|
10,063,482
|
||||||||
|
Treasury
stock -29,138 and 20,038 shares
|
||||||||||
|
at
cost, respectively (Note 10)
|
(100,618
|
)
|
(100,618
|
)
|
||||||
|
Expenses
prepaid with common stock
|
-
|
(13,333
|
)
|
|||||||
|
Stock
subscriptions receivable (Note 14)
|
(375,009
|
)
|
(28,000
|
)
|
||||||
|
Other
comprehensive income (Loss) (Note 6)
|
(6,767
|
)
|
(862
|
)
|
||||||
|
Accumulated
deficit
|
(13,228,622
|
)
|
(10,224,467
|
)
|
||||||
|
Total
Stockholders’ Equity
|
441,415
|
44,705
|
||||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
||||||||||
|
EQUITY
(DEFICIT)
|
$
|
4,006,060
|
$
|
3,480,505
|
||||||
|
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 Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2004
|
2003
|
||||||
|
REVENUE
|
|||||||
|
Consulting
Revenue
|
$
|
121,633
|
$
|
226,565
|
|||
|
Consulting
Revenue - related party
|
-
|
50,000
|
|||||
|
Rental
Revenue
|
512,456
|
511,020
|
|||||
|
TOTAL
REVENUE
|
634,089
|
787,585
|
|||||
|
COSTS
OF REVENUE
|
|||||||
|
Costs
associated with consulting revenue
|
1,069,329
|
287,209
|
|||||
|
Costs
associated with rental revenue
|
231,158
|
358,229
|
|||||
|
Interest
associated with rental revenue
|
823,981
|
280,734
|
|||||
|
TOTAL
COST OF REVENUE
|
2,124,468
|
926,172
|
|||||
|
GROSS
PROFIT (Deficit)
|
|||||||
|
Gross
(deficit) from consulting operations
|
(947,696
|
)
|
(10,644
|
)
|
|||
|
Gross
(deficit) from real estate operations
|
(542,683
|
)
|
(127,943
|
)
|
|||
|
GROSS
PROFIT (Deficit)
|
(1,490,379
|
)
|
(138,587
|
)
|
|||
|
EXPENSES
|
|||||||
|
Impairment
of long-lived assets
|
-
|
182,974
|
|||||
|
Impairment
of marketable securities
|
194,194
|
75,177
|
|||||
|
General
and administrative expense
|
1,808,456
|
710,304
|
|||||
|
TOTAL
EXPENSES
|
2,002,650
|
968,455
|
|||||
|
OPERATING
LOSS
|
(3,493,029
|
)
|
(1,107,042
|
)
|
|||
|
OTHER
INCOME (EXPENSE)
|
|||||||
|
Interest
expense
|
(115,092
|
)
|
(15,596
|
)
|
|||
|
Interest
income
|
5,493
|
182
|
|||||
|
Gain
(loss) on sale of property & equipment
|
-
|
(29,559
|
)
|
||||
|
Gain
(loss) on sale of subsidiaries
|
528,192
|
229,268
|
|||||
|
Gain
(loss) on marketable securities
|
36,918
|
(5,421
|
)
|
||||
|
Other
Income (Expense)
|
26,187
|
44,841
|
|||||
|
TOTAL
OTHER INCOME
|
481,698
|
223,715
|
|||||
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
(3,011,331
|
)
|
(883,327
|
)
|
|||
|
MINORITY
INTEREST IN LOSS
|
(7,176
|
)
|
(65,113
|
)
|
|||
|
NET
LOSS BEFORE DISCONTINUED OPERATIONS
|
(3,004,155
|
)
|
(818,214
|
)
|
|||
|
LOSS
FROM DISCONTINUED OPERATIONS
|
-
|
(83,611
|
)
|
||||
|
NET
LOSS
|
(3,004,155
|
)
|
(901,825
|
)
|
|||
|
Other
Comprehensive Loss
|
(6,767
|
)
|
(1,735
|
)
|
|||
|
TOTAL
COMPREHENSIVE (LOSS)
|
$
|
(3,010,922
|
)
|
$
|
(903,560
|
)
|
|
|
The
accompanying notes are an integral 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,
|
|||||||
|
2004
|
2003
|
||||||
|
Net
loss per common share, basic and diluted
|
|||||||
|
Loss
before minority interest
|
$
|
(0.033
|
)
|
$
|
(2.740
|
)
|
|
|
Minority
interest in loss
|
-
|
-
|
|||||
|
Loss
before discontinued operations
|
(0.033
|
)
|
(2.535
|
)
|
|||
|
Loss
from discontinued operations
|
-
|
(0.260
|
)
|
||||
|
Net
loss per weighted average common share outstanding
|
$
|
(0.033
|
)
|
$
|
(2.795
|
)
|
|
|
Weighted
average shares outstanding - basic & diluted (Note 1)
|
90,299,865
|
322,735
|
|||||
|
(Weighted
average shares outstanding 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
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||
|
Consolidated
Statements of Stockholders' Equity
|
||||||||||
|
Additional
|
||||||||||
|
Preferred
Stock
|
Paid-In
|
|||||||||
|
Shares
|
Amount
|
Capital
|
||||||||
|
Balance
Forward, October 1, 2004
|
8,000,000
|
$
|
8,000
|
$
|
-
|
|||||
|
Return
of common stock issued to a consultant
|
||||||||||
|
Fair
value of options issued to consultants
|
||||||||||
|
Intrinsic
value of options issued to employees
|
||||||||||
|
Common
stock issued for options exercised, consultants
|
||||||||||
|
Common
stock issued for options exercised, employees
|
||||||||||
|
Common
stock issued for services to consultants
|
||||||||||
|
Common
stock issued for compensation to employees
|
||||||||||
|
Common
stock issued for subscriptions receivable, consultants
|
||||||||||
|
Balance
Forward
|
8,000,000
|
$
|
8,000
|
$
|
-
|
|||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||
|
Consolidated
Statements of Stockholders' Equity
|
|||||||||||||
|
Additional
|
|||||||||||||
|
Preferred
Stock
|
Paid-In
|
||||||||||||
|
Shares
|
Amount
|
Capital
|
|||||||||||
|
Balance
Forward
|
$ |
8,000,000
|
$
|
8,000
|
|||||||||
|
Common
stock issued for subscriptions receivable, employees
|
|||||||||||||
|
Application
of restricted common stock issued to reduce debentures
liability
|
|||||||||||||
|
Common
stock issued for building improvements
|
|||||||||||||
|
Common
stock issued to consultants to apply to accounts payable
|
|||||||||||||
|
Proceeds
from consultant option stock sales applied to accounts
payable
|
|||||||||||||
|
Series
C preferred stock issued for cash
|
100,000
|
100
|
49,900
|
||||||||||
|
Receipt
of subscriptions receivable
|
|||||||||||||
|
Debt
discount convertible debenture discount factor
|
|||||||||||||
|
Balance
Forward
|
$ |
8,100,000
|
$
|
8,100
|
$
|
49,900
|
|||||||
|
The
accompanying notes are an integral part of these consolidated financial
statement
|
|||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||
|
Consolidated
Statements of Stockholders' Equity
|
||||||||||
|
Additional
|
||||||||||
|
Preferred
Stock
|
Paid-In
|
|||||||||
|
Shares
|
Amount
|
Capital
|
||||||||
|
Balance
Forward
|
8,100,000
|
$
|
8,100
|
$
|
49,900
|
|||||
|
Round
up fraction shares resulting from 11-01-2004 reverse stock
split
|
||||||||||
|
Change
in other comprehensive loss
|
||||||||||
|
Net
consolidated loss, year ended December 31,2004
|
||||||||||
|
Balance,
year ended December 31, 2004
|
8,100,000
|
$
|
8,100
|
$
|
49,900
|
|||||
|
The
accompanying notes are an integral part of these consolidated financial
statement
|
||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||||||||||
|
Consolidated
Statements of Stockholders' Equity
|
|||||||||||||||||||||
|
|
|
Expenses
|
|
|
|||||||||||||||||
|
Common
Stock
|
Additional
Paid-In
|
Treasury
|
Stock
Subscriptions
|
Prepaid
With
|
Deferred
|
Other
Comprehensive
|
Accumulated
|
Total
Stockholders'
|
|||||||||||||
|
Shares
|
Amount
|
Capital
|
Stock
|
Receivable
|
Common
Stock
|
Consulting
|
Income
(Loss)
|
Deficit
|
Equity
|
||||||||||||
|
Balance
Forward
|
1,747,945,332
|
$
|
1,747,945
|
$
|
12,346,486
|
$
|
(100,618)
|
$
|
(375,009)
|
$
|
-
|
$
|
-
|
$
|
(4,396)
|
$
|
(10,224,467)
|
$
|
3,447,941
|
||
|
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, year ended December 31,2004
|
(3,004,155)
|
(3,004,155)
|
|||||||||||||||||||
|
Balance,
year ended December 31, 2004
|
1,747,945,834
|
$
|
1,747,946
|
$
|
12,346,485
|
$
|
(100,618)
|
$
|
(375,009)
|
$
|
-
|
$
|
-
|
$
|
(6,767)
|
$
|
(13,228,622)
|
$
|
441,415
|
||
|
The
accompanying notes are an integral part of these consolidated financial
statement
|
|||||||||||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statement of Stockholders' Equity
|
|||||||
|
Preferred
Stock
|
|
|
|
||||
|
|
|
Shares
|
|
Amount
|
|||
|
December
|
|||||||
|
31,
2002
|
-
|
$
|
-
|
||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
loan
fee
|
-
|
-
|
|||||
|
Disposition
|
|||||||
|
of
treasury
|
|||||||
|
stock
and
|
|||||||
|
stock
|
|||||||
|
subscription
|
|||||||
|
due
to sale
|
|||||||
|
of
subsidiary
|
-
|
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
services
|
-
|
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
Bonus
|
-
|
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
services
and
|
|||||||
|
prepaid
|
|||||||
|
services
|
-
|
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
stock
option
|
|||||||
|
exercise
to
|
|||||||
|
employees
|
-
|
-
|
|||||
|
Intrinsic
|
|||||||
|
value
of
|
|||||||
|
stock
options
|
|||||||
|
issued
to
|
|||||||
|
employees
|
-
|
-
|
|||||
|
Beneficial
|
|||||||
|
conversion
|
|||||||
|
feature
on
|
|||||||
|
convertible
|
|||||||
|
debentures
|
-
|
-
|
|||||
|
Adjustment
for
|
|||||||
|
marketable
|
|||||||
|
securities
|
-
|
-
|
|||||
|
Net
loss for
|
|||||||
|
the
year
|
|||||||
|
ended
|
|||||||
|
December
|
|||||||
|
31,
2003
|
-
|
-
|
|||||
|
|
|||||||
|
Balance,
|
|||||||
|
December
|
|||||||
|
31,
2003
|
-
|
-
|
|||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statement of Stockholders' Equity (continued)
|
|||||||
|
|
Preferred
Stock
|
|
|
|
|||
|
|
|
Shares
|
|
Amount
|
|||
|
Balance,
|
|||||||
|
December
|
|||||||
|
31,
2003
|
-
|
$
|
-
|
||||
|
Cancellation
of
|
|||||||
|
Common
stock
|
|||||||
|
for
subscription
|
|||||||
|
receivable
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
services
|
|||||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
building
improvements
|
|||||||
|
and
services
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
stock
option exercise
|
|||||||
|
to
consultants
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
stock
option
|
|||||||
|
exercise
to
|
|||||||
|
employees
|
|||||||
|
|
- |
-
|
|||||
|
Receipt
of
|
|||||||
