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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM
10-KSB
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Annual
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
For
the annual period ended December
31, 2005
Commission
File Number 33-22128-D
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 NEXIA
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter.)
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Nevada
(State
of other jurisdiction of
incorporation
or organization)
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84-1062062
(I.R.S.
Employer
Identification
No.)
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59
West 100 South
Salt
Lake City, UT
(Address
of principal executive offices)
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84101
(Zip
Code)
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801-575-8073
(Registrant's
telephone number)
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Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
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YES
[X]
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NO
[ ]
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Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date:
Common
Stock, $.001 Par Value - 3,889,943,850 shares as of April 25, 2006.
Indicate
by check mark whether the registrant is a shell company. Yes [ } No [ X
]
The
issuer's total consolidated revenues for the year ended December 31, 2005 were
$415,744.
The
aggregate market value of the registrant's common stock, $0.001 par value (the
only class of voting stock), held by non-affiliates was approximately $
1,046,946 based on the average closing bid and asked prices for the Common
Stock
on April 25, 2006, of $0.0003 per share.
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TABLE
OF CONTENTS
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Item
1.
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3
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Item
2.
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16
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Item
3.
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22
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Item
4.
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23
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PART
I
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Item
5.
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23
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Item
6.
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26
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Item
7.
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31
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PART
II
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Item
8.
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34
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Item
8A.
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35
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Item
9.
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36
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Item
10.
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36
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Item
11.
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38
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PART
III
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Item
12.
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39
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Item
13.
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41
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Item
14
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42
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Item
15.
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43
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49
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PART
I
ITEM
1. DESCRIPTION
OF BUSINESS
General.
As
used
herein the terms "Company" and "Nexia" refer to Nexia Holdings, Inc., a Nevada
corporation and its subsidiaries and predecessors. Nexia was incorporated under
the laws of the State of Colorado on April 20, 1987. Nexia has undergone several
name changes since its organization. The Company moved its domicile to the
State
of Nevada on October 5, 2000, by merging with a Nevada corporation established
for the purpose of facilitating the change of domicile. Nexia is currently
a
holdings company that operates through several subsidiaries as real estate
investment companies.
The
Company acquired essentially all of its current assets and liabilities including
a portfolio of securities and real estate holdings in February, 2002. The
following discussion represents the Company's plans to operate the business
acquired and currently controlled by Nexia. Property descriptions, legal
discussions and similar areas are a reflection of those acquisitions which
constitute the majority of the Company's assets and operations at the present.
The Company intends to continue with efforts to simplify its structure and
operations and to seek out real estate investments, with an emphasis on the
Salt
Lake City area market, with potential for growth and improvement in
revenues.
On
August
8, 2005, Nexia’s subsidiary, Diversified Holdings I, Inc., signed a contract to
acquire a 15,000 square foot office building at 268 West 400 South, Salt Lake
City, Utah for a total purchase price of $875,000. The building was acquired
by
purchasing 99% of the stock in Salt Lake Development Corporation (SLD) whose
sole asset consists of the building. Nexia has made cosmetic improvements to
the
property. Nexia has made a cash settlement with Diversified Financial Resources
Corporation in the sum of $308,000 and has assumed the existing financing of
approximately $557,000. Closing occurred on September 29, 2005. SLD has signed
a
Real Estate Purchase Contract to sell the property for $860,000. The closing
took place on April 19, 2006. Nexia will in the near future dissolve SLD in
its
continuing effort to streamline operations and reduce accounting
expenditures.
In
November of 2005, the Company acquired a 20% equity interest in Landis LLC
for a
$100,000 cash payment. Landis operates an AvedaTM
lifestyle salon that features AvedaTM
products
for retail sale. Landis LLC is controlled by Nexia’s Chief Executive Officer,
Richard Surber, who owns 60% interest in Landis. Nexia has consolidated Landis
for accounting purposes because of its ownership interest and common control.
Nexia is currently reviewing the viability of significantly increasing its
ownership interest in Landis LLC dependent upon it financial success over the
next 12 months and the viability of significantly expanding the operations
of
Landis. Currently, Landis consists of a single location in Salt Lake City,
Utah
and is on track to generate an estimated $1,200,000 in gross revenues for
2006.
Nexia
is
also exploring the feasibility of acquiring Diversified Holdings X, Inc. (DHX),
a Utah Corporation that operates as a fashion design, manufacturer and retail
clothing enterprise. A limited number of items that Black Chandelier sells
can
be purchased on its online store at www.blackchandelier.biz.
DHX is
owned 100% by Richard Surber, Nexia’s Chief Executive officer. Nexia has hired a
business development advisor to assist in preparing for the possible acquisition
of DHX and its operations. DHX is in the process of opening a second retail
operation in the Gateway Shopping Mall in downtown Salt Lake City. The average
retail sales per square foot on an annualized basis at the Gateway has been
represented to be $400 per square foot. DHX estimates that it will generate
up
to $1,000,000 in gross revenues at its Gateway location over the next 12 months.
DHX expects its Gateway location to be opened by no later than July 1, 2006.
DHX
is on track to generate $360,000 at its existing location in Trolley Square
Mall
located in Salt Lake City, Utah.
Business
of Issuer
Nexia
operates subsidiaries primarily as a holding company for its various properties.
The majority of these assets are real estate investments as set forth in more
detail with regard to each corporation controlled by Nexia Holdings, Inc.,
these
subsidiaries include Diversified Holdings I, Inc. and four corporations that
are
holders of real estate as of December 31, 2005.
Overview
of the Salt Lake City Real Estate Market
Trends
in
the current Salt Lake City real estate market are favorable in some respects
to
the Company’s real estate holdings. In general, these trends are as follows: the
significant growth of retail sales in the city; increased interest in Salt
Lake
from specialty retailers; relatively low vacancy rates for retail space in
the
area; estimated slowdowns in the rate of new retail space construction; and
Utah
economic indicators pointing to above-average retail sales.
For
purposes of the following discussion Class A office space is defined as a
building that has excellent location and access, attracts high quality tenants
and are managed professionally. Rents are competitive with other new buildings.
Class B buildings have good locations, management, and construction and tenant
standards are high. Buildings have very little functional obsolescence and
deterioration. Class C buildings are typically 15 to 25 years old but are
maintaining steady occupancy and demand lower rent than Class B
buildings.
Significant
Growth.
According to the Year-End 2005 Market Review of Commerce CRG published by
national real estate broker Cushman & Wakefield, the Salt Lake City office
market reflected positive changes as A…more
than 1.45 million square feet of office space were absorbed in the Salt Lake
valley in 2005. This change represents greater absorption numbers than in the
last three years combined.” The overall vacancy rate was 10.81% in 2005, a 4.19%
drop from 2004 figures. The likely closing of a major office center in the
central business district is expected to reduce available space and could
provide additional impetus for the construction of new projects. Salt Lake
City
has, during the recent past, attracted new attention from national tenants
seeking space in the area.
These
reported trends have not, however, lead to increased occupancy in Class C office
buildings or retail space which would cover the holdings of Nexia at the present
time, excluding a portion of the Wallace building that we own which is Class
A
office space. Vacancies in such buildings have remained much higher as the
higher class buildings have completed tenant improvements to their space to
attract new tenants, Class C vacancy rates were reported at 25.62% for the
year
of 2005 compared to an overall vacancy rate of 11.24% for the central business
district. However, for retail space, lease rates for Class A space have reached
record highs and may encourage local retailers to move into Class B and C spaces
with their lower lease rates.
All
of
the retail space in the Wallace/Bennett buildings owned by our subsidiary
Wasatch Capital is currently leased. A 2,500 square foot portion of a total
of
7,000 square feet of the retail space in the buildings located at 1374 South
State Street is leased and the balance is unoccupied at this time. The balance
of the Company’s holdings in the Salt Lake City market are of office or studio
space. Plans have been made to improve the vacant spaces and ready them for
more
aggressive marketing.
Our
Plan to Acquire and to Sell Commercial Properties
Our
business plan is to buy more properties that we believe are undervalued compared
to their cash flows and estimated resale value. We 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 Utah 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.
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.
In
addition, Nexia held several blank check companies which have all been dissolved
in an effort to streamline Nexia’s operations.
On
April
20, 2005, West Jordan Real Estate Holdings, Inc. a majority owned subsidiary
of
Nexia Holdings, Inc. (the Company) closed on the sale of real property known
as
the Glendale Plaza Shopping Center, located at 1199 South Glendale Drive, Salt
Lake City, Utah. The Company sold the property in exchange for a cash purchase
price of $1,860,000. All distributions related to the closing were completed
prior to April 30, 2005. Nexia realized a profit of $756,471 from the sale
of
the property. A loan secured by the real property in the amount of $952,665
has
been paid off in full as a result of the closing. The secured lender has
released the sum of $59,911 presently held in an escrow account retained for
maintenance projects on the real property.
At
the
time of the transaction, the property held by West Jordan Real
Estate Holdings, Inc. had a depreciated cost basis of approximately
$987,758, including purchase price paid and improvements that were made to
the
property and buildings. As a result of this sale, Nexia has discontinued the
operations of West Jordan Real Estate Holdings, Inc.
Governmental
Regulation
The
Company and its facilities are subject to normal government regulation at the
federal, state and local level. The Company must comply with government
regulations regarding employment, wages, access for handicapped and disabled
persons and other laws, rules, regulations and ordinances. Although the Company
does not foresee any change in existing local, state, or federal regulations,
if
changes should occur, the Company believes that it can adapt to such new
regulations and that those changes would not have any significant effect on
revenues or current operations of the Company. However, no assurance can be
made
that compliance or failure to comply with future regulation will not have a
materially adverse effect on the business, operating results or financial
condition of the Company.
Competition
The
Company expects to be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by virtue
of their stronger financial resources and prior experience in business. There
are numerous entities in the same real estate markets in which the Company
currently owns property and in the areas where it seeks to obtain additional
properties, though there are no dominant operations which the Company can
identify as a continuing direct competitor to the Company's operations. There
is
no assurance that the Company will be successful in operating any business
which
it may acquire in the future.
Employees
The
Company's majority owned subsidiaries had a total of 5 full time employees
as of
December 31, 2005. Landis LLC had a total of 20 full time employees as of
December 31, 2005. Management of the Company expects to use consultants,
attorneys and accountants as necessary, and anticipates a need to engage
additional employees.
Risk
Factors
You
should carefully consider the following risks before making an investment in
our
Company. In addition, you should keep in mind that the risks described below
are
not the only risks that Nexia faces. The risks described below are all the
risks
that Nexia currently believes are material to our business. However, additional
risks not presently known to us, or risks that we currently believe are not
material, may also impair our business operations. You should also refer to
the
other information set forth in this Annual Report on Form 10-KSB, including
the
discussions set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as our financial
statements and the related notes.
Nexia's
business, financial condition, or results of operations could be adversely
affected by any of the following risks. If we are adversely affected by such
risks, then the trading of our common stock could decline, and you could lose
all or part of your investment.
There
is substantial doubt about Nexia’s ability to continue as a going concern due to
insufficient revenues to cover our operating costs, which means that we may
not
be able to continue operations unless we obtain additional
funding.
Out
independent auditors added a going concern qualification to their report issued
in connection with their audit of our December 31, 2005 and 2004 financial
statements. The auditors noted in their report that Nexia generated significant
losses from operations, had an accumulated deficit of $13,275,599 and a working
capital deficit of $971,535 as of December 31, 2005. These factors raised for
the auditors substantial doubt about Nexia’s ability to continue as a going
concern.
Management
anticipates that Nexia will incur net losses for the immediate future. To the
extent that Nexia does not generate additional revenue from its existing
properties, acquire additional properties that generate revenue, obtain
additional funding, that its stock price does not increase, that additional
adjustments be made to decrease operating expenses, then Nexia may not have
the
ability to continue as a going concern. The financial statements which accompany
this annual report do not include any adjustments that might result from the
outcome of this uncertainty.
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 plan, buying undervalued buildings, will 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 the Company’s SB-2/A Prospectus
filed on January 12, 2006, 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.
The
issuance of additional shares under S-8 may impair the value of the Company's
stock because of significant dilution.
A
significant risk relating to the Company's current operations is the dilution
of
the Company's common stock, as the Company at this time is relying heavily
on
the issuance of S-8 shares of its common stock to pay its advisors, contractors
and employees for their services.
The
Series B Preferred Stock held by Richard Surber creates an anti-takeover or
change of control limitation. Richard Surber currently holds voting control
of
Nexia through his ownership of voting preferred stock.
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.
Through his 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.
This effectively gives him a veto over any attempt to take over or change
control of the Company. Such an event would include a vote by the board of
directors to conduct a reverse split of the common stock. The shares held by
Mr.
Surber thus have a strong anti-takeover effect. His interests may not always
conform to the interests of the common stockholders, in general, and thus his
voting rights may not always be exercised in the best interests of the common
stockholders of the Company. The issuance of these preferred shares 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.
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.
Nexia's
auditors’ report on our financial statements includes an explanatory paragraph
with respect to substantial doubt existing about its ability to continue as
a
going concern.