|
subscriptions
|
|||||||
|
receivable
|
|||||||
|
|
- |
-
|
|||||
|
Amoritzation
of prepaid
|
|||||||
|
expenses
|
-
|
-
|
|||||
|
Intrinsic
value of stock
|
|||||||
|
options
issued to
|
|||||||
|
employees
|
-
|
-
|
|||||
|
|
|||||||
|
Balance,
Forward
|
-
|
-
|
|||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statement of Stockholders' Equity
|
|||||||
|
|
Preferred
Stock
|
|
|
|
|||
|
|
|
Shares
|
|
Amount
|
|||
|
Balance,
|
|||||||
|
Forward
|
-
|
$
|
-
|
||||
|
Fair
Value of
|
|||||||
|
options
issued
|
|||||||
|
for
prepaid
|
|||||||
|
consulting
fees
|
|||||||
|
|
- |
-
|
|||||
|
Application
of
|
|||||||
|
option
|
|||||||
|
grants
to
|
|||||||
|
accounts
|
|||||||
|
payable
|
|||||||
|
|
- |
-
|
|||||
|
Adjustment
for
|
|||||||
|
marketable
|
|||||||
|
securities
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
services
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
stock
option
|
|||||||
|
exercise
to
|
|||||||
|
consultants
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
stock
option
|
|||||||
|
exercise
to
|
|||||||
|
employees
|
|||||||
|
|
- |
-
|
|||||
|
Common
stock
|
|||||||
|
issued
for
|
|||||||
|
subscriptions
|
|||||||
|
receivable,
|
|||||||
|
consultants
|
|||||||
|
|
- |
-
|
|||||
|
Common
Stock
|
|||||||
|
issued
for
|
|||||||
|
subscriptions
|
|||||||
|
receivable
|
|||||||
|
employees
|
|||||||
|
|
- |
-
|
|||||
|
Fair
Value of
|
|||||||
|
stock
options
|
|||||||
|
issued
to
|
|||||||
|
consultants
|
|||||||
|
|
- |
-
|
|||||
|
Series
B preferred
|
|||||||
|
stock
|
|||||||
|
issued
for services
|
|||||||
|
|
8,000,000
|
$
|
8,000
|
||||
|
Balance
Forward
|
8,000,000
|
$
|
8,000
|
||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statement of Stockholders' Equity
|
|||||||
|
|
Preferred
Stock
|
|
|
|
|||
|
|
|
Shares
|
|
Amount
|
|||
|
|
|||||||
|
Balance,
|
|||||||
|
Forward
|
8,000,000
|
$
|
8,000
|
||||
|
Intrinsic
Value of
|
|||||||
|
stock
options
|
|||||||
|
issued
to
|
|||||||
|
employees
|
|||||||
|
|
- |
-
|
|||||
|
Shareholder
proceeds
|
|||||||
|
from
Option stock
|
|||||||
|
sales
applied
|
|||||||
|
to
A/P
|
-
|
-
|
|||||
|
Amortization
of
|
|||||||
|
deferred
consulting
|
|||||||
|
balance
expensed
|
|||||||
|
|
- |
-
|
|||||
|
|
|||||||
|
Adjustment
for
|
|||||||
|
marketable
|
|||||||
|
securities
|
|||||||
|
|
- |
-
|
|||||
|
Net
loss for
|
|||||||
|
the
nine months
|
|||||||
|
ended
|
|||||||
|
September
|
|||||||
|
30,
2004
|
|||||||
|
|
- |
-
|
|||||
|
|
|||||||
|
Balance,
|
|||||||
|
September
|
|||||||
|
30,
2004
|
|||||||
|
|
8,000,000
|
$
|
8,000
|
||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||
|
Consolidated
Statements of Cash Flows
|
|||||||||||||
|
For
the Years Ended
|
|||||||||||||
|
December
31,
|
|||||||||||||
|
2004
|
2003
|
||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||||||||
|
Net
Income (Loss)
|
$
|
(3,004,155
|
)
|
$
|
(901,825
|
)
|
|||||||
|
Other
comprehensive loss
|
(5,905
|
)
|
-
|
||||||||||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||||||||
|
Loss
from sale of investments
|
-
|
5,421
|
|||||||||||
|
Loss
from sale of land and real property for sale
|
-
|
9,008
|
|||||||||||
|
Loss
on disposition of property, plant and equipment
|
-
|
29,559
|
|||||||||||
|
(Gain)
loss from sale of subsidiaries
|
899,971
|
(229,268
|
)
|
||||||||||
|
Impairment
of marketable securities
|
194,194
|
75,177
|
|||||||||||
|
Impairment
of long-lived assets
|
-
|
173,966
|
|||||||||||
|
Change
in minority interest
|
(184,450
|
)
|
(65,113
|
)
|
|||||||||
|
Depreciation
and amortization
|
145,704
|
137,607
|
|||||||||||
|
Intrinsic
and fair value of stock options issued
|
1,619,352
|
49,600
|
|||||||||||
|
Expenses
prepaid with common stock
|
13,330
|
-
|
|||||||||||
|
Issuance
of Preferred Series B stock for services
|
8,000
|
-
|
|||||||||||
|
Issuance
of common stock for services
|
|
892,659
|
323,817
|
||||||||||
|
Beneficial
conversion feature of debenture issued
|
83,571
|
-
|
|||||||||||
|
Amortization
of beneficial conversion feature
|
-
|
11,609
|
|||||||||||
|
Bad
debt expense
|
-
|
319,219
|
|||||||||||
|
Revaluation
and expense of variable deferred consulting
|
45,600
|
-
|
|||||||||||
|
Change
in operating asset and liability accounts:
|
|||||||||||||
|
Increase
in restricted cash
|
-
|
-
|
|||||||||||
|
Accounts
receivable
|
(81,625
|
)
|
(21,820
|
)
|
|||||||||
|
Prepaid
expenses
|
(18,684
|
)
|
23,401
|
||||||||||
|
Capitalized
loan costs
|
22,180
|
-
|
|||||||||||
|
Other
assets
|
-
|
7,144
|
|||||||||||
|
Related
party transactions
|
12,952
|
-
|
|||||||||||
|
Accounts
payable
|
55,254
|
(10,415
|
)
|
||||||||||
|
Accrued
liabilities
|
78,956
|
39,468
|
|||||||||||
|
Deferred
Revenue
|
(8,602
|
)
|
(138,070
|
)
|
|||||||||
|
Unearned
rent
|
(5,361
|
)
|
-
|
||||||||||
|
Deferred
gain on sale of subsidiary
|
(21,770
|
)
|
-
|
||||||||||
|
Refundable
Deposits
|
(500
|
)
|
9,041
|
||||||||||
|
Convertible
debentures
|
(55,000
|
)
|
-
|
||||||||||
|
Current
portion of WVDEP liability
|
(20,000
|
)
|
-
|
||||||||||
|
Current
portion of long-term debt change due to
|
|||||||||||||
|
modification
of two loan agreements to remove
|
|||||||||||||
|
an
On Demand clause
|
(920,449
|
)
|
-
|
||||||||||
|
Net
cash provided (used) by operating activities
|
(254,778
|
)
|
(152,474
|
)
|
|||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||||||||
|
Cash
paid for securities investment
|
(34,757
|
)
|
-
|
||||||||||
|
Cash
relinquished in sale of subsidiaries
|
-
|
(15,351
|
)
|
||||||||||
|
Issuance
of notes receivable
|
(120,431
|
)
|
(60,000
|
)
|
|||||||||
|
Proceeds
from notes receivable
|
6,790
|
26,100
|
|||||||||||
|
Proceeds
from sale of marketable securities
|
195,608
|
23,032
|
|||||||||||
|
Proceeds
from sale of real property
|
-
|
49,000
|
|||||||||||
|
Purchase
of property, plant and equipment
|
|
(364,761
|
)
|
(32,544
|
)
|
||||||||
|
Net
cash provided (used) by investing activities
|
(317,551
|
)
|
(9,763
|
)
|
|||||||||
|
The
accompanying notes are integral to the consolidated financial
statements.
|
|||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2004
|
2003
|
||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
|
Cash
paid for securities investment
|
(34,757
|
)
|
0
|
||||
|
Cash
relinquished in sale of subsidiaries
|
0
|
(15,351
|
)
|
||||
|
Issuance
of notes receivable
|
(120,431
|
)
|
(60,000
|
)
|
|||
|
Proceeds
from notes receivable
|
6,790
|
26,100
|
|||||
|
Proceeds
from sale of marketable securities
|
195,608
|
23,032
|
|||||
|
Proceeds
from sale of real property
|
0
|
49,000
|
|||||
|
Purchase
of property, plant and equipment
|
(364,761
|
)
|
(32,544
|
)
|
|||
|
Net
cash provided (used) by investing activities
|
(317,551
|
)
|
(9,763
|
)
|
|||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|||||||
60
|
NEXIA
HOLDINGS, INC. AND
SUBSIDIARIES
|
||||||||||
|
Consolidated
Statements of Cash Flows (Continued)
|
||||||||||
|
For
the Years Ended
|
||||||||||
|
December
31,
|
||||||||||
|
2004
|
2003
|
|||||||||
|
CASH
FLOWS FROM LONG TERM FINANCING ACTIVITIES
|
||||||||||
|
Payments
on related party notes payable
|
||||||||||
|
Notes
receivable
|
$
|
(118,050
|
)
|
$
|
-
|
|||||
|
Payments
on long-term debt
|
(88,508
|
)
|
(134,928
|
)
|
||||||
|
Proceeds
from issuance of long-term debt
|
193,510
|
194,417
|
||||||||
|
Proceeds
from issuance of convertible debentures
|
200,000
|
60,000
|
||||||||
|
Proceeds
from stock option exercise
|
-
|
28,000
|
||||||||
|
Issuance
of common stock to redeem convertible debentures
|
50,000
|
-
|
||||||||
|
Issuance
of Preferred Series B stock
|
8,000
|
-
|
||||||||
|
Issuance
of Preferred Series C stock for cash
|
50,000
|
-
|
||||||||
|
Receipt
of stock subscriptions receivable
|
43,821
|
-
|
||||||||
|
Issuance
of common stock for stock option exercise
|
371,974
|
-
|
||||||||
|
Net
cash provided (used) by financing activities
|
710,747
|
147,489
|
||||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
138,418
|
(14,748
|
)
|
|||||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
94,073
|
108,821
|
||||||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
232,491
|
$
|
94,073
|
||||||
|
SUPPLEMENTAL
DISCLOSURE OF INFORMATION
|
||||||||||
|
CASH
PAID FOR:
|
||||||||||
|
Interest
|
$
|
346,250
|
$
|
331,488
|
||||||
|
Income
taxes
|
$
|
-
|
$
|
-
|
||||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH:
|
||||||||||
|
INVESTING
AND FINANCING ACTIVITIES:
|
||||||||||
|
Preferred
stock issued for services
|
$
|
8,000
|
$
|
-
|
||||||
|
Common
stock issued for services
|
$
|
892,659
|
$
|
323,817
|
||||||
|
Common
stock issued for subscriptions receivable
|
$
|
417,830
|
$
|
-
|
||||||
|
Common
stock issued for variable deferred consulting
|
$
|
43,988
|
$
|
-
|
||||||
|
Office
equipment acquired through a capital lease
|
$
|
-
|
$
|
19,815
|
||||||
|
Common
stock issued for building improvements
|
$
|
141,564
|
$
|
-
|
||||||
|
Common
stock issued for loan costs
|
$
|
-
|
$
|
50,000
|
||||||
|
The
accompanying notes are integral to the consolidated financial
statements.
|
||||||||||
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
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. The name of the
Company has changed several times, most recently, to Kelly's Coffee Group,
Inc.