As
of
December 31, 2005, Nexia had incurred a loss from operations and had an
accumulated deficit of $13,275,599 resulting from losses in prior years. As
a
result, its financial statements include a note stating that these conditions
raise substantial doubt about its ability to continue as a going concern, but
the financial statements do not include any adjustments that might result from
this uncertainty.
Nexia
may face significant competition.
There
are
numerous businesses, corporations, individuals and firms that are engaged in
the
type of business activities that Nexia is presently engaged in. Many of those
entities are more experienced and possess significantly greater financial and
personnel resources than Nexia currently has. While Nexia intends to be
competitive with those entities, there can be no assurance that such will be
the
case.
Limited
ability to market services and properties.
Due
to
the limited resources available to Nexia, the sales and marketing of our
services and properties have been limited. Nexia's future success is dependent
upon our ability to market and sell our services and properties with those
limited resources.
Nexia
is subject to compliance with securities law, which exposes it to potential
liabilities, including potential rescission rights.
Nexia
has
periodically offered and sold our common stock to investors pursuant to certain
exemptions from the registration requirements of the Securities Act of 1933,
as
well as those of various state securities laws. The basis for relying on such
exemptions is factual; that is, the applicability of such exemptions depends
upon Nexia's conduct and that of those persons contacting prospective investors
and making the offering. Nexia has not received a legal opinion to the effect
that any of our prior offerings were exempt from registration under any federal
or state law. Instead, it has relied upon the operative facts as the basis
for
such exemptions, including information provided by investors themselves.
If
any
prior offering did not qualify for such exemption, an investor would have the
right to rescind its purchase of the securities if it so desired. It is possible
that if an investor should seek rescission, such investor would succeed. A
similar situation prevails under state law in those states where the securities
may be offered without registration in reliance on the partial exemption from
the registration or qualification provisions of such state statutes under the
National Securities Markets Improvement Act of 1996. If investors were
successful in seeking rescission, we would face severe financial demands that
could adversely affect our business and operations. Additionally, if we did
not
in fact qualify for the exemptions upon which we have relied, we may become
subject to significant fines and penalties imposed by the SEC and state
securities agencies.
Additional
Capital is Necessary to Implement Nexia's Business Plan.
Nexia
does not believe that it has sufficient cash, cash equivalents and operating
income to maintain its business at its existing level in 2006. Nexia will
require significant new capital in order to execute its strategic plan and
believes that this capital will only be available through an offering of shares
of its common stock. Nexia's success in raising this capital will depend upon
its ability to access equity capital markets and we may not be able to do so
or
to do so on acceptable terms. If it fails to obtain funds on acceptable terms,
it will not be able to execute its strategic plan and would have to delay or
abandon some or all of its plans for growth. If it is able to obtain funds,
it
believes that the terms of such arrangement will result in an offering that
is
highly dilutive to existing holders of shares of our common stock because of
the
price at which it would have to issue those shares and the large number of
shares it would have to issue at those prices.
Need
for Additional Specialized Personnel.
Although
Nexia's management is committed to the business and continued development and
growth of the business, the addition of specialized key personnel and persons
to
assist management in the expansion of Nexia's operations will be necessary.
There can be no assurance that Nexia will be able to locate and hire such
specialized personnel on acceptable terms.
There
is no established, stable market for Nexia's common stock.
Nexia's
common stock is quoted on the Over-the-Counter Electronic Bulletin Board
("OTCBB") and traded sporadically. A large number of shares of outstanding
common stock are restricted and are not freely-tradeable. An established public
trading market for our common stock may never develop or, if developed, it
may
not be able to be sustained. The OTCBB is an unorganized, inter-dealer,
over-the-counter market that provides significantly less liquidity than other
markets. Purchasers of Nexia's common stock may therefore have difficulty
selling their shares should they desire to do so.
Volatility
of Stock Price.
The
trading price of Nexia's Common Stock has in the past and may in the future
be
subject to significant fluctuations. In addition, the stock market in general
has experienced extreme price and volume fluctuations that have affected the
market price for many companies in industries similar to or related to that
of
Nexia and which have been unrelated to the operating performance of these
companies. These market fluctuations may adversely affect the market price
of
Nexia's Common Stock.
Penny
stock regulations may impair Nexia's shareholders' ability to sell their
stock.
Nexia's
shares of common stock are deemed as a "penny stock." Penny stocks generally
are
equity securities with a price of less than $5.00 per share, other than
securities registered on certain national securities exchanges. Penny stocks
are
subject to rules and regulations that impose additional sales practice
requirements on broker-dealers who sell the securities to persons other than
established customers and accredited investors and these additional requirements
may restrict the ability of broker-dealers to sell a penny stock.
Any
acquisitions that Nexia undertakes could be difficult to integrate, disrupt
its
business, dilute shareholder value and significantly harm its operating
results.
Nexia
expects to review opportunities to buy other businesses or technologies that
would complement its current business, expand the breadth of its markets, or
that may otherwise offer growth opportunities. If we make any future
acquisitions, we could issue stock that would dilute existing stockholders'
percentage ownership, incur substantial debt or assume contingent liabilities.
Potential acquisitions also involve numerous risks, including:
* problems
assimilating the purchased operations, technologies or products;
* unanticipated
costs associated with the acquisition;
* diversion
of management's attention from our core business;
* adverse
effects on existing business relationships with suppliers and
customers;
*
risks
associated with entering markets in which we have no or limited prior
experience; and
* potential
loss of the purchased organization's or our own key employees.
Nexia
cannot assure that it would be successful in overcoming problems encountered
in
connection with such acquisitions and its inability to do so could significantly
harm its business.
Our
real estate investments have limited liquidity and no certainty of capital
appreciation.
Our
real
estate investments have limited liquidity. Real estate investments in general
are relatively illiquid. Our ability to vary our portfolio in response to
changes in economic and other conditions will be limited. We cannot ascertain
whether we will be able to sell an investment when a sale would be advantageous
or necessary. The sale price may not be enough to recoup the amount of our
investment. Nexia can provide no assurance that the value of its properties
will
appreciate.
There
are
numerous uncertainties in estimating real estate values and prospective
appreciation in 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.
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;
|
| - |
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;
|
| - |
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;
|
| - |
mortgage
interest rates and the availability of
financing.
|
Some
significant expenses associated with real estate investment (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are fixed and
generally can not be reduced if circumstances cause lower rental incomes from
a
building. For example, if we can not meet the mortgage payments, we could lose
some or all of our investment in a building due to foreclosure by the holder
of
the lien on the property.
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.
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.
Nexia's
ability to generate enough revenue to operate our business is dependent on
the
ability to attract tenants and ensure that tenants meet their lease
obligations.
Our
business would be severely affected resulting from the loss of revenues that
would result if our current tenants fail to meet lease obligations or, if upon
failure to meet lease obligations, we were unable to enter into new viable
leases for the resulting vacant space. Further, if a tenant defaulted on a
lease, we might experience a delay before the courts enforced our rights against
the tenant. Our ability to lease the space during any court enforced action
would be seriously impaired. Failure of a tenant’s business through bankruptcy
would also reduce or eliminate our revenue flow. We can provide no assurance
that tenants will faithfully meet their lease obligations or that tenants will
not be impaired through some form of business failure or otherwise, with the
result that our ability to operate our business would be materially and
negatively affected. During the 12 months ended December 31, 2005 the rate
of
default on tenant’s obligations billed during that period was 1%.
Our
ability to satisfy fixed operating costs that may rise over time cannot be
reduced in response to any decrease in our rental income, or passed through
to
our tenants.
Our
ability to satisfy fixed operating costs associated with our property could
be
seriously affected by any rise in expenses such as: mortgage payments,
insurance, utilities, cleaning, ventilation, air-conditioning, security,
landscaping, building repairs and maintenance. While our tenants must often
pay
a portion of these escalating costs, there can be no assurance that they will
agree to any increase in current fixed costs or that any increase in tenant
payments would cover increased operating costs. Our current fixed costs for
any
future time period cannot be reduced in response to any decrease in rental
income resulting from vacancies or non payment of rent and our ability to
operate would be severely affected by any increase in the costs associated
with
owning our property.
All
of
Nexia’s material real estate holdings are located in the Salt Lake City, Utah
market making the Company vulnerable to changes in economic conditions in that
market.
All
of
Nexia’s material real estate holdings are located in the Salt Lake City, Utah
market which creates a greater risk of harm from a downturn in that single
market as compared to wider more diversified holdings in several geographic
areas. Any significant change in the office or retail space in the Salt Lake
City market will directly affect Nexia’s real estate operations.
Reports
to Security Holders
The
Company is not required to deliver an annual report to security holders and
will
not voluntarily deliver a copy of the annual report to the security holders.
Should the Company choose to create an annual report, it will contain audited
financial statements. The Company will file all of its required information
with
the Securities and Exchange Commission ("SEC").
The
public may read and copy any materials that are filed by the Company with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., 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. The statements and forms
filed by the Company with the SEC have been filed electronically and are
available for viewing or copy on the SEC maintained 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 can be found at: www.sec.gov.
Information is also available on the Nexia website located at: www.nexiaholdings.com.
ITEM
2. DESCRIPTION
OF PROPERTY
Location
and Description
Nexia
acquired in 2002, the ownership or leasehold rights to industrial, commercial,
warehouse, office and undeveloped commercial and residential real estate. The
acquisition of properties was not limited to any specific geographic area.
Regardless of the type of property, future acquisitions will not be limited
to
any specific geographic area. As of the end of 2005, Nexia owned, leased, or
had
interests in properties in Utah and undeveloped land in Kansas.
Investment
Policies
Nexia's
policy is to actively pursue the acquisition of real estate for investment
income and appreciation in property value. During 2005, Nexia continued to
emphasize acquiring property which management feels is undervalued. Rather
than
limiting itself to specific types of real estate, Nexia's policy has been to
focus primarily on terms of financing and potential return on capital. Nexia
generally looks for properties that can be purchased by assuming the existing
financing or by paying the balance of the purchase price with a nominal cash
expenditure and/or the issuance of shares of Nexia's common stock.
Nexia
has
no present intention to invest in first or second mortgages, interests in Real
Estate Investment Trusts, or Real Estate Limited Partnerships. However, Nexia's
board of directors is not precluded in the future from considering or
participating in such investments.
Nexia
currently has no limitations on the percentage of assets which may be invested
in any one investment or the type of securities and investments in which it
may
invest. However, the board of directors in its discretion may set policies
without a vote of Nexia's securities holders regarding the percentage of assets
which may be invested in any one investment or type of investment. Nexia's
current policy is to evaluate each investment based upon its potential capital
return to Nexia on a relatively short term basis. Furthermore, Nexia does not
plan to enter into the business of originating, servicing or warehousing
mortgages or deeds of trust except as may be incidental to its primary purpose
of acquiring real estate.
There
is
a risk that Nexia may lose control of its properties through foreclosure if
enough funds are not derived from the rental income for both the financing
and
operation of its properties. Currently, due to expanded acquisition activity
and
deficiencies in rental income from the properties currently controlled by it,
Nexia does not have sufficient rental revenues to cover the debt service and
operating costs of all properties. Nexia during the year ended December 31,
2005
had to use capital from other sources to fund this deficit and expects that
this
need will continue during 2006. Although management hopes to increase the
occupancy rates and thus increase the rental income so that such income will
cover both operations and debt service, no such assurances can be
made.
Description
of Real Estate and Operating Data
Below
is
a list of the properties owned by Nexia and/or its consolidated subsidiaries
as
of December 31, 2005. Also included are any changes in the ownership status
of
such properties which have occurred between the end of 2005 and the filing
of
this Form 10-KSB. All references to current principal balances of encumbrances
against the properties are as of December 31, 2005, only.
Commercial
Properties
Nexia's
subsidiaries own interests in the four commercial properties described
below.
Location
and Description
Each
of
our properties competes with other general retail or office space in the greater
Salt Lake City market. Occupancy rates for the area as a whole will most
significantly impact our properties and the efforts to improve and upgrade
the
properties will enhance our ability to obtain tenants and maintain occupancy
rates that will sustain the operating costs of the properties
themselves.
Wasatch
Capital Corporation ("Wasatch")
Wasatch,
a 100% owned subsidiary of Nexia, owns the Wallace-Bennett Building, located
at
55-65 West 100 South, Salt Lake City, Utah. The building is a 36,797 square
foot, turn-of-the-century multi-story office building. The building was acquired
in November of 1994 for a price of $800,000.
At
the
beginning of the year 2004 only the ground level was suitable for rent as retail
space. The ground level comprises 7,816 square feet or 21% of the Building.
A
portion of this space is currently leased to Richard Wirick, the owner of the
Oxford Shoe Shop, a retail outlet for men's shoes, for a monthly rental of
$1,245 for 1350 square feet. A lounge occupies 1,900 square feet of the ground
floor retail space at a monthly rental of $ 2,533.34 for the first year of
a
five year term ending February 28, 2010. A restaurant and an art gallery occupy
the balance of the ground floor space. The average annual effective rental
for
the rentable ground level space is $15.00 per square foot or $117,240 in gross
rental income. Tenants by contract are liable for their pro-rata shares of
the
taxes and insurance on the building and each tenant is liable for its own
utilities.