(Kelly's) on April 22, 1994, and finally to Nexia Holdings, Inc. on March
15,
2002. Nexia became a development stage company on March 1, 1998.
On
October 5, 2000, Nexia merged with a Nevada corporation with the same name,
effectively changing its state of domicile from Colorado to Nevada and its
authorized common stock from 100,000,000 shares with $.001 par value to
1,000,000,000 shares with $.001 par value.
On
February 15, 2002, the Company entered into a Stock Purchase Agreement
(Agreement) with Axia Group, Inc. (Axia), a related party, pursuant to which
the
Company issued to Axia 255,100,000 restricted shares of the Company=s
common
stock in exchange for essentially all of the assets and liabilities of Axia.
Axia=s
assets
included a portfolio of securities, real estate holdings and publicly reporting
shell-companies. The shares issued to Axia equaled approximately 82% of the
issued and outstanding shares of the Company after the close of the transaction.
Immediately prior to the Agreement, the Company had 55,252,760 shares of
common
stock issued and outstanding.
The
acquisition was accounted for as a recapitalization. The subsidiaries consisted
of Diversified Holdings I, Inc., Wichita Development Corporation, Golden
Opportunity Development Corporation, Downtown Development Corporation, Wasatch
Capital Corporation, Hudson Consulting Group, Inc., Oasis International Hotel
and Casino, Inc., Canton Industrial Corporation of Salt Lake City Inc.,
Canton=s
Wild
Horse Ranch II, Inc., West Jordan Real Estate Holdings, Inc., Salt Lake
Development, Inc., Kearns Development Corporation and Canton Tire Recycling
of
West Virginia, Inc. (together "The
Accounting Acquirer").
The
subsidiaries of Axia which were transferred to the Company have been treated
as
the acquiring entities for accounting purposes and the Company is the surviving
entity for legal purposes. The transaction is deemed to be an exchange of
assets
between entities under common control. The President of the Company was also
the
President of Axia.
As
noted
by Interpretation 39, the transfer of net assets or an exchange of shares
between entities under common control is excluded from Opinion 16 and should
be
accounted for at historical cost. There was no adjustment to the carrying
value
of the assets or liabilities of the transferred subsidiaries, nor was there
any
adjustment to the carrying value of the net assets or liabilities of the
Company. The combined statements of operations and other comprehensive income
and cash flows for the year ended December 31, 2001 include only the activity
of
the accounting acquirer and through February 5, 2002 (date of agreement)
after
which the statement of operations reflect the operations of the accounting
acquirer and Nexia. The statement of stockholders equity for the year ended
December 31, 2001 has been presented to give proportionate effect to the
number
of shares issued by the Company as applied to the equity transactions of
the
accounting acquirer.
On
June
19, 2003, in an inter-company tax free transaction, Wichita Development
Corporation exchanged its shareholdings in Kearns Development Corporation
for
the Diversified Holdings 1, Inc. shareholdings in Salt Lake Development
Corporation. At the time of the exchange all parties were subsidiaries of
Nexia.
62
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
On
June
20, 2003, the Company sold its interest in Wichita Development Corporation,
and
consequently, its interest in Salt Lake Development Corporation and Wichita
Properties, Inc., to Diversified Financial Resources Corporation (DFRC) (See
Note 12).
NOTE
1 a.
ORGANIZATION
On
December 31, 2004, Diversified Holdings I, Inc., a subsidiary of the Company,
sold the stock of four of its subsidiaries to an unrelated party for $100.
The
four entities sold were Oasis International Hotel & Casino, Inc., Golden
Opportunity Development Corporation, Canton’s Wild Horse Ranch II, Inc. and
Canton Tire Recycling of West Virginia.
b.
Basis
of Consolidation
Diversified
Holdings I, Inc. (DHI), a Nevada corporation and 99% owned subsidiary of
the
Company, was formed on March 22, 1996. DHI is a holding company which has
majority ownership of the following subsidiaries:
Hudson
Consulting Group, Inc. (Hudson) was incorporated in Nevada on April 16, 1996,
as
Diversified Holdings XIII, Inc. for the purpose of providing business consulting
services. On March 5, 1997, its name was changed to Hudson Consulting Group,
Inc. Hudson is 100% owned by DHI.
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.
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. Its only assets are cash
and
receivables of $677,539 at May 1, 2005.
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. Prior to October 17, 2001, Kearns was owned
90.7% by DHI and on June 19, 2003 was sold back to DH1 by WHDV.
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 98% and 77% of Wasatch common stock as of December 31, 2004 and 2003
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.
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. In addition
to DHI, the Company has majority ownership in the following subsidiaries:
63
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
NOTE
1 b. BASIS OF CONSOLIDATION, continued
At
December 31, 2004, the Company had a majority ownership in 14 other companies
including CyberCosmetics, Inc., CyberBoy, Inc., CyberEye, Inc., CyberFishing,
Inc., CyberLead, Inc., CyberLife, Inc., CyberOil, Inc., CyberSkiing, Inc.,
CyberSoccer, Inc., CyberTennis, Inc.,CyberTyme, Inc., CyberWholesale, Inc.,
CSI
Holdings, Inc. (formerly CyberWrestling, Inc.), CyberWrite, Inc. Each of
these
companies is inactive with little or no assets, liabilities or operating
activities.
The
financial statements of four subsidiaries of Diversified Holdings I, Inc.,
referred to in Note 1 a. Organization as having been sold on December 31,
2004,
are not included in the consolidated financial statements as of December
31,
2004 and for the year then ended.
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. has signed a note payable.
As
part of the note, WJREH has 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 $79,631 at December 31, 2004.
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
December
31, 2004 and 2003
Net
deferred tax assets consist of the following components as of December 31,
2004
and 2003:
|
2004
|
|
2003
|
|||||
|
Deferred
tax assets
|
|||||||
|
NOL
Carryover
|
$
|
4,697,711
|
$
|
2,594,290
|
|||
|
|
|||||||
|
Capital
loss
|
661,050
|
661,050
|
|||||
|
Other
|
36,820
|
33,700
|
|||||
|
|
|||||||
|
Deferred
tax liabilities:
|
-
|
-
|
|||||
|
Valuation
allowance
|
(5,395,581
|
)
|
(3,289,040
|
)
|
|||
|
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, 2004
and 2003 due to the following:
|
|||||||
|
|
2004
|
|
|
2003
|
|||
|
Book
loss
|
$
|
(3,004,155
|
)
|
$
|
(351,710
|
)
|
|
|
Bad
debt
|
-
|
124,495
|
|||||
|
Asset
impairments
|
194,194
|
97,165
|
|||||
|
Other
(Charitable contribution)
|
3,120
|
2,345
|
|||||
|
Stock
for services/option expense
|
1,685,573
|
150,160
|
|||||
|
Valuation
allowance
|
1,121,268
|
(22,455
|
)
|
||||
|
-
|
- |
-
|
|||||
At
December 31, 2004, 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,
2004 consolidated financial statements since the potential tax benefit is
offset
by a valuation allowance of the same amount.
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.
f.
Depreciation
The
Company's property and equipment is depreciated using the straight-line
Accounting method over the useful lives shown below for financial reporting
purposes.
|
Useful
Life
|
Asset
|
|
|
|
|
Computers
|
3
years
|
|
Equipment
and fixtures
|
5
to 10 years
|
|
Buildings
and improvements
|
20
to 39 years
|
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
g.
Revenue Recognition
The
Company recognizes revenue from its two 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 deferred revenue until such time as the rent has been earned. Unearned
rental revenue at the December 31, 2004 was $23,094.
Consulting
Revenue
The
Company, through its subsidiaries, performs consulting services which consist
of
financial reporting, business acquisitions, and other public company reporting
and support functions. The Company can receive payment for these services
in a
variety of ways. (1) the Company can be paid in cash; (2) the Company can
be
paid in restricted securities of the client; (3) the Company can be paid
in a
combination of cash and restricted securities of the client. The Company
follows
the revenue recognition provisions of SAB 101 >Revenue
Recognition in Financial Statements
and 5
>Recognition
and Measurement in Financial Statements of Business Enterprises.
These
statements require that revenue not be recognized unless collectibility is
reasonably assured with recognition of revenue acceptable only when realizable
or when assets received or held are readily convertible into known amounts
of
cash or claims to cash.
Accordingly,
when the Company is to be paid in cash, the Company will record the revenue
on
an accrual basis when the services have been performed, the amounts are readily
determinable and collection is reasonably assured. In the cases where the
Company receives restricted securities from the client as payment, revenue
is
deferred until such time as the securities are sold, thereby meeting the
requirements that the assets received are readily convertible into known
amounts
of cash. In the cases where the Company receives a combination of cash and
restricted securities, the Company will record that cash as revenue as noted
previously and will defer the recognition of the revenue from the securities
until the securities are sold.
The
Company records the securities received from consulting services in accordance
with SFAS 115 >Accounting
for Certain Investments in Debt and Equity Securities.
This
standard requires that the Company classify its investments as either trading,
available for sale, or held to maturity securities. The Company typically
classifies the securities received as payment for the consulting services
as
available for sale. Any unrealized gains and losses on these securities for
which the revenue has been deferred are recorded as adjustments to the deferred
revenue account until such time as the security is sold and the Company is
able
to recognize the revenue from the consulting services. The amount of deferred
revenue related to consulting services performed for which the Company received
restricted securities at December 31, 2004 was $358. This represents the
fair
value of the portion of the available for sale securities for which revenue
had
been deferred at December 31, 2004.