In
late
2004, the Company occupied a portion of the second floor as its main offices
for
which remodeling work was mostly completed during the year ended 2004. The
Company occupies a total of 3,600 square feet and has space that includes a
conference room and office space for the legal, accounting and executive
employees of the Company. The renovations of the second floor incurred expenses
totaling approximately $500,000 as of December 31, 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 December 31, 2005 was $827,938. Management believes that the
building is adequately insured.
Wasatch
is in the process of securing permanent financing for the Wallace Bennett
building. Once long term financing of approximately $1,000,000 is obtained,
the
outstanding loans will be reclassified as long term debt versus its current
classification as short terms debt. This should decrease substantially Nexia’s
working capital deficit which from $971,535 at December 31, 2005 to
approximately $180,000. .
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 31, 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. Monthly rent from this
tenant is $1,875. DDC expended $34,100 through March 31, 2004 in renovations
to
the space occupied by the bakery in the property. The tenant is liable for
its
pro-rata shares of the taxes and insurance for the building as well as its
use
of utilities. This figure does not include substantial improvements made by
the
tenant to the same portion of the property. The balance of the space in the
building is currently not occupied and the search for a tenant is ongoing.
DDC
believes the property is adequately insured. The retail space in the building
competes for tenants with other retail space on State Street which is a
commercial zone for over one mile in each direction from the property. On
December 23, 2004 a Second Deed of Trust was granted against this property
in
favor of Joseph Corso, Jr. as security for a debenture granted to Mr. Corso
in
the sum of $200,000.
Kearns
Development Corporation. ("Kearns")
Kearns,
a
99% owned subsidiary of Nexia, owns one office building located on West Sams
Boulevard in Kearns, Utah (a suburb of the Greater Salt Lake area). The building
contains approximately 11,709 square feet of total floor space in a single
story. 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 loan was personally guaranteed by Richard D. Surber,
Nexia's President and C.E.O. The balance owing on this loan as of December
15,
2005 was $612,363. At the time of the refinancing, the building was appraised
at
$980,000.
The
building as of December 31, 2005 was 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, is the successor in interest of Salt Lake Development Corporation
and
which 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 31, 2005, the outstanding debt
on
the property was $547,012, the interest rate is 7.7% per annum and monthly
payments are $5,341. 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.
A contract for the sale of this property for $850,000 closed on April 19,
2006.
None
of
the financing for the above described properties provides for pre-payment
penalties.
VACANY
RATE INFORMATION
|
SQUARE
|
MONTHLY
|
LEASE
|
TOTAL
VACANCY
|
||
|
NAME
|
TENANT
|
FEET
|
RENT
|
EXPIRATION
|
RATE
|
|
Downtown
Development
|
La
Brioche
|
2,500
|
$
1,875.00
|
31-Dec-06
|
|
|
Empty
|
4,500
|
$
-
|
|
||
|
Downtown
Totals:
|
7,000
|
$
1,875.00
|
64.29%
|
||
|
Kearns
Development
|
Deseret
Mutual Benefit Administrators
|
4,041
|
$
3,451.70
|
31-Mar-06
|
|
|
Empty
|
3,920
|
$
-
|
|||
|
Kearns
Totals:
|
7,961
|
$
3,451.70
|
49.24%
|
||
|
Wasatch
Capital
|
Caffe
Molise
|
1,718
|
$
2,814.20
|
28-Feb-07
|
|
|
Caffe
Molise
|
840
|
$
910.00
|
VERBAL
|
||
|
Mynt
Lounge
|
2,100
|
$
2,609.34
|
28-Feb-10
|
||
|
Oxford
Shop
|
1,350
|
$
1,024.29
|
Month-to-Month
|
||
|
Utah
Artist Hands
|
1,769
|
$
1,769.00
|
31-Jan-07
|
||
|
Nexia
Holdings, Inc.
|
3,600
|
$
4,500.00
|
31-Dec-07
|
||
|
Wasatch
Totals:
|
Rentable
Space Total:
|
11,377
|
$
13,626.83
|
0.00%
|
|
|
*
Unfinished/Nonrentable
space:
|
25,413
|
||||
|
Total
Square Feet (Wallace-Bennet Building):
|
36,790
|
||||
|
RENTABLE
VACANCY RATE (without S.L. Development)
|
20.37%
|
||||
|
RENTABLE
VACANCY RATE (with S.L. Development):
|
56.65%
|
||||
|
TOTAL
VACANCY RATE (Unrentable sq. ft. included):
|
73.16%
|
||||
|
Salt
Lake Development
|
Empty
(Sold
on April 19, 2006)
|
15,000
|
|||
|
Salt
Lake Totals:
|
15,000
|
100.00%
|
|||
|
*
Unfinished/Nonrentable
space includes 3 floors of the Wallace-Bennett Building.
|
|||||
Contractual
Obligations
|
Contractual
Obligations
|
||||||||||||||||||||||
|
As
of December 31, 2005, we were subject to certain material contractual
payment obligations as described in
|
||||||||||||||||||||||
|
the
table below.
|
||||||||||||||||||||||
|
Total
|
2006
|
2007
|
2008
|
2009
|
2010
|
Thereafter
|
||||||||||||||||
|
Mortgage
debt
|
$
|
2,378,974
|
$
|
903,968
|
$
|
54,519
|
$
|
58,471
|
$
|
63,347
|
$
|
68,299
|
$
|
1,230,370
|
||||||||
|
Vehicle
contract
|
19,395
|
9,656
|
9,739
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Unsecured
note
|
2,922
|
2,922
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Operating
lease
|
||||||||||||||||||||||
|
obligation
|
52,956
|
13,363
|
12,179
|
9,138
|
9,138
|
9,138
|
-
|
|||||||||||||||
|
Convertible
debenture
|
16,440
|
-
|
16,440
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Convertible
debenture-derivative
|
85,714
|
-
|
85,714
|
-
|
-
|
|||||||||||||||||
|
$
|
2,556,401
|
$
|
929,909
|
$
|
178,591
|
$
|
67,609
|
$
|
72,485
|
$
|
77,437
|
$
|
1,230,370
|
|||||||||
|
Property
Acquisitions:
|
||||||||||||||||||||||
|
In
August 2005 we acquired 99% of the common stock of Salt Lake Development
Corporation (SLD).
|
||||||||||||||||||||||
|
SLD
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,
|
||||||||||||||||
|
Year
ended December 31, 2005
|
||||||||||||||||
|
Year Ended December 31,
|
||||||||||||||||
|
|
|
Change
|
|
|||||||||||||
|
Expense
Description
|
2005
|
2004
|
$ |
%
|
||||||||||||
|
Mortgage
interest
|
$
|
200,490
|
$
|
231,158
|
$
|
(30,668
|
)
|
(13.3
|
)
|
|||||||
|
Depreciation
|
131,707
|
135,704
|
(3,997
|
)
|
(2.9
|
)
|
||||||||||
|
Payroll
- mgt. and maint.
|
48,823
|
382,397
|
(333,574
|
)
|
(87.2
|
)
|
||||||||||
|
Utilities
|
46,928
|
68,017
|
(21,089
|
)
|
(31.0
|
)
|
||||||||||
|
Property
taxes
|
63,131
|
55,984
|
(7,147
|
)
|
(12.8
|
)
|
||||||||||
|
Maint.
and repairs
|
29,552
|
54,536
|
(24,984
|
)
|
(45.8
|
)
|
||||||||||
|
Advertising
|
15,516
|
-
|
15,516
|
100.0
|
||||||||||||
|
Insurance
|
5,658
|
-
|
5,658
|
100.0
|
||||||||||||
|
Building
lease
|
-
|
124,964
|
(124,964
|
)
|
(100.0
|
)
|
||||||||||
|
Other
expenses
|
-
|
2,379
|
(2,379
|
)
|
(100.0
|
)
|
||||||||||
|
$
|
541,805
|
$
|
1,055,139
|
$
|
(527,628
|
)
|
(50.0
|
)
|
||||||||
2005
Continuing Operations $ 435,647
Discontinued
Operations
Mortgage
interests
$ 26,444
Depreciation
26,910
Payroll-mgt
and
maint.
13,229
Utilities 17,235
Property
Taxes 10,539
Maint
and
repairs
11,801
106,158
Total $
541,805
=======
Undeveloped
Land
Nexia,
through its subsidiaries, owns approximately six (6) small parcels of
undeveloped raw land in Utah and Kansas. There are currently no plans to develop
these properties. If valid offers are received on these parcels, they may be
sold.
Insurance
Nexia
is
of the opinion that each of these properties described above is adequately
insured.
ITEM
3. LEGAL PROCEEDINGS
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, the
individual defendants have filed their own Motion for Summary Judgment, the
court has denied the motion filed by the Company and granted the request
removing Mr. Bailey and Mr. Ternes personally from the litigation. A trial
date
has not been set by 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 fully paid if not over paid Hallmark and in addition that it has
actions for damages against Hallmark. Demands for the release of the lien and
for submission of the dispute to arbitration have been filed in the
matter.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
PART
II
ITEM
5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The
Company's common stock is quoted on the OTC Bulletin Board under the symbol,
"NEXH". Trading in the common stock in the over-the-counter market has been
limited and sporadic and the quotations set forth below are not necessarily
indicative of actual market conditions. Further, these prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission and may
not
necessarily reflect actual transactions. The high and low bid prices for the
common stock for the quarters indicated below of the years ended December 31,
2003, 2004, 2005 and the quarter ending March 31, 2006 are as
follows:
|
YEAR
|
PERIOD
ENDING
|
HIGH
|
LOW
|
|
2003
|
March
31, 2003
|
$15.00
|
$4.00
|
|
June
30, 2003
|
$8.00
|
$0.50
|
|
|
September
30, 2003
|
$13.00
|
$1.00
|
|
|
December
31, 2003
|
$30.00
|
$6.00
|
|
|
2004
|
March
31, 2004
|
$1.50
|
$1.00
|
|
June
30, 2004
|
$5.80
|
$0.50
|
|
|
September
30, 2004
|
$0.80
|
$0.10
|
|
|
October
31, 2004
|
$0.10
|
$0.10
|
|
|
Post
reverse
|
December
31, 2004
|
$0.035
|
$0.0002
|
|
2005
|
March
31, 2005
|
$0.0006
|
$0.0001
|
|
June
30, 2005
|
$0.0002
|
$0.0001
|
|
|
September
30, 2005
|
$0.0003
|
$0.0001
|
|
|
December
31, 2005
|
$0.0003
|
$0.0001
|
|
|
2006
|
March
31, 2006
|
$0.0006
|
0.0001
|
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.
Effective
November 22, 2004 a 1 for 1,000 reverse stock split of the common stock was
declared effective.
Common
Stock
As
of
April 25, 2006, the number of issued and outstanding shares of the Company's
common stock was 3,889,943,850. The number of common stock shares authorized
is
10,000,000,000.
Shareholders:
As of March 31, 2006, there were approximately 795 shareholders of
record.
Dividends:
The Company has not declared a cash dividend during the fiscal years ending
December 31, 2004 and 2005.
Preferred
Stock
As
of
March 31, 2006, the number of shares of Series A Convertible Preferred Stock
issued and outstanding is none. The Series A Convertible Preferred Shares have
voting rights which equate to 100 shares of common stock for every 1 Series
A
Preferred share and may be converted into $10 worth of common stock. A total
of
10,000,000 shares have been designated and authorized as Series A Preferred
Shares of a total number of 50,000,000 authorized shares of preferred
stock.
On
August
25, 2004, the Company filed with the Nevada Secretary of State a Certificate
of
Designation of the Rights and Preferences of Preferred Stock of Nexia Holdings,
Inc. This designation created 10,000,000 shares, par value $0.001, of Series
B
Convertible Preferred Stock, out of the 50,000,000 authorized shares of
preferred stock of the Company. The Series B Preferred Stock holds voting rights
equal to 500 shares of common stock for each share of the Series B Preferred
Stock issued, the shares do not have any conversion rights into common stock
or
any other class of stock of the Company. This filing was reported on an 8-K
filing made on August 31, 2004.
On
September 28, 2004 the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28,
2004.
On
November 8, 2004, the Company filed with the Nevada Secretary of State a
Certificate of Designation of the Rights and Preferences of Preferred Stock
of
Nexia Holdings, Inc. designated as Series C Preferred Stock. The designation
of
5,000,000 shares of the 50,000,000 authorized as Series C Preferred Stock
provides that the Series C shares will hold conversion rights into shares of
the
common stock of the Company equal in value to $5.00 per share and are subject
to
redemption by the Company upon a $5.00 cash payment. The Series C Preferred
Shares hold no voting rights. This filing was reported on a Form 8-K filing
made
on November 10, 2004.
On
November 10, 2004 an agreement was entered into with Joseph Corso, Jr. to sell
him 100,000 shares of its Series C Preferred Stock in exchange for a cash
payment of $50,000. These shares had not been registered for sale and the
exchange was handled as a private sale exempt from registration under section
4(2) of the Securities Act of 1933. This exchange was reported on a Form 8-K
filing made on November 12, 2004.
Dividends:
The Company has not declared a cash dividend for the Series A Convertible
Preferred Stock during the fiscal years ended December 31, 2004 and 2005. Rights
to dividends are granted to the Series A Convertible Preferred Stock equal
to
those of the Common Stock, when, as and if declared by the Directors of Nexia,
to be paid in cash or in common stock equal to market value at the election
of
the Company.
Conversion
Rights: Conversion rights into shares of Common Stock are given to the Series
A
Convertible Preferred Stock based upon that number of shares of the Company's
Common Stock equal in market value to $10.00 at the time of
conversion.
Limited
Market for Common Stock.
There
is
currently a limited trading market for our shares of common stock and there
can
be no assurance that a more substantial market will ever develop or be
maintained. Any market price for shares of common stock of Nexia is likely
to be
very volatile, and numerous factors beyond our control may have a significant
adverse effect. In addition, the stock markets generally have experienced,
and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small capital companies and which have often
been unrelated to the operating performance of these companies. These broad
market fluctuations, as well as general economic and political conditions,
may
also adversely affect the market price of our common stock. Further, there
is no
correlation between the present limited market price of our common stock and
our
revenues, book value, assets or other established criteria of value. The present
limited quotations of our common stock should not be considered indicative
of
the actual value of Nexia Holdings, Inc. or our common stock.
Risks
of "Penny Stock".
Nexia
Holdings Inc.'s common stock (OTC BB: NEXH) is deemed to be "penny stock" as
that term is defined in Rule 3a51-1 of the Securities and Exchange Commission.
Penny stocks are stocks (i) with a price of less than $5.00 per share; (ii)
that
are not traded on a "recognized" national exchange; (iii) whose prices are
not
quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must
still
meet requirement (i) above); or (iv) in issuers with net tangible assets less
than $2,000,000 (if the issuer has been in continuous operation for at least
three years) or $5,000,000 (if in continuous operation for less than three
years), or with average sales of less than $6,000,000 for the last three years.
Until recently, there had been no "established public market" for our common
stock during the last five years. While our stock has traded between $0.035
and
$0.0001 per share over the past two years, there is no assurance that this
price
level will continue, as there has thus far been low volume. Section 15(g) of
the
Securities Exchange Act of 1934, as amended, and Rule 15g-2 of the Securities
and Exchange Commission require broker/dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor's account. Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be a "penny
stock."
Moreover,
Rule 15g-9 of the Securities and Exchange Commission requires broker/dealers
in
penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stocks to that investor. This procedure requires
the broker/dealer to (i) obtain from the investor information concerning his
or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks
of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker/dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from
the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in our common stock
to resell their shares to third parties or to otherwise dispose of them.
RECENT
SALES OF UNREGISTERED SECURITIES
The
Company issued no unregistered securities within the period covered by this
report which have not been previously reported on Form 10-QSB or Form 8-K.
ITEM
6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 annual report. Our fiscal year end is December 31.
General
Our
business plan for the next twelve months involves the continued operation of
our
office and retail 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.
In
the
fourth quarter of 2005, Nexia acquired a 20% interest in Landis LLC in exchange
for a cash investment of $100,000. For purposes of financial reporting, the
financial statements of Landis have been consolidated. Management of Nexia
is
considering acquiring up to a 100% interest in Landis over the next 12 months
pending further development of the enterprise. Landis is branded as an
Aveda®
Lifestyle Salon and operates in accordance with Aveda® requirements
to
maintain such status. Landis is controlled by Richard Surber the CEO of Nexia.
Mr Surber owns a 60% interest in Landis.
Results
of Operations
Revenues
Year
ended December 31, 2005. Gross
revenues for the fiscal years December 31, 2005 and 2004 were $415,744 and
$634,089, respectively. This represents a 33% decrease from 2004. The decrease
in revenues is due in part to a decrease in rental revenues as a result of
the
divestiture of the Glendale shopping center in the second quarter of 2005 and
a
decrease in consulting revenues from the discontinuance of Hudson Consulting
Group, Inc.
Gross
rental revenues for the fiscal years ended December 31, 2005 and 2004 were
$281,350 and $512,456, respectively. This was a decrease of nearly 50% from
2004
to 2005. We do not expect rental revenues to substantially increase until such
time as Nexia is able to successfully raise a substantial amount of capital
which will provide the means to purchase additional properties to replace those
which have been sold over the last few years.
The
revenues attributable to sales from Landis totaled $123,869 for the two months
ended December 2005. There are no comparable revenue figures for 2004 because
Landis commenced operations in November 2005. We expect revenue from Landis
to exceed $1,200,000 for the fiscal year ending December 31, 2006.
Expenses
Year
ended December 31, 2005. Total
expenses for December 31, 2005 and 2004 were $729,017 and $2,002,650,
respectively. This is a $1,273,633 decrease or a 64% decrease from 2004. The
decrease was attributable to the cessation of providing consulting services
in
2004, the sale of a large shopping center in April 2005, further reduction
in
the number of employees as a result of that sale, and the absence of any
impairment of marketable securities in 2005.
Depreciation
and amortization expenses for the year ended December 31, 2005, were $141,290
compared to $136,025 for same period in 2004. The increase in the year end
expense of $ 5,265, or 3.9%, was primarily the result of a full year of
depreciation for the capital improvements made to the Wallace/Bennett buildings
in 2004.
Nexia
expects expenses as a percent of revenues to remain constant or decrease through
2006 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 non performing assets.
Income
/ Losses
Year
ended December 31, 2005. Nexia
recorded an operating loss of $799,527 at December 31, 2005, as compared to
an
operating loss of $3,493,029 for the comparable period in 2004. Nexia recorded
a
net loss of $130,548 for the fiscal year ended December 31, 2005, compared
to a
net loss of $2,920,584 for the comparable period in 2004. Nexia's losses
decreased as a result of the Company’s ability to successfully decrease total
expenses by $2,629,450 in 2005. The decrease was attributable to the cessation
of providing consulting services in 2004, the sale of a large shopping center
in
April 2005, further reduction in the number of employees as a result of that
sale, and the absence of any impairment of marketable securities in 2005. In
addition, Nexia recognized a gain of $756,471 from the sale of real estate
and
$206,500 from the settlement of litigation during 2005.
Nexia
may
not operate at a profit through fiscal 2006. 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. Furthermore, Nexia may expand its business
model to include operations outside of its current real estate operations which
may require additional capital and increase expenses during 2006
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
December 31, 2005, Nexia had current assets of $532,278 and $4,319,916 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 $971,535 at
December 31, 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 Bennett
building held by Wasatch Capital Corporation due to a short term construction
loan that will cause the entire mortgage balance of $827,938 to be payable
in
May of 2006. Nexia anticipates being able to refinance the entire loan balance
during the second quarter of 2006. Once long term financing of approximately
$1,000,000 is obtained, the outstanding loan will be reclassified as long-term
debt versus its current classification as short-term debt. This change should
decrease substantially Nexia’s working capital deficit from $971,535 at December
31, 2005 to approximately $180,000.
In
addition, Nexia anticipates collecting upon two notes which have been written
off in prior years. Nexia’s holds a note that will convert into $1,000,000 worth
of marketable shares of common stock in Diversified Financial Resources
Corporation (DVFN). As a result of a recent merger effected by DVFN, management
believes that it will be able to convert these shares into a substantial amount
of cash during 2006.
Net
cash
provided by operating activities was $395,522 for the year ended December 31,
2005, compared to net cash used by operating activities of $412,955 for the
year
ended December 31, 2004. The increase of cash provided in the sum of $808,477
resulted primarily from reduced expenses and profit from the Glendale Plaza
sale
during the year ended December 31, 2005.
Cash
used
in investing activities was $517,318 for the year ended December 31, 2005,
compared to cash used by investing activities of $316,421 for the comparable
year end period in 2004. The increase of $200,897, or 63% was primarily the
result of the acquisition of Salt Lake Development during the year ended
December 31, 2005.
Cash
provided by financing activities was $49,745 for the year ended December 31,
2005, compared to cash provided of $867,794 for the year ended December 31,
2004. The decrease of $818,049 was due primarily to the pay off of the mortgage
note payable on the Glendale Plaza during the year ended December 31, 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.
Stock
Options and Grants to Employees and Contractors
Beginning
with the quarter ending September 30, 2003, Nexia's subsidiary, Hudson
Consulting Group, Inc., discontinued making regular cash payments to its
employees. Consequently, Nexia has relied upon the issuance of S-8 shares and/or
option shares to pay certain employees and consultants.
During
the year ended December 31, 2005 the board of directors of the Company
authorized the issuance of 1,792,000,000 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. From shares authorized as option
shares, the Company realized cash proceeds of $398,184 from the purchase of
those option shares. As a result of the stock and stock options issued during
the year ended December 31, 2005, the Company incurred expenses totaling
approximately $220,800, which exceeds by a significant factor the amount of
cash
that would have been needed to meet those same obligations.
EVENTS
SUBSEQUENT TO DECEMBER 31, 2005.
During
the first quarter of 2006 the board of directors of the Company authorized
the
issuance of 350,000,000 shares of common stock pursuant to the S-8 Registration
Statement of the Company to five employees of the Company. The Board of
Directors further authorized and caused to be filed a new S-8 Registration
Statement providing for the distribution of up to 500,000,000 shares of the
common stock of the Company. This new registration statement was filed on March
30, 2006.
Ability
to Continue as a Going Concern
Nexia's
ability to continue as a going concern is in doubt as a result of Nexia having
incurred a loss from its operations during the fiscal year ended December 31,
2005 and for the fiscal year ended December 31, 2004 and reported losses in
prior years as well. Nexia will need to substantially decrease its operating
expenses, increase its operating income, and raise significant additional
capital, as to which there is no assurance that the objectives will be
accomplished. In the event that these events do not take place, Nexia will
in
all probability not be able to continue as a going concern in calendar year
2006.
Capital
Expenditures
Nexia
had
capital expenditures of $573,658 during the year ended 2005. In addition the
Company acquired land and a building with a recorded cost of $903,603 as part
of
the acquisition of Salt Lake Development on August 8, 2005.
Income
Tax Expense (Benefit)
Nexia
has
an income tax benefit resulting from net operating losses to offset future
operating profit of approximately $8,585,175. This is not shown on the balance
sheet as a deferred tax asset due to past history of loss years in conjunction
with profit years during the previous 10 year period as well as specifics in
the
GAAP regulations regarding surety of future earnings.
Impact
of Inflation
Nexia
believes that inflation has had a negligible effect on operations over the
past
three years. Nexia believes that it can offset inflationary increases in the
cost of labor by increasing sales and improving operating
efficiencies.
Off-balance
Sheet Arrangements
Nexia
has
no off-balance sheet arrangements.
Known
Trends, Events, or Uncertainties
General
Real Estate Investment Risks
Nexia's
investments are subject to varying degrees of risk generally incident to the
ownership of real property. Real estate values and income from Nexia's current
properties may be adversely affected by changes in national or local economic
conditions and neighborhood characteristics, changes in interest rates and
in
the availability, cost and terms of mortgage funds, occupancy rates of Nexia's
properties, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements,
changes in governmental rules and fiscal policies, civil unrest, acts of God,
including earthquakes and other natural disasters which may result in uninsured
losses, acts of war, adverse changes in zoning laws, and other factors which
are
beyond the control of Nexia.
Value
and Illiquidity of Real Estate
Real
estate investments are relatively illiquid. The ability of Nexia to vary its
ownership of real estate property in response to changes in economic and other
conditions is limited. If Nexia must sell an investment, there can be no
assurance that Nexia will be able to dispose of it in the time period it desires
or that the sales price of any investment will recoup the amount of Nexia's
investment.
Property
Taxes
Nexia's
real property is subject to real property taxes. The real property taxes on
this
property may increase or decrease as property tax rates change and as the
property is assessed or reassessed by taxing authorities. If property taxes
increase, Nexia's operations could be adversely affected.
ITEM
7. FINANCIAL
STATEMENTS
The
Company's financial statements for the fiscal year ended December 31, 2005
are
attached hereto as pages 30 through 62.
C
O N T E N T S
|
Report
of independent registered public accounting firm
|
30-31
|
|
Consolidated
balance sheets
|
32-33
|
|
Consolidated
statements of operations and other comprehensive loss
|
34-35
|
|
Consolidated
statements of stockholders’ equity
|
36-37
|
|
Consolidated
statement of cash flows
|
38-39
|
|
Notes
to the consolidated financial statements
|
40-62
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Nexia
Holdings, Inc.