66
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
The
Company will discontinue these services in 2005.
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 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 classifies 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. Issuance of
Common
Stock
The
Company frequently issues shares of its common stock to acquire assets, retire
debt and pay for services. When stock is issued for assets, debt or services,
the value of the stock, related assets, debt or services is determined by
the
most readily determinable value, i.e. the value of the common stock issued
or
the value of the assets, debt or services.
|
|
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. Impairment expense totaled $0 and $173,966 for the years ended
December 31, 2004 and December 31, 2003, respectively.
|
l.
Advertising Expense
|
The
Company expenses advertising costs as incurred. Advertising expense was $2,232
and $0 for the years ended December 31, 2004 and 2003,
respectively.
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
m. Basic
and
Diluted Loss Per Common Share
The
computation of basic and diluted 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,
|
|||||
|
2004
|
|
2003
|
|||||
|
Numerator:
|
|||||||
|
Loss
before minority interest
|
$
|
(3,011,331
|
)
|
$
|
(883,327
|
)
|
|
|
Minority
interest
|
7,176
|
65,113
|
|||||
|
Net
loss before discontinued
|
|||||||
|
Operations
|
(3,004,155
|
)
|
(818,214
|
)
|
|||
|
Discontinued
operations
|
-
|
(83,611
|
)
|
||||
|
Net
loss
|
$
|
(3,004,155
|
)
|
$
|
(901,825
|
)
|
|
|
Denominator:
|
|||||||
|
weighted
average shares
|
|||||||
|
outstanding
|
90,299,865
|
322,735
|
|||||
|
Basic
and diluted loss per
|
|||||||
|
Weighted
average
|
|||||||
|
Common
share:
|
|||||||
|
Loss
per common share before
|
|||||||
|
minority
interest
|
$
|
(0.03
|
)
|
$
|
(2.74
|
)
|
|
|
Minority
interest in loss per
|
|||||||
|
common
share
|
(0.00
|
)
|
(0.20
|
)
|
|||
|
Net
loss per common share before
|
|||||||
|
discontinued
operations
|
(0.03
|
)
|
(2.54
|
)
|
|||
|
Loss
per common share on
|
|||||||
|
discontinued
operations
|
-
|
(
.26
|
)
|
||||
|
Net
loss per common share, basic
|
|||||||
|
and
diluted
|
$
|
(0.03
|
)
|
$
|
(2.80
|
)
|
|
|
The
weighted average shares outstanding at December 31, 2003 were
reported
originally as 322,734,541. The number has been changed to 322,735
to
reflect the 1000:1 reverse stock split effective November 1,
2004.
|
|||||||
68
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
n.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United Stated 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, 2004, the Company adopted the following accounting
pronouncements:
SFAS
No. 143
-- In
August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which established a uniform methodology for accounting for
estimated reclamation and abandonment costs. The statement was effective
for
fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143
did not
have a material effect on the financial statements of the Company.
SFAS
No. 145 --
On April
30, 2002, the FASB issued FASB Statement No. 145 (SFAS 145), "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and
Technical Corrections."
SFAS 145
rescinds both FASB Statement No. 4 (SFAS 4), "Reporting
Gains and Losses from Extinguishment of Debt,"
and the
amendment to SFAS 4, FASB Statement No. 64 (SFAS 64), "Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements."
Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and
SFAS
64) that gains and losses from the extinguishment of debt be aggregated and,
if
material, classified as an extraordinary item, net of the related income
tax
effect. However, an entity is not prohibited from classifying such gains
and
losses as extraordinary items, so long as it meets the criteria in paragraph
20
of Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business,
and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Further, SFAS 145 amends paragraph 14(a) of FASB Statement No. 13, "Accounting
for Leases",
to
eliminate an inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic effects that
are
similar to sale-leaseback transactions. The amendment requires that a lease
modification (1) results in recognition of the gain or loss in the 9 financial
statements, (2) is subject to FASB Statement No. 66, "Accounting
for Sales of Real Estate,"
if the
leased asset is real estate (including integral equipment), and (3) is subject
(in its entirety) to the sale-leaseback rules of FASB Statement No. 98,
"Accounting
for Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type
Leases
of Real Estate, Definition of the Lease Term, and Initial Direct Costs of
Direct
Financing Leases."
Generally, FAS 145 is effective for transactions occurring after May 15,
2002.
The adoption of SFAS 145 did not have a material effect on the financial
statements of the Company.
SFAS
No. 146 --
In June
2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities"
(SFAS 146). SFAS 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted
for
under EITF No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." The scope of SFAS 146 also
includes costs related to terminating a contract that is not a capital lease
and
termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing
benefit
arrangement or an individual deferred-compensation contract. SFAS
146 will
be
effective for exit or disposal activities that are initiated after December
31,
2002 and early application is encouraged. The provisions of EITF No. 94-3
shall
continue to apply for an exit activity initiated under an exit plan that
met the
criteria of EITF No. 94-3 prior to the adoption of SFAS 146. The effect on
adoption of SFAS 146 will change on a prospective basis the timing of when
the
restructuring charges are recorded from a commitment date approach to when
the
liability is incurred. The adoption of SFAS 146 did not have a material effect
on the financial statements of the Company.
69
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
SFAS
No. 147
-- In
October 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 147, "Acquisitions
of Certain Financial Institutions"
which is
effective for acquisitions on or after October 1, 2002. This statement provides
interpretive guidance on the application of the purchase method to acquisitions
of financial institutions. Except for transactions between two or more mutual
enterprises, this Statement removes acquisitions of financial institutions
from
the scope of both SFAS 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with SFAS No. 141, "Business
Combinations"
and No.
142, "Goodwill
and Other Intangible Assets".
The
adoption of SFAS No. 147 did not have a material effect on the financial
statements of the Company.
SFAS
No. 148
-- In
December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123"
which is
effective for financial statements issued for fiscal years ending after December
15, 2002. This Statement amends SFAS 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of
SFAS 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based compensation and
the
effect of the method used on reported results. The adoption of SFAS No. 148
did
not have a material effect on the financial statements of the
Company.
SFAS
No. 149 --
In
April 2003, the FASB issued SFAS No. 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities"
which is
effective for contracts entered into or modified after June 30, 2003 and
for
hedging relationships designated after June 30, 2003. This statement amends
and
clarifies financial accounting for derivative instruments embedded in other
contracts (collectively referred to as derivatives) and hedging activities
under
SFAS 133. The adoption of SFAS No. 149 did not have a material effect on
the
financial statements of the Company.
SFAS
No. 150 --
In May
2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity"
which is
effective for financial instruments entered into or modified after May 31,
2003,
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how
an
issuer classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and equity.
It
requires that an issuer classify a financial instrument that is within its
scope
as a liability (or an asset in
some
circumstances) because that financial instrument embodies an obligation of
the
issuer. The adoption of SFAS No. 150 did not have a material effect on the
financial statements of the Company.
70
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
SFAS
No. 132 (revised 2003)
- In
December 2003 the FASB issued SFAS No. 132 (revised 2003) “Employers’
Disclosures about Pensions and Other Postretirement Benefits—an amendment of
FASB Statements No. 87, 88, and 106” which is effective for financial statements
with fiscal years ending after December 15, 2003. The interim-period disclosures
required by this Statement are effective for interim periods beginning after
December 15, 2003. This Statement does not change the requirements in
measurement or recognition of those plans. Instead it retains the disclosure
requirements and additionally requires disclosures to those in the original
Statement 132 about the assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The required information should be provided separately
for
pension plans and for other postretirement benefit plans. The adoption of
SFAS
No. 132 (revised 2003) did not have a material effect on the financial
statements of the company.
SFAS
No. 151
- In
November 2004 the FASB issued SFAS No. 151 “Inventory Costs—an amendment of ARB
No. 43, Chapter 4” which is effective November 2004. This Statement amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). It requires current-period recognition
regardless of whether or not those items meet the criterion of “so abnormal”.
Additionally, this Statement requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. The adoption of SFAS No. 151 did not have a material
effect on the financial statements of the company.
SFAS
No. 152
- In
June 2004 the FASB issued SFAS No. 152 “Accounting for Real Estate Time-Sharing
Transactions - an amendment of FASB Statements No 66 and 67.” It amends FASB
Statement No. 66 and AICPA Statement of Position 04-2 and states that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions.
The
accounting for those operations and costs is subject to the guidance in SOP
04-2. The adoption of SFAS No. 152 did not have a material effect on the
financial statements of the company.
SFAS
No. 153
- In
December 2004 the FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets - an
amendment of APB Opinion No. 29” which provides standards for the measurement of
nonmonetary exchanges. It amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if
the
future cash flows of the entity are expected to change significantly as a
result
of the exchange. The adoption of SFAS No. 153 did not have a material effect
on
the financial statements of the company.
SFAS
No. 123
- In
December 2004 the FASB issued SFAS No. 123 (revised 2004) “Share-Based Payment”
which is effective for public entities that do not file as small business
issuers—as of the beginning of the first interim or annual reporting period that
begins after June 15, 2005. This Statement establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity
incurs
liabilities in exchange for goods or services that are based on the fair
value
of the entity’s equity instruments or that may be settled by the issuance of
those equity instruments. This Statement focuses primarily on accounting
for
transactions in which an entity obtains employee services in share-based
payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided
in
Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or in
Conjunction with Selling, Goods or Services.” This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership
Plans. The implementation of this SFAS will have a material effect on the
Company’s financial statements.
71
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
FASB
Interpretation No. 45 --
"Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others B
an
Interpretation of FASB Statements No. 5, 57 and 107".
The
initial recognition and initial measurement provisions of this Interpretation
are to be applied prospectively to guarantees issued or modified after December
31, 2002. The disclosure requirements in the Interpretation were effective
for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FASB Interpretation No. 45 did not have a material
effect
on the financial statements of the Company.
FASB
Interpretation No. 46 --
In
January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation
of Variable Interest Entities."
FIN 46
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights, variable interest
entities, and how to determine when and which business enterprises should
consolidate variable interest entities. This interpretation applies immediately
to variable interest entities created after January 31, 2003. It applies in
the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest
that
it acquired before February 1, 2003. The adoption of FIN 46 did not have a
material impact on the Company's
financial statements.