Salt
Lake
City, Utah
We
have
audited the accompanying consolidated balance sheet of Nexia Holdings, Inc.
and
Subsidiaries as of December 31, 2005 and the related consolidated
statements of operations and other comprehensive loss, stockholders' equity
and
cash flows for the year then ended. These consolidated financial statements
are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. We
did
not audit the financial statements of Nexia Holdings, Inc. and Subsidiaries
as of December 31, 2004. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
the
amounts included in the period ending December 31, 2004, is based solely on
the
report of the other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, based on our audit and the report of other auditors, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Nexia Holdings, Inc. and Subsidiaries as of
December 31, 2005, and the results of their consolidated operations and other
comprehensive loss and cash flows for the year ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the accompanying
consolidated financial statements, the Company has incurred cumulative operating
losses through December 31, 2005 of $13,275,599, and has a working capital
deficit of $971,535 at December 31, 2005, all of which raise substantial doubt
about its ability to continue as a going concern. Management's plan in regard
to
these matters is also discussed in Note 2. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/
De
Joya Griffith & Company, LLC
CERTIFIED
PUBLIC ACCOUNTANTS
Las
Vegas, NV
April
17,
2006
REPORT
OF INDEPENDENT PUBLIC ACCOUNTING FIRM
Board
of
Directors
Nexia
Holdings, Inc. and Subsidiaries
Salt
Lake
City, Utah
We
have
audited the accompanying consolidated balance sheet of Nexia Holdings, Inc.
and
Subsidiaries as of December 31, 2004 and the related consolidated statements
of
operations and other comprehensive income, stockholders’ equity and cash flows
for the year the ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on
a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audit
provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nexia Holdings,
Inc. and Subsidiaries as of December 31, 2003 and the consolidated results
of
their operations and other comprehensive income, and their cash flows for the
year ended December 31, 2004 in conformity with United States generally
accounting principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has generated significant losses
from operations, has an accumulated deficit of $13,228,622 and has a working
capital deficit of $51,335 at December 31, 2004, which together raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regards to these matters are also described in Note 2 to
the December 31, 2004 consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
As
discussed in Note 16, the 2004 consolidated financial statements have been
restated to correct an error in the accounting treatment and disclosure
regarding certain convertible debt arrangements.
/s/
HJ
& Associates, LLC
Salt
Lake
City, Utah
May
13,
2005, except for Note 16 which is April 20, 2006
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
December
31
|
December
31
|
||||||
|
ASSETS
|
2005
|
2004
|
|||||
|
|
(Restated)
|
||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
160,440
|
$
|
152,413
|
|||
|
Restricted
cash (Note 1)
|
-
|
80,078
|
|||||
|
Accounts
and notes receivable, trade, net of allowance of $18,870 and $103,466
respectively
|
36,833
|
108,404
|
|||||
|
Accounts
receivable - related parties
|
7,342
|
23,808
|
|||||
|
Notes
receivable - net of allowance of $345,000 and
|
|||||||
|
$315,950
respectively (Note 4)
|
13,164
|
137,799
|
|||||
|
Inventory
|
35,435
|
-
|
|||||
|
Prepaid
expenses
|
28,191
|
18,783
|
|||||
|
Marketable
securities (Note 6)
|
250,873
|
44,549
|
|||||
|
TOTAL
OF CURRENT ASSETS
|
532,278
|
565,834
|
|||||
|
PROPERTY
AND EQUIPMENT (Note 5)
|
|||||||
|
Property
and equipment, net
|
3,094,373
|
2,935,052
|
|||||
|
Land
|
689,295
|
489,295
|
|||||
|
TOTAL
NET PROPERTY AND EQUIPMENT
|
3,783,668
|
3,424,347
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Loan
costs, net
|
3,970
|
15,879
|
|||||
|
TOTAL
OTHER ASSETS
|
3,970
|
15,879
|
|||||
|
TOTAL
ASSETS
|
$
|
4,319,916
|
$
|
4,006,060
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets, (Continued)
|
|||||||
|
December
31
|
December
31
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
2005
|
2004
|
|||||
|
(Restated)
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
233,606
|
$
|
243,441
|
|||
|
Accounts
payable - related parties
|
29,731
|
-
|
|||||
|
Accrued
liabilities
|
293,687
|
209,480
|
|||||
|
Unearned
rent
|
-
|
23,094
|
|||||
|
Deferred
revenue
|
988
|
356
|
|||||
|
Refundable
deposits
|
15,892
|
15,041
|
|||||
|
Convertible
debenture
|
-
|
5,000
|
|||||
|
Current
maturities of long-term debt (Note 9)
|
929,908
|
120,757
|
|||||
|
TOTAL
CURRENT LIABILITIES
|
1,503,812
|
617,169
|
|||||
|
LONG-TERM
LIABILTIES
|
|||||||
|
Convertible
debenture derivative (Notes 15 & 16)
|
85,714
|
-
|
|||||
|
Convertible
debenture (Notes 15 & 16)
|
16,440
|
200,000
|
|||||
|
Long-term
debt Note 9)
|
1,524,339
|
2,732,161
|
|||||
|
TOTAL
LONG-TERM LIABILITIES
|
1,626,493
|
2,932,161
|
|||||
|
TOTAL
LIABILITIES
|
3,130,305
|
3,549,330
|
|||||
|
MINORITY
INTEREST
|
226,426
|
15,315
|
|||||
|
STOCKHOLDERS'
EQUITY (Note 7)
|
|||||||
|
Preferred
Series B stock, $0.001 par value, 50,000,000 shares
|
|||||||
|
authorized,
8,000,000 shares issued and outstanding
|
8,000
|
8,000
|
|||||
|
Preferred
Series C stock, $0.001 par value, 5,000,000 shares
|
|||||||
|
authorized,
100,000 shares issued and outstanding
|
100
|
100
|
|||||
|
Common
stock $0.001 par value, 10,000,000,000 shares authorized,
|
|||||||
|
3,539,945,030
and 1,747,945,834 shares issued (post reverse split)
|
|||||||
|
and
outstanding, respectively
|
3,539,946
|
1,747,946
|
|||||
|
Additional
paid-in capital
|
10,808,402
|
12,312,814
|
|||||
|
Treasury
stock -29,138 and 29,138 shares
|
|||||||
|
at
cost, respectively
|
(100,618
|
)
|
(100,618
|
)
|
|||
|
Stock
subscriptions receivable
|
(11,325
|
)
|
(375,009
|
)
|
|||
|
Other
comprehensive Gain/(Loss) (Note 6)
|
(5,721
|
)
|
(6,767
|
)
|
|||
|
Accumulated
deficit
|
(13,275,599
|
)
|
(13,145,051
|
)
|
|||
|
Total
Stockholders’ Equity
|
963,185
|
441,415
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
|||||||
|
EQUITY
|
$
|
4,319,916
|
$
|
4,006,060
|
|||
|
The
accompanying notes are an integral integral part of these consolidated
financial statements.
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Operations and Other Comprehensive
(Loss)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31
|
|||||||
|
2005
|
2004
|
||||||
|
(Restated)
|
|||||||
|
REVENUE
|
|||||||
|
Rental
revenue
|
$
|
257,627
|
$
|
512,456
|
|||
|
Rental
revenue - related party
|
23,723
|
-
|
|||||
|
Sales
- Salon and Retail
|
123,869
|
-
|
|||||
|
Consulting
revenue
|
10,525
|
121,633
|
|||||
|
TOTAL
REVENUE
|
415,744
|
634,089
|
|||||
|
COST
OF REVENUE
|
|||||||
|
Cost
associated with rental revenue
|
143,605
|
697,371
|
|||||
|
Depreciation
and amortization associated with rental revenue
|
117,996
|
126,610
|
|||||
|
Interest
associated with rental revenue
|
174,046
|
231,158
|
|||||
|
Cost
of sales - Salon and Retail
|
50,607
|
-
|
|||||
|
Cost
associated with consulting revenue
|
-
|
1,069,329
|
|||||
|
TOTAL
COST OF REVENUE
|
486,254
|
2,124,468
|
|||||
|
GROSS
LOSS (Note 19)
|
(70,510
|
)
|
(1,490,379
|
)
|
|||
|
EXPENSES
|
|||||||
|
Impairment
of marketable securities
|
-
|
194,194
|
|||||
|
General
and administrative expense
|
714,286
|
1,799,041
|
|||||
|
Depreciation
expense
|
14,731
|
9,415
|
|||||
|
TOTAL
EXPENSES
|
729,017
|
2,002,650
|
|||||
|
OPERATING
LOSS
|
(799,527
|
)
|
(3,493,029
|
)
|
|||
|
OTHER
INCOME (EXPENSE)
|
|||||||
|
Interest
expense
|
(52,938
|
)
|
(31,521
|
)
|
|||
|
Interest
expense - accretion of debt
|
(16,440
|
)
|
-
|
||||
|
Interest
income
|
43,488
|
5,493
|
|||||
|
Income
from litigation settlement (Note 20)
|
206,500
|
-
|
|||||
|
Gain
on sale of commercial real estate (Note 12)
|
756,471
|
-
|
|||||
|
Gain
on sale of subsidiaires (Note 21)
|
-
|
528,192
|
|||||
|
Gain
(loss) on marketable securities
|
-
|
36,918
|
|||||
|
Unrealized
gain related to adjustment of derivative
|
|||||||
|
liability
to fair value of underlyng security (Note 16)
|
114,286
|
-
|
|||||
|
Other
expense - Forgive debt
|
(305
|
)
|
-
|
||||
|
Other
income
|
64
|
26,187
|
|||||
|
TOTAL
OTHER INCOME
|
1,051,126
|
565,269
|
|||||
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
251,599
|
(2,927,760
|
)
|
||||
|
MINORITY
INTEREST IN INCOME (LOSS)
|
65,368
|
(7,176
|
)
|
||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
186,231
|
(2,920,584
|
)
|
||||
|
DISCONTINUED
OPERATIONS
|
|||||||
|
Loss
from discontinued operations expenses
|
(308,207
|
)
|
-
|
||||
|
Depreciation
expense
|
(8,572
|
)
|
-
|
||||
|
LOSS
FROM DISCONTINUED OPERATIONS (Note 17)
|
(316,779
|
)
|
-
|
||||
|
NET
LOSS
|
(130,548
|
)
|
(2,920,584
|
)
|
|||
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|||||||
|
Change
in unrealized gain (loss) on marketable securities (Note
6)
|
1,046
|
(5,905
|
)
|
||||
|
TOTAL
COMPREHENSIVE LOSS
|
$
|
(129,502
|
)
|
$
|
(2,926,489
|
)
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Operations and Other Comprehensive
Loss
|
|||||||
|
(Continued)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
(Restated)
|
|||||||
|
Net
income (loss) per common share, basic and diluted:
|
|||||||
|
|
|||||||
|
Income
(loss) before minority loss
|
$
|
0.0001
|
$
|
(0.0324
|
)
|
||
|
Minority
interest in income
|
-
|
-
|
|||||
|
Net
income (loss) before discontinued operations
|
0.0001
|
(0.0324
|
)
|
||||
|
|
|||||||
|
Loss
from discontinued operations
|
(0.0001
|
)
|
-
|
||||
|
|
|||||||
|
Net
loss per weighted average common shares outstanding
|
$
|
-
|
$
|
(0.0324
|
)
|
||
|
|
|||||||
|
Weighted
average shares outstanding - basic & diluted
|
3,171,129,396
|
90,299,865
|
|||||
|
|
|||||||
|
|
|||||||
|
(Weighted
average shares outstanding for year 2004
|
|||||||
|
have
been adjusted retroactively to reflect
|
|||||||
|
a
reverse stock split on November 1, 2004)
|
|||||||
|
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
NEXIA
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
12/31/2004
Post
Reverse Split
|
|||||||||||||||||||||||||||||||||||||
|
Stock
|
Expenses
|
Variable
|
Other
|
Total
|
|||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Treasury
|
Subscription
|
Prepaid
with
|
Deferred
|
Compre-hensive
|
Accumulated
|
Stockholders
|
|||||||||||||||||||||||||||||
|
Description
|
Shares
|
Amount
|
Shares
|
Amount
|
APIC
|
Stock
|
Receivable
|
Common
Stock
|
Con-sulting
|
Income
(Loss)
|
Deficit
|
Equity
|
|||||||||||||||||||||||||
|
Balance
at December 31, 2003
|
-
|
$
|
-
|
348,503
|
$
|
349
|
$
|
10,497,138
|
$
|
(100,618
|
)
|
$
|
(28,000
|
)
|
$
|
(13,333
|
)
|
$
|
-
|
$
|
(862
|
)
|
$
|
(10,224,467
|
)
|
$
|
130,207
|
||||||||||
|
Series
B preferred stock issued for services
|
8,000,000
|
8,000
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
8,000
|
|||||||||||||||||||||||||
|
Series
C preferred stock issued for cash
|
100,000
|
100
|
-
|
-
|
49,900
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
|||||||||||||||||||||||||
|
Cancellation
of common stock for subscription receivable
|
-
|
-
|
(700
|
)
|
(1
|
)
|
(6,999
|
)
|
-
|
7,000
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
|
Common
Stock issued for services
|
-
|
-
|
1,640,139
|
1,640
|
888,757
|
-
|
-
|
-
|
-
|
-
|
-
|
890,397
|
|||||||||||||||||||||||||
|
Common
Stock issued for building improvements and services
|
-
|
-
|
74,006,000
|
74,006
|
(23,806
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
50,200
|
||||||||||||||||||||||||
|
Common
Stock issued for stock option exercise to employees
|
-
|
-
|
61,711,100
|
61,711
|
109,620
|
-
|
-
|
-
|
-
|
-
|
-
|
171,331
|
|||||||||||||||||||||||||
|
Common
stock issued for stock option exercise to consultants
|
-
|
-
|
82,748,400
|
82,748
|
87,773
|
-
|
(32,363
|
)
|
-
|
-
|
-
|
-
|
138,158
|
||||||||||||||||||||||||
|
Receipt
of subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
43,821
|
-
|
-
|
-
|
-
|
43,821
|
|||||||||||||||||||||||||
|
Amortization
of prepaid expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
13,333
|
-
|
-
|
-
|
13,333
|
|||||||||||||||||||||||||
|
Intrinsic
value of stock options issued to employees
|
-
|
-
|
-
|
-
|
582,251
|
-
|
-
|
-
|
-
|
-
|
-
|
582,251
|
|||||||||||||||||||||||||
|
Fair
value of options issued for prepaid consulting fees
|
-
|
-
|
-
|
-
|
43,988
|
-
|
-
|
-
|
(43,988
|
)
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
Adjustment
for revision of options issued values
|
-
|
-
|
-
|
-
|
488,195
|
-
|
-
|
-
|
-
|
-
|
-
|
488,195
|
|||||||||||||||||||||||||
|
Adjustment
for marketable securities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,534
|
)
|
-
|
(3,534
|
)
|
|||||||||||||||||||||||
|
Variable
Deferred Balance Expensed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
43,988
|
-
|
-
|
43,988
|
|||||||||||||||||||||||||
|
Common
stock issued for subscriptions receivable, consultants
|
-
|
-
|
450,118,500
|
450,119
|
(281,473
|
)
|
-
|
(168,646
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
Common
stock issued for subscriptions receivable, employees
|
-
|
-
|
651,126,024
|
651,126
|
(421,942
|
)
|
-
|
(229,184
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
Collection
of subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
32,363
|
-
|
-
|
-
|
-
|
32,363
|
|||||||||||||||||||||||||
|
Fair
value of options issued to consultants
|
-
|
-
|
-
|
-
|
474,140
|
-
|
-
|
-
|
-
|
-
|
-
|
474,140
|
|||||||||||||||||||||||||
|
Return
of common stock issued to a consultant
|
-
|
-
|
(250,000
|
)
|
(250
|
)
|
(12,250
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
(12,500
|
)
|
|||||||||||||||||||||
|
Common
stock issued for services to consultants
|
-
|
-
|
3,000,000
|
3,000
|
4,500
|
-
|
-
|
-
|
-
|
-
|
-
|
7,500
|
|||||||||||||||||||||||||
|
Common
stock issued for compensation to employees
|
-
|
-
|
133,197,366
|
133,197
|
(44,961
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
88,236
|
||||||||||||||||||||||||
|
Application
of restricted common stock issued to reduce debentures
liability
|
-
|
-
|
20,000,000
|
20,000
|
30,000
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
|||||||||||||||||||||||||
|
Common
stock issued to consultants to apply to accounts payable
|
-
|
-
|
270,300,000
|
270,300
|
(152,549
|
)
|
117,751
|
||||||||||||||||||||||||||||||
|
Proceeds
from consultant option stock sales applied to accounts
payable
|
-
|
-
|
-
|
-
|
533
|
-
|
-
|
-
|
-
|
-
|
-
|
533
|
|||||||||||||||||||||||||
|
Round
up fraction shares resulting from 11-01-2004 reverse stock
split
|
-
|
-
|
502
|
1
|
(1
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
Change
in other comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,371
|
)
|
(2,371
|
)
|
||||||||||||||||||||||||
|
Net
consolidated loss for year ended December 31, 2004 -
Restated
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,920,587
|
)
|
(2,920,587
|
)
|
|||||||||||||||||||||||
|
Balance
at December 31, 2004-Restated
|
8,100,000
|
$
|
8,100
|
1,747,945,834
|
$
|
1,747,946
|
$
|
12,312,814
|
$
|
(100,618
|
)
|
$
|
(375,009
|
)
|
$
|
-
|
$
|
-
|
$
|
(6,767
|
)
|
$
|
(13,145,051
|
)
|
$
|
441,415
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
NEXIA
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
12/31/2005
|
|||||||||||||||||||||||||||||||
|
Post
Reverse Split (11/01/2004)
|
|||||||||||||||||||||||||||||||
|
Number
|
Number
|
Stock
|
Other
|
Total
|
|||||||||||||||||||||||||||
|
of
Preferred
|
Pre-ferred
|
of
Common
|
Common
|
Treasury
|
Subscriptions
|
Compre-hensive
|
Retained
|
Stockholders
|
|||||||||||||||||||||||
|
Description
|
Shares
|
Stock
|
Shares
|
Stock
|
APIC
|
Stock
|
Receivable
|
Income
- (Loss)
|
Deficit
|
Equity
|
|||||||||||||||||||||
|
Balance
forward, Dec 31, 2004-Restated
|
8,100,000
|
$
|
8,100
|
1,747,945,834
|
$
|
1,747,946
|
$
|
12,312,814
|
$
|
(100,618
|
)
|
$
|
(375,009
|
)
|
$
|
(6,767
|
)
|
$
|
(13,145,051
|
)
|
$
|
441,415
|
|||||||||
|
Common
stock issued for services
|
-
|
-
|
996,750,000
|
996,750
|
(876,725
|
)
|
-
|
-
|
-
|
-
|
120,025
|
||||||||||||||||||||
|
Common
stock issued to EquitiLink, LLC (Rule 144 legend, Restr.)
|
-
|
-
|
100,000,000
|
100,000
|
(80,000
|
)
|
-
|
-
|
-
|
-
|
20,000
|
||||||||||||||||||||
|
Receipt
of cash on subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
-
|
396,691
|
-
|
-
|
396,691
|
|||||||||||||||||||||
|
Return
of common stock issued to J. Fry, Jr. on 11/12/2004
|
-
|
-
|
(8,000,000
|
)
|
(8,000
|
)
|
(12,000
|
)
|
-
|
-
|
-
|
-
|
(20,000
|
)
|
|||||||||||||||||
|
Fair
value of options issued for past services
|
-
|
-
|
-
|
-
|
11,875
|
-
|
-
|
-
|
-
|
11,875
|
|||||||||||||||||||||
|
Intrinsic
value of options issued for past services
|
-
|
-
|
-
|
-
|
44,875
|
-
|
-
|
-
|
-
|
44,875
|
|||||||||||||||||||||
|
Common
stock issued for options exercised
|
-
|
-
|
400,000,000
|
400,000
|
(365,500
|
)
|
-
|
(34,500
|
)
|
-
|
-
|
-
|
|||||||||||||||||||
|
Common
stock issued to contractors applied to accounts payable
|
-
|
-
|
203,250,000
|
203,250
|
(153,608
|
)
|
-
|
-
|
-
|
-
|
49,642
|
||||||||||||||||||||
|
Common
stock issued to contractor for building improvements
|
-
|
-
|
50,000,000
|
50,000
|
(40,000
|
)
|
-
|
-
|
-
|
-
|
10,000
|
||||||||||||||||||||
|
Proceeds
from options stock applied to accounts payable
|
-
|
-
|
-
|
-
|
7,985
|
-
|
-
|
-
|
-
|
7,985
|
|||||||||||||||||||||
|
Change
in comprehensive loss to December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,046
|
-
|
1,046
|
|||||||||||||||||||||
|
Proceeds
for stock issued to R. Liebsch on 07/06/2005 greater than amount
shown as
applied to Accounts Payable above, requiring an adjustment to Common
APIC
|
-
|
-
|
-
|
-
|
3,685
|
-
|
-
|
-
|
-
|
3,685
|
|||||||||||||||||||||
|
Common
stock issued to Barry Burbank (restricted)
|
-
|
-
|
50,000,000
|
50,000
|
(45,000
|
)
|
-
|
-
|
-
|
-
|
5,000
|
||||||||||||||||||||
|
Apply
stock subscription receivable balance for Grant Anea (stock issued
11/12/2004) to Hallmark accounts payable. No evidence stock has been
sold
as of 12/31/2005.
|
-
|
-
|
-
|
-
|
-
|
-
|
1,493
|
-
|
-
|
1,493
|
|||||||||||||||||||||
|
Common
stock, originally issued to Hudson Consulting Group, part of Nexia
Holdings, Inc. consolidated group, returned and cancelled
|
-
|
-
|
(804
|
)
|
(1
|
)
|
1
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Net
consolidated loss for year ended December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(130,548
|
)
|
(130,548
|
)
|
|||||||||||||||||||
|
Rounding
|
-
|
-
|
-
|
1
|
-
|
-
|
-
|
-
|
-
|
1
|
|||||||||||||||||||||
|
Balance
at December 31, 2005
|
$
|
8,100,000
|
$
|
8,100
|
$
|
3,539,945,030
|
$
|
3,539,946
|
$
|
10,808,402
|
$
|
(100,618
|
)
|
$
|
(11,325
|
)
|
$
|
(5,721
|
)
|
$
|
(13,275,599
|
)
|
$
|
963,185
|
|||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||||||||||||||||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
(Restated)
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
|
Net
loss
|
$
|
(130,548
|
)
|
$
|
(2,920,584
|
)
|
|
|
Adjustments
to reconcile net (loss)
|
|||||||
|
to
net cash used in operating activities:
|
|||||||
|
Impairment
of marketable securities
|
155
|
194,194
|
|||||
|
Change
in minority interest
|
211,111
|
(7,176
|
)
|
||||
|
Depreciation
expense
|
129,390
|
123,845
|
|||||
|
Amortization
of lease / loan costs
|
11,909
|
12,180
|
|||||
|
Intrinsic
and fair value of stock options issued
|
56,751
|
1,696,362
|
|||||
|
Issued
common stock for services
|
86,519
|
972,654
|
|||||
|
Issued
Preferred Series B stock for services
|
-
|
8,000
|
|||||
|
Expenses
paid with common stock
|
-
|
13,330
|
|||||
|
Revaluation
of variable deferred consulting
|
-
|
45,600
|
|||||
|
Allowance
for bad debts
|
80,574
|
950
|
|||||
|
Accretion
of convertible debenture
|
16,440
|
-
|
|||||
|
Gain
from sale of investments
|
-
|
(36,918
|
)
|
||||
|
Gain
from sale of subsidiaries
|
-
|
(528,192
|
)
|
||||
|
Restricted
stock received in litigation settlement
|
(154,000
|
)
|
-
|
||||
|
Unrealized
gain related to adjustment of derivative
|
|||||||
|
to
fair value of underlying security
|
(114,286
|
)
|
-
|
||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
95,217
|
(81,625
|
)
|
||||
|
Accounts
receivable, related parties
|
16,466
|
12,952
|
|||||
|
Notes
receivable
|
(202
|
)
|
-
|
||||
|
Inventory
|
(35,435
|
)
|
-
|
||||
|
Prepaid
expenses
|
(9,408
|
)
|
(18,684
|
)
|
|||
|
Capitalized
loan costs
|
-
|
22,180
|
|||||
|
Accounts
payable
|
39,190
|
55,254
|
|||||
|
Accounts
payable , related parties
|
29,731
|
-
|
|||||
|
Accrued
liabilities
|
87,559
|
78,956
|
|||||
|
Unearned
rent
|
(23,094
|
)
|
(5,361
|
)
|
|||
|
Deferred
revenue
|
632
|
(8,602
|
)
|
||||
|
Refundable
deposits
|
851
|
(500
|
)
|
||||
|
Deferred
gain on sale of subsidiary
|
-
|
(21,770
|
)
|
||||
|
Current
portion of WVDEP liability
|
-
|
(20,000
|
)
|
||||
|
Net
cash provided by (used) in operating activities
|
395,522
|
(412,955
|
)
|
||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
|
Issuance
of note receivable
|
-
|
(124,840
|
)
|
||||
|
Proceeds
from note receivable
|
-
|
6,790
|
|||||
|
Correction
of duplicate entry, previous period
|
539
|
-
|
|||||
|
Cash
paid for securities investments
|
(47,431
|
)
|
(34,757
|
)
|
|||
|
Purchase
of marketable securities - restricted
|
(4,002
|
)
|
-
|
||||
|
Purchase
of property, plant and equipment
|
(551,371
|
)
|
(359,222
|
)
|
|||
|
Sale
of retail shopping plaza
|
988,550
|
-
|
|||||
|
Proceeds
from sale of marketable securities
|
-
|
195,608
|
|||||
|
Acquisition
of Salt Lake Development Corp.
|
(903,603
|
)
|
-
|
||||
|
Net
cash (used) in investing activities
|
(517,318
|
)
|
(316,421
|
)
|
|||
|
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 Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
(Restated)
|
||||||
|
Payments
on long-term debt
|
(106,311
|
)
|
(88,508
|
)
|
|||
|
Proceeds
from issuance of long-term debt
|
110,914
|
295,507
|
|||||
|
Proceeds
from issuance of convertible debenture
|
-
|
200,000
|
|||||
|
Issuance
of Preferred Series C stock for cash
|
-
|
50,000
|
|||||
|
Receipt
of stock subscriptions receivable
|
396,691
|
43,821
|
|||||
|
Old
stock subscription receivable reclassified
|
1,493
|
||||||
|
Issuance
of common stock for stock options exercised
|
38,506
|
371,974
|
|||||
|
Pay
off convertible debenture
|
(5,000
|
)
|
(5,000
|
)
|
|||
|
Pay
off note payable, sale of retail shopping plaza
|
(938,255
|
)
|
-
|
||||
|
Mortgage
assumed, acquisition of S. L. Development
|
551,707
|
-
|
|||||
|
Net
cash provided by financing activities
|
49,745
|
867,794
|
|||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(72,051
|
)
|
138,418
|
||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
232,491
|
94,073
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
160,440
|
$
|
232,491
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF INFORMATION
|
|||||||
|
CASH
PAID FOR:
|
|||||||
|
Interest
|
$
|
243,424
|
$
|
262,679
|
|||
|
Income
taxes
|
$
|
-
|
$
|
-
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
|
|||||||
|
FINANCING
ACTIVITIES:
|
|||||||
|
Preferred
stock issued for services
|
$
|
-
|
$
|
8,000
|
|||
|
Common
stock issued for services
|
$
|
86,519
|
$
|
898,818
|
|||
|
Intrinsic
and fair value of options issued
|
$
|
56,751
|
$
|
-
|
|||
|
Common
stock issued for subscription receivable
|
$
|
34,500
|
$
|
417,830
|
|||
|
Common
stock issued for variable deferred consulting
|
$
|
-
|
$
|
43,988
|
|||
|
Common
stock issued for building improvements
|
$
|
10,000
|
$
|
141,564
|
|||
|
Common
stock issued and applied on vendor accounts payable
|
$
|
49,642
|
$
|
172,605
|
|||
|
Unrealized
gain on adjustment of derivative
|
|||||||
|
to
fair value of underlying security
|
$
|
(114,286
|
)
|
$
|
-
|
||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES
a.