During
the year ended December 31, 2003, the Company adopted the following Emerging
Issues Task Force Consensuses: EITF Issue No. 00-21 "Revenue
Arrangements with Multiple Deliverables",
EITF
Issue No. 01 B8
"Determining Whether an Arrangement Contains a Lease",
EITF
Issue No. 02-3 AIssues
Related to Accounting for Contracts Involved in Energy Trading and Risk
Management Activities",
EITF
Issue No. 02-9 "Accounting
by a Reseller for Certain Consideration Received from a Vendor",
EITF
Issue No. 02-17, "Recognition
of Customer Relationship Intangible Assets Acquired in a Business
Combination",
EITF
Issue No. 02-18 "Accounting
for Subsequent Investments in an Investee after Suspension of Equity Method
Loss
Recognition",
EITF
Issue No. 03-1, "The
Meaning of Other Than Temporary and its Application to Certain
Instruments",
EITF
Issue No. 03-5, "Applicability
of AICPA Statement of Position 9702, >Software
Revenue Recognition
to
Non-Software Deliverables in an Arrangement Containing More Than Incidental
Software",
EITF
Issue No. 03-7, "Accounting
for the Settlement of the Equity Settled Portion of a Convertible Debt
Instrument That Permits or Requires the Conversion Spread to be Settled in
Stock",
EITF
Issue No. 03-10, AApplication
of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers
by
Manufacturers.
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.
72
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
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.
| p. |
Stock
Based Compensation
|
As
permitted by FASB Statement 148 "Accounting
for Stock Based Compensation-Transition and Disclosure"
(SFAS
No. 148),
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
earning
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.
NOTE
2
- GOING
CONCERN
The
Company's consolidated financial statements are prepared using accounting
principles generally accepted in the United Stated 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, 2004 of $12,815,682, and
has a
working capital deficit of $51,336 at December 31, 2004 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 options
|
|
_
|
Using
stock and option-based compensation to cover payroll and other
permissible
labor costs
|
There
can
be no assurance that the Company can or will be successful in implementing
any
of its plans or that they 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
December
31, 2004 and 2003
NOTE
3 -
RELATED PARTY TRANSACTIONS
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.
During
April 2003, Hudson, a subsidiary of the Company, entered into an agreement
to
sell its interest in Unit A216 of the Brian Head North Condominiums in Iron
County, Utah to related party. Hudson received $1,000 in cash and was relieved
of all obligations and liabilities relating to the property. The Company
recognized a loss on sale of $10,660.
During
May 2003, Hudson entered into a one-year Consulting Agreement with Axia Group,
Inc. (Axia) a related party. The agreement calls for Axia to issue 666,667
shares of common stock and pay $10,000 per month or hourly billings on a
monthly
basis, whichever is greater. Amounts due under this agreement have been off-set
against payables to Axia from the receipt by Hudson of $64,413 in cash from
the
sale of Axia common stock. At December 31, 2004, Hudson had a net receivable
of
$12,942 from Axia.
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
(pre-reverse split) 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.
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
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.
NOTE
4 -
NOTES RECEIVABLE
Notes
receivable consist of the following at December 31, 2004:
|
Notes
receivable from an individual, with interest
|
||||
|
at
8%, due August 10, 2002, secured by a building,
|
||||
|
net
of full allowance
|
$
|
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
|
34,249
|
|||
|
Note
from a corporation, with interest at 115%,
|
||||
|
due
in four monthly payments of $31,250,
|
||||
|
including
interest, from December 16, 2004 and
|
||||
|
unsecured
|
100,000
|
|||
|
Note
receivable from a company, non-interest
|
||||
|
bearing,
due on demand, unsecured, net of
|
||||
|
full
allowance.
|
81,700
|
|||
|
Allowance
for doubtful accounts
|
(315,950
|
)
|
||
|
Total
Notes Receivable
|
$
|
154,999
|
||
At
December 31, 2004, two of the notes were in default. 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, 2004:
|
Buildings
and improvements
|
$
|
3,510,066
|
||
|
Furniture
and equipment
|
182,311
|
|||
|
Vehicles
|
3,650
|
|||
|
Accumulated
depreciation
|
(760,975
|
)
|
||
|
Total
property and equipment, net
|
2,935,052
|
|||
|
Land
|
489,295
|
|||
|
Total
fixed assets
|
$
|
3,424,347
|
For
the
years ended December 31, 2004 and 2003, the Company recorded depreciation
expense of $135,704 and $137,607, respectively.
75
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
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,
2004:
|
Available-for-Sale
|
||||||||||
|
Gross
|
|
Gross
|
|
|
|
|||||
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|||
|
|
|
Profit
|
|
Losses
|
|
Value
|
||||
|
|
||||||||||
|
|
2004
|
|
2004
|
|||||||
|
|
||||||||||
|
Equity
securities -
|
||||||||||
|
free
trading
|
$
|
-
|
$
|
6,767
|
$
|
44,549
|
||||
|
Equity
securities -
|
||||||||||
|
restricted
|
-
|
-
|
-
|
|||||||
|
|
||||||||||
|
|
$ | - |
$
|
6,767
|
$
|
44,549
|
||||
Changes
in the unrealized loss on available-for-sale securities during the years
ended
December 31, 2004 and 2003 reported as a separate component of
stockholders=
equity
are as follows:
|
For
the Years Ended
|
|
||||||
|
|
|
December
31,
|
|||||
|
2004
|
|
2003
|
|||||
|
|
|
||||||
|
Beginning
Balance
|
$
|
(
862
|
)
|
$
|
873
|
||
|
Increase
in unrealized holding gains
|
|||||||
|
(losses)
|
(5,905
|
)
|
(1,735
|
)
|
|||
|
|
|
||||||
|
Ending
Balance
|
$
|
(6,767
|
)
|
$
|
(
862
|
)
|
|
During
the years ended December 31, 2004 and 2003, the Company recognized $194,194
and
$75,177 in permanent impairment expense on marketable securities.
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
NOTE
7 -
PREFERRED STOCK
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 May
10, 2005, 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 issues 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.
The
Company has not declared a cash dividend for any of its classes of stock
during
the fiscal year ended December 31, 2004.
77
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
NOTE
8
B
OUTSTANDING STOCK OPTIONS
As
permitted by FASB Statement 148 "Accounting
for Stock Based Compensation B
Transition and Disclosure"
(SFAS
No. 148), 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
September 29, 2003, the Board of Directors of the Company authorized and
adopted
the 2003 Benefit Plan of Nexia Holdings, Inc. under which the Company was
authorized to issue stock or options to purchase stock to employees,
consultants, contractors, advisors or other individual persons. The total
number
of shares covered by the 2003 plan was 20,000,000 and the plan was terminated
on
January 7, 2004.
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
1,283,752,898 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
$2,562,343 in compensation expense for the intrinsic value and fair
values.
A
summary
of the status of the Company's
stock
option plans as of December 31, 2004 and 2003 and changes during the years
is
presented below:
|
2004
|
|
2003
|
|||||||||||
|
|
|||||||||||||
|
|
|
Weighted
|
|
|
|
Weighted
|
|
||||||
|
|
|
|
|
Average
|
|
|
|
Average
|
|
||||
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
||||
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|||||
|
Outstanding,
|
|||||||||||||
|
beginning
of
|
|||||||||||||
|
year
|
-
|
$
|
-
|
$
|
-
|
||||||||
|
Granted
|
1,283,752,898
|
-
|
5,600
|
0.01
|
|||||||||
|
Expired/Cancelled
|
-
|
-
|
5,600
|
0.01
|
|||||||||
|
Exercised
|
1,282,930,398
|
$ | |||||||||||
|
Outstanding
end
|
|||||||||||||
|
of
year
|
822,500
|
$
|
-
|
-
|
$
|
-
|
|||||||
|
Exercisable
|
-
|
$
|
-
|
-
|
$
|
-
|
|||||||
78
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
The
Company
estimated the fair value of each stock option issued during the year at
the
grant date by using the fair market value on the date issued. The numbers
of
options issued, exercised and outstanding in 2004 and 2003, as shown above,
reflect the effect of the 1000:1 reverse stock split on November 1,
2004.
|
For
the Year
|
|
|||
|
|
|
Ended
|
|
|
|
|
|
December
31, 2004
|
||
|
Risk
free interest rate
|
0.00
|
%
|
||
|
Expected
life
|
0
years
|
|||
|
Expected
volatility
|
0.00
|
%
|
||
|
Dividend
yield
|
0.00
|
%
|
||
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% with 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 $12,322 at December 31, 2004.
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
5,000,000 (pre-reverse split) shares of the 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, $0.01 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.
On
May
15, 2003, Hudson entered into an agreement to sell an automobile in exchange
for
the assumption of the monthly payments by the buyer and the release of Hudson
of
all obligations and liabilities relating to the vehicle. The Company recognized
a gain on sale of $701
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
|
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 7.16%, 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
|
630,203
|
|||
|
Mortgage
payable bearing interest at 7.5%, monthly payments
|
||||
|
of
$6,848 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
|
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
|
376,820
|
|||
|
Note
payable bearing interest at 6.99%, monthly payments
|
||||
|
of
$900, due November 2007, secured by vehicle
|
27,784
|
|||
|
Notes
payable, bearing interest at 4%, due January 14 2005,
|
||||
|
unsecured
|
21,353
|
|||
|
Mortgage
payable bearing interest at 8.25%, monthly
|
||||
|
payments
of $298, due September 2016, secured by
|
||||
|
first
trust deed on building
|
27,964
|
|||
|
Capital
lease payable in monthly payments of $330 through
|
||||
|
January
2008, secured by leased equipment
|
12,322
|
|||
|
Convertible
debenture payable bearing interest at 24%, due
|
||||
|
November
1, 2007, and interest payments to be made
|
||||
|
commencing
November 1, 2004. After one year, all of the
|
||||
|
balance,
except $5,000, can be converted into shares of
|
||||
|
common
stock at 70% of the average stock closing bid
|
||||
|
price
for three trading days preceding the date of notice
|
||||
|
of
conversion
|
200,000
|
|||
|
|
||||
|
3,052,918
|
||||
|
Less
current portion
|
$
|
(120,757
|
)
|
|
|
|
$
|
2,932,161
|
||
|
Scheduled
principal reductions are as follows:
|
||||
|
Year
Ending December 31:
|
||||
|
2005
|
$ | 120,757 | ||
|
2006
|
106,240
|
|||
|
2007
|
303,030
|
|||
|
2008
|
106,140
|
|||
|
2009
|
105,698
|
|||
|
Thereafter
|
2,143,066
|
|||
|
|
$
|
2,893,177
|
||
|
At
December 31, 2004, the Company was current on all notes
payable.
|
||||
80
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
NOTE
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. During the
year
ended December 31, 2003 the Company sold its subsidiary WHDV and accordingly,
WHDV's
treasury stock valued at $7,123. At December 31, 2004, 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
Disposition
of Subsidiary
On
August
27, 2002, the Company's
subsidiary, Hudson, entered into a Stock Purchase Agreement (Agreement) for
the
sale of its'
79.77%
ownership in Torchmail Communications, Inc. (Torchmail) to seven unrelated
parties. The terms of the sale were that Hudson would transfer its 79.77%
ownership in Torchmail for $300,000. The purchase price was to be paid $100,000
at closing, $100,000 120 days following closing and $100,000 180 days following
closing. Payment of the $200,000 due following closing was to be secured
by
1,874,601 shares of common stock which was two/thirds of the 79.77% owned
by
Hudson and by 9,384,543 shares of Torchmail to be issued and sold in a separate
transaction. The sale of Torchmail resulted in a gain of $343,102. Since
execution of the Agreement, the Company has received $100,000 paid at closing
and a second $100,000 payment in February 2004. The remaining amounts owed
were
settled for a cash payment of $117,000 and 3,753,531 shares of the common
stock
of Ohana Enterprises, Inc.