Organization
Nexia
Holdings,
Inc.
(Nexia or The Company) was incorporated under the laws of the State of Colorado
on April 20, 1987 as Metropolitan Acquisition Corporation. On
October
5, 2000, Nexia merged with a Nevada corporation with the same name, effectively
changing its state of domicile from Colorado to Nevada.
Nexia’s
current operating subsidiaries are Diversified Holdings I, Inc., Downtown
Development Corporation, Wasatch Capital Corporation, Canton Industrial
Corporation of Salt Lake City Inc., West Jordan Real Estate Holdings, Inc.,
Salt
Lake Development, Inc., Landis LLC and Kearns Development Corporation.
b.
Basis
of Consolidation
The
consolidated financial statements include the accounts of Nexia Holdings, Inc.
and subsidiaries that are more than 50% owned. In addition, Nexia consolidates
variable interest entities for which it is deemed to be the primary beneficiary.
Nexia’s share of earnings or losses of associates, in which at least 20% of the
voting securities is owned, is included in the consolidated operating results
using the equity method of accounting.
Diversified
Holdings I, Inc. (DHI), a Nevada corporation is a 99% owned subsidiary of Nexia.
DHI was formed on March 22, 1996. DHI is a holding company which has majority
ownership of the following subsidiaries:
Wasatch
Capital Corporation (WCC), a Utah corporation, was incorporated on June 10,
1991. WCC owns a commercially rented building in downtown Salt Lake City. DH1
owned 100% and 98% of Wasatch common stock as of December 31, 2005 and 2004
respectively. On September 16, 2004 Wasatch issued one million shares of its
common stock to DH1 in total satisfaction of its outstanding debt to
DH1.
West
Jordan Real Estate Holdings, Inc. (WJREH), was formed on June 7, 1994 in Utah
for the purpose of acquiring, owning and managing a specific property. WJREH
sold its real estate holdings on April 20, 2005.
Salt
Lake
Development Corporation (SLD), a Nevada corporation, was incorporated on
February 15, 1996 and is the successor to the interests and title of the Utah
corporation of the same name to an office building located at 268 West 400
South
Salt Lake City, Utah. SLDC is 98% owed by DHI.
Kearns
Development Corporation (Kearns), a Nevada corporation, was incorporated
February 16, 1996 as Cyber Studio, Inc. On April 4, 2001, its name was changed
to Kearns Development Corporation. During 2000, Kearns purchased a commercially
rented building in Kearns, Utah. Kearns is owned 90.7% by DHI.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Downtown
Development Corporation (Downtown) was incorporated by the Company on November
30, 1999 in Utah as A-Z South State Corporation. On August 22, 2001, its name
was changed to Downtown Development Corporation. Downtown owns a commercially
rented building in Salt Lake City, Utah, and is 99.8% owned by DH1.
Canton
Industrial Corporation of Salt Lake City (CICSLC), a Utah corporation, was
incorporated on September 29, 1993 for the purpose of acquiring, owning and
managing a specific property. CICSLC sold the property in December 1998, and
currently holds a promissory note from the purchaser, secured by a deed of
trust
on the property, in the amount of $255,000, bearing interest at 8%, principal
and interest due August 10, 2002. CICSLC is 80% owned by DHI and 10% owned
by
Nexia.
Landis
LLC, a Utah limited liability company (Landis) was organized on May 4, 2005
for
the purpose of operating an AvedaTM
Lifestyle Salon. DHI acquired a 20% interest in exchange for a $100,000 cash
investment. Nexia’s president, Richard Surber, holds a 60% interest in Landis
and is the sole operating member of Landis LLC. Landis’ operations have been
consolidated in these statements based upon the common control of Nexia and
Landis by Richard Surber.
c.
Accounting Method
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets
and
the liquidation of liabilities in the normal course of business.
d.
Compensating Cash Balances
The
Company=s
subsidiary, West Jordan Real Estate Holdings, Inc. signed a note payable. As
part of the note, WJREH agreed to deposit $3,750 monthly into a bank account
to
be used for capital improvements, tenant improvements and leasing commissions.
The account balance was $80,078 at December 31, 2004. This note was paid in
full
as part of the sale of Glendale Plaza by WJREH and the cash balance in the
capital improvements bank account was paid to WJREH during 2005, reducing the
balance on December 31, 2005 to $0.
e.
Provision for Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Net
deferred tax assets consist of the following components as of December 31,
2005
and 2004:
|
|
2005
|
2004
|
|||||
|
(Restated)
|
|||||||
|
Deferred
tax assets
|
|||||||
|
NOL
Carryover
|
$
|
4,762,891
|
$
|
4,697,711
|
|||
|
|
|||||||
|
Capital
(gain) loss
|
(
95,351
|
)
|
661,050
|
||||
|
Other
|
50,545
|
36,820
|
|||||
|
|
|||||||
|
Deferred
tax liabilities:
|
-
|
-
|
|||||
|
Valuation
allowance
|
(4,718,085
|
)
|
(5,395,581
|
)
|
|||
|
Net
deferred tax asset
|
-
|
-
|
|||||
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2005 and 2004 due
to
the following:
|
|
2005
|
2004
|
|||||
|
(Restated)
|
|||||||
|
Book
loss
|
$
|
(130,548
|
)
|
(2,920,584
|
)
|
||
|
Bad
debt
|
30,500
|
-
|
|||||
|
Asset
impairments
|
155
|
194,194
|
|||||
|
Other
(Charitable contribution)
|
11,725
|
3,120
|
|||||
|
Stock
for services/option expense
|
133,268
|
1,685,573
|
|||||
|
Valuation
allowance
|
(45,100)
|
1,037,697
|
|||||
|
|
- |
-
|
|||||
At
December 31, 2005, the Company had net operating loss carryforwards of
approximately $8,558,175 that may be offset against future taxable income from
the year 2004 through 2024. No tax benefit has been reported in the December
31,
2005 consolidated financial statements since the potential tax benefit is offset
by a valuation allowance of the same amount. The Company has not filed its’ 2005
tax return as of the date of filing of this Form 10-KSB.
Due
to
the change in ownership provisions of the Tax Reform Act of 1986, net operating
loss carryforwards for Federal income tax reporting purposes are subject to
annual limitations. Should a change in ownership occur, net operating loss
carryforwards may be limited as to use in future years.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
f.
Fixed
Assets and Depreciation
Fixed
assets are stated at cost. Expenditures that materially increase the life of
the
assets are capitalized. Ordinary maintenance and repairs are charged to expense
as incurred. When assets are sold, or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized at that time. Depreciation is computed on the
straight line method for financial statement purposes over the following useful
lives:
Building
and
improvements
15-39
Years
Furniture,
equipment and fixtures
5-10
Years
Vehicles
5
Years
Computer
equipment and software
3
Years
g.
Revenue Recognition
The
Company recognizes revenue from its three main sources of revenue as
follows:
Rental
Revenue
Rental
revenues are recorded in the period in which they are earned in accordance
with
rental agreements and lease contracts. Rent payments are typically due by the
1st of each month. Occasionally, the Company will receive rent payments at
the
end of preceding months for the following months rent. The Company will record
these as unearned rent until such time as the rent has been earned.
Sales
- Salon and Consulting Revenue
The
Company ceased providing consulting services in 2004. There may be a small
amount of consulting from time to time. There was a nominal amount of revenue
received in 2005 from consulting. The amount of deferred revenue at December
31,
2005 related to consulting services for which the Company received restricted
securities was $988 compared to $256 for the year 2004. This represents the
fair
value of the portion of the available for sale securities for which revenue
was
deferred at December 31, 2005.
Landis,
LLC, a hair and beauty salon began operating in November 2005. The Company,
through a subsidiary, has a 20% investment in the salon. It is included in
the
consolidated financial statements because the Company president and CEO is
the
major partner in the salon business. The salon records revenue on the accrual
basis of accounting.
h.
Marketable Securities
The
Company follows the provisions of SFAS 115 regarding marketable securities.
The
Company>s
securities investments that are bought and held principally for the purpose
of
selling
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
them
in
the near term are classified as trading securities. Trading securities are
recorded at fair value on the balance sheet in current assets, with the change
in fair value during the period included in earnings.
Securities
investments that the Company has the positive intent and ability to hold to
maturity are classified as held-to-maturity securities and recorded at amortized
cost in investments and other assets. Securities investments not classified
as
either held-to-maturity or trading securities are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value in investments and other assets on the balance sheet, with the change
in fair value during the period excluded from earnings and recorded net of
tax
as a separate component of equity. All marketable securities held by the Company
have been classified as available-for-sale securities.
i.
Stock-based
Compensation
The
Company applies Accounting Principles Board (“APB”) Opinion NO. 25, “Accounting
for Stock Issued to Employees, and Related Interpretations”, in accounting for
stock options issued to employees. Under APB No. 25, employee compensation
cost
is recognized when estimated fair value of the underlying stock on date of
the
grant exceeds exercise price of the stock option. For stock options and warrants
issued to non-employees, the Company applies SFAS No. 123, “Accounting for
Stock-Based Compensation”. SFAS No. 123 requires the recognition of compensation
cost using a fair value based method whereby compensation cost is measured
at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Stock issued for
compensation is valued using the market price of the stock on the date of the
related agreement.
The
following table represents the effect on net loss and loss per share if the
Company had applied the fair value based method and recognition provisions
of
Statement of Financial Accounting Standards (SFAS) No. 123 to stock-based
employee compensation:
|
2005
|
|
2004
|
|
||||
|
|
|
|
|
Restated
|
|||
|
|
|||||||
|
Net
loss, as reported
|
$
|
(130,548
|
)
|
$
|
(2,920,584
|
)
|
|
|
Add:
Stock based employee compensation expense
|
|||||||
|
included
in reported loss, net of related tax effects
|
44,875
|
857,717
|
|||||
|
Deduct:
Total stock-based employee compensation
|
|||||||
|
expense
determined under fair value based methods
|
|||||||
|
for
all awards, net of related tax effects
|
0
|
(202,474
|
)
|
||||
|
Pro
forma net loss
|
$
|
(85,673
|
)
|
$
|
(2,265,341
|
)
|
|
|
Net
loss per common share
|
|||||||
|
Basic
loss as reported
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
|
|
Basic
loss pro forma
|
$
|
(0.00
|
)
|
$
|
(0.0007
|
)
|
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
j.
Environmental Compliance and
Remediation
|
The
Company determines potential liability on a site by site basis and records
a
liability when its existence is probable and reasonably estimable. Expenditures
that do not have a future economic benefit are expensed as incurred.
Expenditures that extend the life of the related property or mitigate or prevent
future environmental contamination are capitalized.
k.
Impairment of Long-Lived Assets
The
Company evaluates its long-lived assets in accordance with Statement of
Financial Accounting Standard No. 144, AAccounting
for the Impairment or Disposal of Long Lived Assets@.
The
Company recognizes impairment losses as the difference between historical cost
and fair value of the asset, less costs to sell, when management determines
that
events and circumstances indicate a need to assess impairment, and when that
assessment indicates that historical cost materially exceeds fair value, less
costs to sell. There was no impairment expense of long-lived assets for the
years ended December 31, 2005 and 2004.
|
l.