During
June 2003, the Company's
subsidiary, Hudson, sold two condominiums in Brian Head, Utah, one to a related
party (See Note 3) for a loss of $10,660. The other condominium was sold
to a
third party for $48,000. The net book value of $43,500, plus sale expenses
of
$3,549, resulted in a gain on sale of $951.
On
June
19, 2003, in an inter-company tax free transaction, WHDV, a subsidiary of
the
Company, exchanged its shareholdings in Kearns for the DHI shareholdings
in SLD.
DHI, Kearns and SLD were all subsidiaries of Nexia at the time of the
restructuring.
81
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
On
June
30, 2003, the Company sold its interest in WHDV to DFRC. The terms of the
agreement are as follows:
a)
WHDV
assigns to DH1 a promissory note in the amount of $14,056;
b)
WHDV
waives the $112,517 receivable owed to it by Kearns;
c)
Nexia
waives the $1,565 receivable owed to it by WHDV, and DH1 waives the $407,854
receivable owed to it by SLD;
d)
Wichita issues to DH1 a promissory note in the amount of
$150,000;
e)
DFRC
transfers to DH1 1,148,251 shares of its restricted common stock with a
guaranteed liquidation value of not less than $1 per share. DFRC shares
currently have a market price of approximately $0.0001/share. The shares
have
been fully written off as of December 31, 2004.
Subsequently,
it was determined that the receivable from WHDV was impaired, with the full
allowance applied against the gain on sale. The Company recognized a net
gain on
sale of $129,268.
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 accordance with an agreement
with
Diversified Financial Resources Corporation. The contra entry was to Gain
on
Sale of Subsidiary, Wichita Development Co., 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 accounts 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.
|
NOTE
13 -
|
SEGMENT
INFORMATION
|
Using
the
guidelines set forth in SFAS No. 131, Information "Disclosures about Segments
of
an Enterprise and Related Information," Nexia Holdings has identified two
reportable segments in which it operates based on the services it provides.
The
reportable segments are as follows: Real estate operations ("Real Estate"),
which primarily purchases, sells and rents commercial real estate; and
Consulting and other operations ("Consulting and other"), which primarily
provides merger and acquisition structuring services and also capital
restructuring, general corporate problem solving and shareholder relations
services.
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.
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
|
For
the Year
|
|
|
|
|
|
|
|
||||||
|
|
|
Ended
|
|
Consulting
|
|
Real
|
|
|
|
||||
|
|
|
December
31,
|
|
and
Other
|
|
Estate
|
|
Total
|
|||||
|
Revenues
|
2004
|
$
|
121,633
|
$
|
512,456
|
$
|
634,089
|
||||||
|
2003
|
276,565
|
511,020
|
787,585
|
||||||||||
|
|
|||||||||||||
|
Cost
of revenues (including
|
|
||||||||||||
|
mortgage
interest)
|
2004
|
(1,069,329
|
)
|
(1,055,139
|
)
|
(2,124,468
|
)
|
||||||
|
2003
|
(287,209
|
)
|
(650,121
|
)
|
(937,330
|
)
|
|||||||
|
|
|||||||||||||
|
Expenses
|
2004
|
(1,349,885
|
()
|
(652,765
|
)
|
(2,002,650
|
)
|
||||||
|
2003
|
(252,648
|
)
|
(694,788
|
)
|
(947,436
|
)
|
|||||||
|
|
|||||||||||||
|
Interest
income
|
2004
|
5,493
|
-
|
5,493
|
|||||||||
|
2003
|
182-
|
182
|
|||||||||||
|
|
|||||||||||||
|
Interest
expense (not
|
|
||||||||||||
|
mortgage
interest)
|
2004
|
-
|
(115,092
|
)
|
(115,092
|
)
|
|||||||
|
2003
|
-
|
(15,596
|
)
|
(15,596
|
)
|
||||||||
|
|
|||||||||||||
|
Gain/loss
on sale of subsidiaries
|
2004
|
565,110
|
-
|
565,110
|
|||||||||
|
2003
|
229,268
|
-
|
229,268
|
||||||||||
|
|
|||||||||||||
|
Minority
share of loss
|
2004
|
7,176
|
-
|
7,176
|
|||||||||
|
2003
|
65,113
|
-
|
65,113
|
||||||||||
|
|
|||||||||||||
|
Income
tax expense (benefit)
|
2004
|
-
|
-
|
-
|
|||||||||
|
Discontinued
operations
|
2003
|
-
|
(83,611
|
)
|
(83,611
|
)
|
|||||||
|
|
|||||||||||||
|
Net
income (loss) applicable
|
|
||||||||||||
|
to
segment
|
2004
|
(2,838,016
|
)
|
(166,139
|
)
|
(3,004,155
|
)
|
||||||
|
2003
|
31,271
|
(933,096
|
)
|
(901,825
|
)
|
||||||||
|
|
|||||||||||||
|
Total
assets
|
2004
|
471,584
|
3,534,476
|
4,006,060
|
|||||||||
|
(net
of intercompany accounts)
|
2003
|
162,364
|
3,318,141
|
3,480,505
|
|||||||||
|
|
|||||||||||||
|
Property
and equipment
|
2004
|
6,308
|
358,453
|
364,761
|
|||||||||
|
acquisitions
|
2003
|
- |
52,359
|
52,359
|
|||||||||
|
|
|||||||||||||
|
Depreciation
and amortization
|
2004
|
4,965
|
140,739
|
145,704
|
|||||||||
|
2003
|
7,801
|
40,963
|
48,764
|
||||||||||
NEXIA
HOLDINGS, INC, AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2004 and 2003
NOTE
14 -
STOCK SUBSCRIPTION RECEIVABLE
|
The
Company had stock subscriptions receivable of $375,009 and $28,000
at
December 31, 2004 and 2003
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. The Company
recognized a beneficial conversion feature debt discount of $83,571 which
was
fully expensed in 2004.
NOTE
16
B
DISCONTINUED OPERATIONS
On
June
20, 2003, the Company sold its interest in Wichita Development Corporation,
and
consequently, its interest in Salt Lake Development Corporation and Wichita
Properties, Inc., to Diversified Financial Resources Corporation.
The
following is summary of the loss from discontinued operations:
|
For
the Years Ended
|
|||||||
|
|
December
31,
|
||||||
|
|
2004
|
|
2003
|
||||
|
REVENUE
|
|||||||
|
Rental
revenue
|
$
|
-
|
$
|
82,005
|
|||
|
|
|||||||
|
COST
OF REVENUE
|
|||||||
|
|
|||||||
|
Cost
associated with rental revenue
|
-
|
94,572
|
|||||
|
Interest
expense associated with rental revenue
|
-
|
50,860
|
|||||
|
|
|||||||
|
Total
Cost of Revenue
|
-
|
145,432
|
|||||
|
|
For
the Years Ended
December
31,
|
||||||
|
|
2004
|
|
|
2003
|
|||
|
GROSS
MARGIN (DEFICIT)
|
$
|
-
|
$
|
(63,427
|
)
|
||
|
EXPENSES
|
|||||||
|
Impairment
of marketable securities
|
-
|
-
|
|||||
|
Selling,
general and administrative expense
|
-
|
22,156
|
|||||
|
|
|||||||
|
Total
Expenses
|
-
|
22,156
|
|||||
|
LOSS
FROM OPERATIONS
|
-
|
(85,583
|
)
|
||||
|
|
|||||||
|
OTHER
INCOME (EXPENSE)
|
|||||||
|
|
|||||||
|
Interest
income
|
-
|
407
|
|||||
|
Other
income
|
-
|
1,565
|
|||||
|
Total
Other Income (Expense)
|
-
|
1,972
|
|||||
|
LOSS
BEFORE MINORITY INTEREST
|
-
|
(83,611
|
)
|
||||
|
MINORITY
INTEREST
|
-
|
-
|
|||||
|
|
|||||||
|
NET
LOSS
|
$ | - |
$
|
(
83,611
|
)
|
||
No
income
tax benefit has been attributed to the loss from discontinued
operations.
NOTE
17 -
SUBSEQUENT EVENTS
Through
April 8, 2005, the board of directors of the Company has authorized the issuance
of 1,350,000,000 shares of common stock pursuant to the S-8 Registration
Statement of the Company for the payment of obligations owed to employees
and
contractors of the Company.
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.
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.’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.
NEXIA
HOLDINGS, INC.
Unaudited
Financial Statements
for
the
Quarter Ended
September
30, 2005
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
PAGE
|
|
|
|
|
Consolidated
Balance Sheets
|
98
|
|
|
|
|
Consolidated
Statements of Operations and Other Comprehensive Income
(Loss)
|
100
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
102
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
104
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
|
|
||||||
|
September
30
|
December
31
|
||||||
|
ASSETS
|
2005
|
|
|
2004
|
|||
|
|
(Unaudited)
|
||||||
|
Cash
and cash equivalents
|
$
|
343,487
|
$
|
152,413
|
|||
|
Restricted
cash
|
-
|
80,078
|
|||||
|
Accounts
and notes receivable, trade, net
|
22,796
|
108,404
|
|||||
|
Accounts
receivable - related party (Note 3)
|
-
|
23,808
|
|||||
|
Notes
receivable - net of allowance of $390,170 and
|
|
|
|||||
|
$315,950
respectively
|
66,132
|
137,799
|
|||||
|
Prepaid
expenses
|
11,883
|
18,783
|
|||||
|
Marketable
securities
|
207,362
|
44,549
|
|||||
|
|
|
|
|||||
|
TOTAL
OF CURRENT ASSETS
|
651,660
|
565,834
|
|||||
|
|
|
|
|||||
|
PROPERTY
AND EQUIPMENT
|
|
|
|||||
|
|
|
|
|||||
|
Property
and equipment, net
|
2,733,831
|
2,935,052
|
|||||
|
Land
|
689,295
|
489,295
|
|||||
|
|
|
|
|||||
|
TOTAL
NET PROPERTY AND EQUIPMENT
|
3,423,126
|
3,424,347
|
|||||
|
|
|
|
|||||
|
OTHER
ASSETS
|
|
|
|||||
|
|
|
|
|||||
|
Loan
costs, net
|
13,199
|
15,879
|
|||||
|
|
|
|
|||||
|
TOTAL
OTHER ASSETS
|
13,199
|
15,879
|
|||||
|
|
|
|
|||||
|
TOTAL
ASSETS
|
$
|
4,087,985
|
$
|
4,006,060
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets, (Continued)
|
|||||||
|
September
30
|
December
31
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
2005
|
2004
|
|||||
|
(Unaudited)
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
78,844
|
$
|
243,441
|
|||
|
Accrued
liabilities
|
223,860
|
209,480
|
|||||
|
Unearned
rent
|
-
|
23,094
|
|||||
|
Deferred
revenue
|
508
|
356
|
|||||
|
Refundable
deposits
|
17,892
|
15,041
|
|||||
|
Convertible
debentures
|
-
|
5,000
|
|||||
|
Current
maturities of long-term debt
|
928,901
|
120,757
|
|||||
|
|
|
|
|||||
|
TOTAL
CURRENT LIABILITIES
|
1,250,005
|
617,169
|
|||||
|
|
|
|
|||||
|
LONG-TERM
LIABILTIES
|
|
|
|||||
|
|
|
|
|||||
|
Convertible
debenture
|
200,000
|
200,000
|
|||||
|
Long-term
debt
|
1,492,127
|
2,732,161
|
|||||
|
|
|
|
|||||
|
TOTAL
LONG-TERM LIABILITIES
|
1,692,127
|
2,932,161
|
|||||
|
|
|
|
|||||
|
TOTAL
LIABILITIES
|
2,942,132
|
3,549,330
|
|||||
|
|
|
|
|||||
|
MINORITY
INTEREST
|
92,499
|
15,315
|
|||||
|
|
|
|
|||||
|
|
|
|
|||||
|
STOCKHOLDERS'
EQUITY (DEFICIT) (Note 5)
|
|
|
|||||
|
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,
|
|
|
|||||
|
3,489,945,834
and 1,747,945,834 shares issued (post reverse split)
|
|
|
|||||
|
and
outstanding, respectively
|
3,489,946
|
1,747,946
|
|||||
|
Additional
paid-in capital
|
10,933,287
|
12,396,385
|
|||||
|
Treasury
stock -29,138 and 29,138 shares
|
|
|
|||||
|
at
cost, respectively
|
(100,618
|
)
|
(100,618
|
)
|
|||
|
Stock
subscriptions receivable
|
(20,993
|
)
|
(375,009
|
)
|
|||
|
Other
comprehensive Loss
|
(23,944
|
)
|
(6,767
|
)
|
|||
|
Accumulated
deficit
|
(13,232,424
|
)
|
(13,228,622
|
)
|
|||
|
|
|
|
|||||
|
Total
Stockholders’ Equity
|
1,053,354
|
441,415
|
|||||
|
|
|
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
|
|
|||||
|
EQUITY
|
$
|
4,087,985
|
$
|
4,006,060
|
|||
|
|
|
|
|||||
|
The
accompanying notes are an integral integral part of these consolidated
financial statements.
|
|||||||
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
|
September
30
|
September
30
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
REVENUE
|
|||||||||||||
|
Consulting
Revenue
|
$
|
-
|
$
|
52,700
|
$
|
-
|
$
|
109,133
|
|||||
|
Rental
Revenue
|
46,880
|
132,947
|
254,702
|
379,958
|
|||||||||
|
|
|
|
|
|
|||||||||
|
TOTAL
REVENUE
|
46,880
|
185,647
|
254,702
|
489,091
|
|||||||||
|
|
|
|
|
|
|||||||||
|
COSTS
OF REVENUE
|
|
|
|
|
|||||||||
|
Costs
associated with consulting revenue
|
-
|
96,506
|
-
|
349,329
|
|||||||||
|
Costs
associated with rental revenue
|
47,625
|
223,521
|
235,764
|
520,170
|
|||||||||
|
Interest
associated with rental revenue
|
41,889
|
55,771
|
140,930
|
171,085
|
|||||||||
|
|
|
|
|
|
|||||||||
|
TOTAL
COST OF REVENUE
|
89,514
|
375,798
|
376,694
|
1,040,584
|
|||||||||
|
|
|
|
|
|
|||||||||
|
GROSS
DEFICIT
|
|
|
|
|
|||||||||
|
Gross
deficit from consulting operations
|
-
|
(43,806
|
)
|
-
|
(240,196
|
)
|
|||||||
|
Gross
deficit from real estate operations
|
(42,634
|
)
|
(146,345
|
)
|
(121,992
|
)
|
(311,297
|
)
|
|||||
|
|
|
|
|
|
|||||||||
|
GROSS
DEFICIT
|
(42,634
|
)
|
(190,151
|
)
|
(121,992
|
)
|
(551,493
|
)
|
|||||
|
|
|
|
|
|
|||||||||
|
EXPENSES
|
|
|
|
|
|||||||||
|
Impairment
of marketable securities
|
-
|
6,935
|
-
|
194,827
|
|||||||||
|
General
and administrative expense
|
165,860
|
192,955
|
717,314
|
1,052,374
|
|||||||||
|
|
|
|
|
|
|||||||||
|
TOTAL
EXPENSES
|
165,860
|
199,890
|
717,314
|
1,247,201
|
|||||||||
|
|
|
|
|
|
|||||||||
|
OPERATING
LOSS
|
(208,494
|
)
|
(390,041
|
)
|
(839,306
|
)
|
(1,798,694
|
)
|
|||||
|
|
|
|
|
|
|||||||||
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Interest
expense
|
(13,289
|
)
|
(2,562
|
)
|
(39,327
|
)
|
(8,456
|
)
|
|||||
|
Interest
income
|
18,529
|
|
51,692
|
-
|
|||||||||
|
Income
from litigation settlement
|
30,000
|
-
|
211,500
|
-
|
|||||||||
|
Gain
on disposal of assets
|
-
|
|
756,471
|
-
|
|||||||||
|
Gain
on settlement of debt
|
-
|
-
|
-
|
15,000
|
|||||||||
|
Gain
on sale of subsidiaries
|
-
|
73,849
|
-
|
313,119
|
|||||||||
|
Gain
(loss) on marketable securities
|
145
|
|
1,836
|
-
|
|||||||||
|
Other
Expense - Forgive Debt
|
(71,342
|
)
|
|
(71,342
|
)
|
|
|||||||
|
Other
Income (expense)
|
24
|
14,828
|
1,858
|
25,194
|
|||||||||
|
|
|
|
|
|
|||||||||
|
TOTAL
OTHER INCOME (EXPENSE)
|
(35,933
|
)
|
86,115
|
912,688
|
344,857
|
||||||||
|
|
|
|
|
|
|||||||||
|
NET
INCOME (LOSS) BEFORE
|
|
|
|
|
|||||||||
|
MINORITY
INTEREST
|
(244,427
|
)
|
(303,926
|
)
|
73,382
|
(1,453,837
|
)
|
||||||
|
|
|
|
|
|
|||||||||
|
MINORITY
INTEREST IN INCOME (LOSS)
|
1,486
|
2,350
|
(77,184
|
)
|
3,025
|
||||||||
|
|
|
|
|
|
|||||||||
|
NET
INCOME( LOSS)
|
(242,941
|
)
|
(301,576
|
)
|
(3,802
|
)
|
(1,450,812
|
)
|
|||||
|
|
|
|
|
|
|||||||||
|
Other
Comprehensive Loss
|
(356
|
)
|
-
|
(23,944
|
)
|
-
|
|||||||
|
|
|
|
|
|
|||||||||
|
TOTAL
COMPREHENSIVE INCOME (LOSS)
|
$
|
(243,297
|
)
|
$
|
(301,576
|
)
|
$
|
(27,746
|
)
|
$
|
(1,450,812
|
)
|
|
|
|
|
|
|
|
|||||||||
|
The
accompanying notes are an integral of these consolidated financial
statements.
|
|||||||||||||
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
||||||||||||
|
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Net
income (loss) per common share, basic and diluted
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Income
(loss) before minority loss
|
$
|
(0.0001
|
)
|
$
|
(0.1533
|
)
|
$
|
-
|
$
|
(1.5719
|
)
|
||
|
Minority
interest in income (loss)
|
-
|
-
|
-
|
-
|
|||||||||
|
|
|||||||||||||
|
Net
income (loss) per weighted average common
|
|||||||||||||
|
shares
outstanding
|
$
|
(0.0001
|
)
|
$
|
(0.1533
|
)
|
$
|
-
|
$
|
(1.5719
|
)
|
||
|
|
|||||||||||||
|
Weighted
average shares outstanding - basic & diluted
|
3,933,316,000
|
1,966,904
|
3,053,249,863
|
922,947
|
|||||||||
|
|
|||||||||||||
|
(Weighted
average shares outstanding have been adjusted retroactively to
reflect a reverse stock split on November 1, 2004)
|
|||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows
|
|||||||
|
|
|
|
|
|
|
||
|
|
For
The Nine Months Ended
|
|
|||||
|
|
|
September
30
|
|
||||
|
|
|
2005
|
|
2004
|
|
||
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|||
|
|
|
|
|
|
|
||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Net
(Loss)
|
|
$
|
(3,802
|
)
|
$
|
(1,450,812
|
)
|
|
Adjustments
to reconcile net income (loss)
|
|
|
|
|
|
||
|
to
net cash used in operating activities:
|
|
|
|
|
|
||
|
Impairment
of marketable securities
|
|
|
-
|
|
|
194,827
|
|
|
Change
in minority interest
|
|
|
77,184
|
|
|
(3,025
|
)
|
|
Depreciation
|
|
|
93,145
|
|
|
99,574
|
|
|
Intrinsic
and fair value of stock options issued
|
|
|
56,750
|
|
|
396,985
|
|
|
Issued
common stock for services
|
|
|
81,519
|
|
|
752,207
|
|
|
Issued
preferred stock for services
|
|
|
-
|
|
|
8,000
|
|
|
Amortization
of expense prepaid with common stock
|
|
|
-
|
|
|
13,333
|
|
|
Revaluation
of variable deferred consulting
|
|
|
-
|
|
|
45,600
|
|
|
Bad
debts expense
|
|
|
74,220
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
||
|
Increase
in restricted cash
|
|
|
-
|
|
|
(79,674
|
)
|
|
Accounts
receivable
|
|
|
85,608
|
|
|
(87,502
|
)
|
|
Accounts
receivable, related party
|
|
|
23,808
|
|
|
(27,030
|
)
|
|
Prepaid
Expenses
|
|
|
6,900
|
|
|
(2,926
|
)
|
|
Marketable
securities
|
|
|
(1,988
|
)
|
|
-
|
|
|
Other
Assets
|
|
|
2,680
|
|
|
10,179
|
|
|
Accounts
payable
|
|
|
(119,257
|
)
|
|
71,814
|
|
|
Accrued
liabilities
|
|
|
14,380
|
|
|
30,521
|
|
|
Unearned
rent
|
|
|
(23,094
|
)
|
|
-
|
|
|
Deferred
revenue
|
|
|
152
|
|
|
6,184
|
|
|
Refundable
deposits
|
|
|
2,851
|
|
|
(150
|
)
|
|
Convertible
debentures
|
|
|
(5,000
|
)
|
|
-
|
|
|
Deferred
gain on sale of subsidiary
|
|
|
|
|
(21,770
|
)
|
|
|
Current
portion of WVDEP liability
|
|
|
|
|
(20,000
|
)
|
|
|
Net
cash provided by (used) in operating activities
|
|
|
366,056
|
|
|
(63,665
|
)
|
|
|
|
|
|
|
|
||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Cash
loaned on notes receivable
|
|
|
-
|
|
|
(20,431
|
)
|
|
Cash
received on notes receivable
|
|
|
-
|
|
|
6,790
|
|
|
Note
receivable from litigation settlement
|
|
|
(20,000
|
)
|
|
-
|
|
|
Adjustment
between notes receivable and
|
|
|
|
|
|
||
|
accounts
receivable balances
|
|
|
(2,184
|
)
|
|
-
|
|
|
Correction
of duplicate entry, previous period
|
|
|
539
|
|
|
-
|
|
|
Investment
in a limited liability company
|
|
|
(20,000
|
)
|
|
|
|
|
Purchase
of marketable securities
|
|
|
|
|
(34,757
|
)
|
|
|
Purchase
of marketable securities - restricted
|
|
|
(4,002
|
)
|
|
-
|
|
|
Restricted
stock received in litigation settlement
|
|
|
(154,000
|
)
|
|
-
|
|
|
Purchase
of property, plant and equipment
|
|
|
(154,584
|
)
|
|
(255,553
|
)
|
|
Sale
of retail shopping plaza
|
|
|
987,659
|
|
|
-
|
|
|
Real
estate from corp. acquisition
|
|
|
(903,603
|
)
|
|
-
|
|
|
Net
cash (used) in investing activities
|
|
|
(269,284
|
)
|
|
(303,951
|
)
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
The
accompanying notes are an integtal part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||
|
Consolidated
Statements of Cash Flows, (Continued)
|
||||||||||
|
|
|
|
||||||||
|
|
For
The Nine Months Ended
September
30
|
|||||||||
|
|
2005
|
2004
|
||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
(Unaudited)
|
(Unaudited)
|
||||||||
|
|
|
|
||||||||
|
Principal
payments on long-term debt
|
(91,474
|
)
|
(97,351
|
)
|
||||||
|
Proceeds
from long-term debt
|
65,224
|
104,090
|
||||||||
|
Proceeds
from issuing stock
|
-
|
-
|
||||||||
|
Receipt
of stock subscriptions receivable
|
388,516
|
21,000
|
||||||||
|
Issuance
of common stock for stock option exercise
|
38,506
|
339,319
|
||||||||
|
Pay
off note payable, sale of retail shopping plaza
|
(938,255
|
)
|
-
|
|||||||
|
Acquisition
of another corporation
|
551,707
|
|||||||||
|
Net
cash provided by financing activities
|
14,224
|
367,058
|
||||||||
|
|
||||||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
110,996
|
(558
|
)
|
|||||||
|
|
||||||||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
232,491
|
94,073
|
||||||||
|
|
||||||||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
343,487
|
93,515
|
|||||||
|
|
||||||||||
|
SUPPLEMENTAL
DISCLOSURE OF INFORMATION
|
||||||||||
|
|
||||||||||
|
CASH
PAID FOR:
|
||||||||||
|
|
||||||||||
|
Interest
|
$
|
176,792
|
166,115
|
|||||||
|
|
||||||||||
|
Income
taxes
|
$
|
-
|
-
|
|||||||
|
|
||||||||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
|
||||||||||
|
FINANCING
ACTIVITIES:
|
||||||||||
|
|
||||||||||
|
Preferred
stock issued for services
|
$
|
-
|
$
|
8,000
|
||||||
|
Common
stock issued for services
|
$
|
81,519
|
$
|
752,207
|
||||||
|
Intrinsic
and fair value of options issued
|
$
|
56,750
|
$
|
341,036
|
||||||
|
Common
stock issued for subscription receivable
|
$
|
34,500
|
$
|
22,281
|
||||||
|
Common
stock issued for variable deferred consulting
|
$
|
-
|
$
|
43,988
|
||||||
|
Common
stock issued for building improvements
|
$
|
22,287
|
$
|
98,733
|
||||||
|
|
||||||||||
|
|
||||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
||||||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to the Consolidated Financial Statements
September
30, 2005
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, 2004
Annual
report on Form 10-KSB. Operating results for the nine months ended September
30,
2005 are not indicative of the results that may be expected for the year
ending
December 31, 2005.
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 September 30, 2005 of $13,232,424 which
raises substantial doubt about the Company’s ability to continue as a going
concern. This represents an increase in the cumulative operating losses of
$242,941 for the quarter ended September 30, 2005. The Company had a negative
working capital balance at September 30, 2005 of $598,345.
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.
|
|
·
|
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.
|
|
·
|
Decrease
payroll expenses.
|
|
·
|
Raise
additional capital through equity line of credit of the Company’s common
stock.
|
|
·
|
Use
stock and option-based compensation to cover payroll and other
permissible
labor costs.
|
There
can
be no assurance that the Company can or will be successful in implementing
any
of its plans or that they 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 - OUTSTANDING STOCK OPTIONS
A
summary
of the status of the Company’s stock option plans as of September 30, 2005 and
2004 and changes during those periods is presented below. The numbers of
options
reflect the effect of the November 1, 2004 reverse stock split:
|
|
Average
Exercise
|
Average
Exercise
|
|||||||||||
|
|
Shares
|
Price
|
Shares
|
Price
|
|||||||||
|
Outstanding,
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Beginning
of period
|
822,500
|
$
|
-
|
-
|
$
|
-
|
|||||||
|
|
|
|
|
|
|||||||||
|
Granted
|
1,000,000
|
0.00016
|
2,897,524
|
0.003
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Exercised
|
(1,000,000
|
)
|
0.00016
|
(2,075,024
|
)
|
0.003
|
|||||||
|
|
|
|
|
|
|||||||||
|
Outstanding,
end
|
|
|
|
|
|||||||||
|
of
period
|
822,500
|
0.00016
|
822,500
|
0.003
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Exercisable
|
669,250
|
0.00016
|
822,500
|
0.003
|
|||||||||
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.
The
outstanding end of period price of $0.00016 is an average price per
share.
NOTE
4 - COMMON STOCK
During
the nine months ended September 30, 2005, the Company issued 1,650,000,000
shares of common stock pursuant to the Company’s S-8 Registration
Statement.
During
the period January 1, 2005 to September 30, 2005, the Company issued 100,000,000
shares of common restricted stock. During the same period, 8,000,000 shares
of
common restricted stock issued during the quarter ended December 31, 2004
were
returned and cancelled.
NOTE
5 - ACQUISITION OF SALT LAKE DEVELOPMENT CORPORATION
A
stock
purchase and release agreement dated August 8, 2005 was signed under which
Nexia’s subsidiary, Diversified Holdings 1, Inc., acquired 99% of the stock in
Salt Lake Development Corporation for the payment of $20,000 and settlement
of
$308,000 of notes payable owed by Diversified Financial Resources Corporation
to
Nexia and two of its subsidiaries.
The
primary asset of Salt Lake Development Corporation is an office building
at 268
West 400 South, Salt Lake City, UT encumbered by a mortgage of approximately
$557,000. All of the assets, liabilities and equity of Salt Lake Development
Corporation are included in the September 30, 2005 financial
statements.
NOTE
6 - SUBSEQUENT EVENTS
Nexia
subsidiary, Diversified Holdings 1, Inc., invested $100,000 in Landis, LLC,
for
a 20% interest, on November 2, 2005. Landis is a new, upscale hair salon
in Salt
Lake City, UT which opened for business on November 10, 2005 at the corner
of
900 East and 1300 South. Richard Surber, CEO of Nexia, holds a 60% interest
in
Landis, LLC, and he has made, or will make, a $300,000 investment for his
60%
interest. Consequently, the investment in Landis, LLC may be deemed a related
party transaction.
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. (the “New Accountant”) of
17111 Kenton Drive, Suite 204-B, Cornelius, North Carolina 28031 was retained
as
the auditors for the Company.
In
making
the selection of the New Accountant the Company’s management and board of
directors reviewed auditor independence issues and the absence of any
pre-existing business or commercial relationship with the new accountant
and
concluded that there are no such relationships that would impair the
independence of the New Accountant.
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.
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 10,000.00
Legal
Fees and
Expenses
55,000.00
Printing
Expenses 1,000.00
Transfer
Agent and Registrar Fees and Expenses
2,000.00
Miscellaneous
11,366.50
Total
$80,000.00
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 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 issued pursuant
to
Section 4(2) of the Securities Act of 1933.
On
January 29, 2004, the board of directors authorized the issuance of 10,000,000
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.
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 services rendered to the Company. 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.
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.
The
Company issued 100,000,000 shares of its restricted common stock to Equitilink,
LLC 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.
EXHIBITS
|
INDEX
OF EXHIBITS
|
||
|
Exhibit
No.
|
Exhibit
Page
No.
|
Description
|
|
3(i)(a)
|
120
|
|
|
3(i)(b)
|
128-131
|
|
|
3(i)(c)
|
132
|
|
|
3(i)(d)
|
138
|
|
|
3(i)(e)
|
145
|
|
|
3(i)(f)
|
148
|
|
|
3(ii)
|
150
|
|
|
4
|
162
|
|
|
5
|
163
|
|
|
10(i)
|
165
|
|
|
10(ii)
|
191
|
|
|
23
|
203
|
|
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.
|
Nexia
will:
|
(1) For
determining any liability under the Securities Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by
the
small business issuer under Rule 424(b) (1) or (4) or 497(h) under the
Securities Act as part of this registration statement at the time the Commission
declared it effective.
(2) For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for
the securities offered in the registration statement, and that offering of
the
securities at that time as the initial bona fide offering of those
securities.
C.
Nexia
will file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(1) Include
any prospectus required by section 10(a)(3) of the Securities Act of 1933,
as
amended;
(2) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) (17 C.F.R. § 230.424(b)) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the ``Calculation of
Registration Fee'' table in the effective registration statement;
and
|
(3)
|
Include
any additional or changed material information on the plan of
distribution.
|
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 December , 2005.
| Nexia Holdings, Inc. | ||
| |
|
|
| Date: December 21, 2005 | 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
December 28 , 2005
Richard
Surber
President
and Director
/s/
Gerald Einhorn . December
28, 2005
Gerald
Einhorn
Vice-President
and Director
/s/
Adrienne Bernstein. December
28, 2005
Adrienne
Bernstein
Director
103