Advertising Expense
|
The
Company expenses advertising costs as incurred. Advertising expense was $15,516
and $2,232 for the years ended December 31, 2005 and 2004,
respectively.
m. Basic
Loss Per Common Share
The
computation of basic loss per share of common stock is based on the weighted
average number of shares outstanding during the period.
|
|
For
the Years Ended
|
||||||
|
December
31,
|
|||||||
|
2005
|
|
2004
|
|||||
|
(Restated)
|
|||||||
|
Numerator:
|
|||||||
|
Income
(loss) before minority interest
|
$
|
251,599
|
$
|
(2,927,760
|
)
|
||
|
Minority
interest
|
65,368
|
7
,176
|
|||||
|
Net
income (loss) before discontinued
|
|||||||
|
Operations
|
186,231
|
(2,920,584
|
)
|
||||
|
Discontinued
operations
|
(316,779
|
)
|
-
|
||||
|
Net
loss
|
$
|
(130,548
|
)
|
$
|
(2,920,584
|
)
|
|
|
Denominator:
|
|||||||
|
weighted
average shares outstanding
|
3,171,129,396
|
90,299,865 | |||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
Loss
per weighted average
|
|||||||
|
common
share:
|
|||||||
|
Income
(loss) per common share before
|
|||||||
|
minority
interest
|
$
|
0.0001
|
$
|
(0.0324
|
)
|
||
|
Minority
interest in income (loss) per
|
|||||||
|
common
share
|
-
|
-
|
|||||
|
|
|||||||
|
Net
income (loss) per common share before
|
|||||||
|
discontinued
operations
|
0.0001
|
(0.324
|
)
|
||||
|
Loss
per common share on
|
|||||||
|
discontinued
operations
|
(0.0001
|
)
|
-
|
||||
|
Net
loss per common share, basic
|
$
|
-
|
$
|
(0.0324
|
)
|
||
The
Company computes net loss per share in accordance with SFAS No. 128, “Earnings
per share” (SFAS 128) and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under
the provisions of SFAS 128 and SAB 98, basic net loss per share is computed
by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of common stock outstanding during the period.
The calculation of diluted net loss per share gives effect to common stock
equivalents; however, potential common shares are excluded if their effect
is
antidilutive. For the years ended December 31, 2005 and 2004, options were
excluded from the computation of diluted loss per share because their effect
would be antidilutive.
The
equivalent common shares for the outstanding convertible debenture, subject
to
accounting for derivatives, have been excluded from the calculation of diluted
net loss per share.
n.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
o.
Newly
Issued Accounting Pronouncements
During
the year ended December 31, 2005, the Company adopted the following accounting
pronouncements:
FASB
Interpretation No. 46 (revised)“Consolidation
of Variable Interest Entities - an interpretation of ARB No. 51” - In December
2003 FASB issued this revision in which this Interpretation explains how to
identify variable interest entities and how an enterprise assesses its interests
in a variable interest entity to decide whether to consolidate that entity.
FASB
believes that the accounting for variable interest entities has become
“fragmented and incomplete”. Its purpose is not to restrict the use of variable
interest entities. Instead it seeks to improve financial reporting by those
enterprises that are involved with variable interest entities. The adoption
of
FIN 46R did not have a material impact on the Company’s financial
statements.
The
consolidated financial statements include the accounts of Nexia Holdings, Inc.
and subsidiaries that are more than 50% owned. In addition, Nexia consolidates
variable interest entities for which it is deemed to be the primary beneficiary.
Nexia’s share of earnings or losses of associates, in which at least 20% of the
voting securities is owned, is included in the consolidated operating results
using the equity method of accounting.
FASB
Interpretation No. 47“Accounting
for Conditional Asset Retirement Obligations - an interpretation of FASB
Statement No. 143” - In March 2005 FASB issued this interpretation to clarify
timing issues with liability recognition for legal obligations associated with
the retirement of a tangible long-lived asset when the timing and (or) method
of
settlement of the obligation are conditional on a future event. It also
clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections” (“SFAS 154”). SFAS 154 replaces Accounting Principles
Board Opinion No. 20 “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements-An Amendment of
APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. SFAS 154
requires “retrospective application” of the direct effect of a voluntary change
in accounting principle to prior periods’ financial statements where it is
practicable to do so. SFAS 154 also redefines the term “restatement” to
mean the correction of an error by revising previously issued financial
statements. SFAS 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005 unless
adopted early. We do not expect the adoption of SFAS 154 to have a material
impact on its consolidated financial position, results of operations or cash
flows, except to the extent that the statement subsequently requires
retrospective application of a future item.
In
February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155, Accounting
for Certain Hybrid Financial Instruments
(“SFAS
No. 155”), which amends Statement of Financial Accounting Standards
No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS
No. 133”) and Statement of Financial Accounting Standards No. 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
(“SFAS
No. 140”). SFAS No. 155 permits fair value measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing embedded derivatives.
We expect the adoption of SFAS 155 to have a material impact on
its consolidated financial position, results of operations or cash
flows.
In
March 2006, the FASB issued Statement of Financial Accounting Standards
No. 156, Accounting
for Servicing of Financial Assets (“SFAS
No. 156”), which amends FASB Statement No. 140 (“SFAS No. 140”). SFAS 156 may be
adopted as early as January 1, 2006, for calendar year-end entities, provided
that no interim financial statements have been issued. Those not choosing to
early adopt are required to apply the provisions as of the beginning of the
first fiscal year that begins after September 15, 2006 (e.g., January 1, 2007,
for calendar year-end entities). The intention of the new statement is to
simplify accounting for separately recognized servicing assets and liabilities,
such as those common with mortgage securitization activities, as well as to
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
simplify
efforts to obtain hedge-like accounting. Specifically, the FASB said FAS
No. 156 permits a servicer using derivative financial instruments to report
both
the derivative financial instrument and related servicing asset or liability
by
using a consistent measurement attribute, or fair value. We do not expect
the adoption of SFAS 155 to have a material impact on its consolidated
financial position, results of operations or cash flows.
p.
Presentation
Certain
amounts have been reclassified in the December 31, 2004
financial statements to conform to the December 31, 2005 presentation.
NOTE
2
- GOING
CONCERN
The
Company's consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to
a
going concern which contemplates the realization of assets and liquidation
of
liabilities in the normal course of business. The Company has incurred
cumulative operating losses through December 31, 2005 of $13,275,599, and has
a
working capital deficit of $971,535 at December 31, 2005 all of which raise
substantial doubt about the Company's
ability
to continue as a going concern.
Primarily,
revenues have not been sufficient to cover the Company's
operating costs. Management's
plans
to enable the Company to continue as a going concern include the
following:
•
Increasing
revenues from rental properties by implementing new marketing
programs
|
•
|
Making
certain improvements to certain rental properties in order to make
them
more marketable
|
|
•
|
Reducing
expenses through consolidating or disposing of certain subsidiary
companies
|
|
•
|
Raising
additional capital through private placements of the Company's
common stock
|
|
•
|
Purchasing
revenue producing real estate
|
|
•
|
Decreasing
payroll expenses and use of options as
compensation
|
|
•
|
Using
stock and option-based compensation to cover payroll and other permissible
labor costs
|
|
•
|
Refinancing
of the notes secured by the real property held by Wasatch Capital
Corporation would have a significant effect on the working capital
deficit
of the Company, such refinancing is being sought by
management.
|
|
•
|
Evaluating
and acquiring additional operations which may have a positive effect
on
the cash flow and profitability of
Nexia.
|
There
can
be no assurance that the Company can or will be successful in implementing
any
of its plans or that it will be successful in enabling the company to continue
as a going concern. The Company's
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE
3 -
RELATED PARTY TRANSACTIONS
Richard
Surber has at various times been appointed to serve as an officer or director
for some clients of Nexia. These appointments have been disclosed to the members
of the board and the approval of the board of directors has been granted in
each
of these cases. As payment for services provided to these corporations, Surber
has received securities of those corporations, and these transactions have
been
disclosed to the board of directors in each case.
Mr.
Surber is licensed to practice law in the State of California and occasionally
represents corporate clients on various corporate matters. Mr. Surber has
disclosed the fact that he, on occasion, does act as counsel to several
companies for which he receives fees for the legal services
provided.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
On
January 29, 2004 the Company, and/or its subsidiaries entered into the following
agreements to settle debts and obligations with Axia Group, Inc., a related
party of which Richard Surber, President of the Company, also served as an
officer and director:
| 1. |
Diversified
Holdings I, Inc. accepted the assignment of certain rights to securities
with a stated value of $50,000 due in the settlement of Axia's litigation
claim against America West Securities and Robert
Kay.
|
| 2. |
Diversified
Holdings, I, Inc. also accepted an assignment of Axia's rights (presently
being litigated) against Kevin Sheff for the recovery of 10,000 post-split
shares of Axia Group, Inc.'s common
stock.
|
| 3. |
As
settlement of compensation due under a May 2, 2003 Consultant Agreement
with Hudson Consulting Group, Inc., Axia Group Inc. transferred 9,100,012
(pre-reverse split) shares of Nexia common stock to
Hudson.
|
| 4. |
A
full release and settlement of all claims against Axia Group, Inc.
was
signed by Nexia Holdings, Inc., Wasatch Capital, Inc., Hudson Consulting
Group, Inc. and West Jordan Real Estate Holdings,
Inc.
|
The
end
result of the agreements was to resolve and settle all claims against Axia
Group, Inc. held by the named entities, all subsidiaries of Nexia Holdings,
Inc.
Richard Surber, President of the Company, was formerly an officer and director
of Axia Group, Inc. The purpose of the above described transaction was to settle
the various claims and resolve the debts and obligations that existed between
Axia and the Company and its subsidiaries.
On
September 28, 2004, the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under Section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28,
2004.
In
November of 2005, the Company acquired a 20% equity interest in Landis LLC
for a
$100,000 cash payment. Landis operates an AvedaTM
lifestyle salon that features AvedaTM
products
for retail sale. Landis LLC is controlled by Nexia’s Chief Executive Officer,
Richard Surber, who owns a 60% interest in Landis. Nexia has consolidated Landis
for accounting purposes because of its ownership interest and common
control.
On
March
30, 2006 Wasatch Capital Corporation and Diversified Holdings X, Inc, a related
party doing business as Black Chandelier agreed to a joint venture operation
in
which 50% of the net profits from Black Chandelier’s internet sales will be paid
to Wasatch as a result of allowing Black Chandelier the use of equipment and
space located in the Wallace Bennett buildings owned by Wasatch one of the
Company’s subsidiaries. The bulk of these assets were seized for failure to pay
rent and are currently being used in furtherance of the joint venture
operation.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
4 -
NOTES RECEIVABLE
|
Notes
receivable consist of the following at December 31, 2005 and
2004:
|
|||||||
|
2005
|
|
2004
|
|||||
|
|
|||||||
|
Notes
receivable from an individual, with interest at 8%, due August
10, 2002,
|
|||||||
|
secured
by a building
|
$
|
255,000
|
$
|
255,000
|
|||
|
Note
receivable from an individual for the sale of a vehicle with
interest
|
|||||||
|
at
6.99%, due in 60 monthly payments of $900, secured by
vehicle
|
13,064
|
34,249
|
|||||
|
Note
from a corporation, with interest at 115%, due in four monthly
|
|||||||
|
payments
of $31,250, plus interest and unsecured
|
-
|
100,000
|
|||||
|
Note
receivable from a company, non-interest bearing, due on demand,
unsecured
|
90,100
|
81,700
|
|||||
|
Allowance
for doubtful accounts
|
(345,000
|
)
|
(315,950
|
)
|
|||
|
Total
Notes Receivable
|
$
|
13,164
|
$
|
154,999
|
|||
At
December 31, 2005, three of the notes were in default (two of the notes were
from the same debtor). The Company has taken legal action against Creating
Marketing Group, Inc. and its president.
NOTE
5 -
FIXED ASSETS
Fixed
assets consist of the following at December 31, 2005 and 2004:
|
2005
|
|
2004
|
|
||||
|
|
|
|
|
|
|||
|
Buildings
and improvements
|
$
|
3,482,048
|
$
|
3,510,066
|
|||
|
Furniture
and equipment
|
284,629
|
182,311
|
|||||
|
Vehicles
|
3,650
|
3,650
|
|||||
|
Accumulated
depreciation
|
(675,954
|
)
|
(760,975
|
)
|
|||
|
Total
property and equipment, net
|
3,094,373
|
2,935,052
|
|||||
|
Land
|
689,295
|
489,295
|
|||||
|
Total
fixed assets
|
$
|
3,783,668
|
$
|
3,424,347
|
|||
For
the
years ended December 31, 2005 and 2004, the Company recorded depreciation
expense of $129,391 and $123,845, respectively.
Certain
figures from the previous year have been re-classified to conform to the current
year’s presentation. Such re-classification is for presentation purposes only
and has no effect on previously reported results.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
6 -
INVESTMENT IN MARKETABLE EQUITY SECURITIES
|
The
following is a summary of the Company's investment in available-for-sale
securities as of December 31, 2005
|
||||||||||
|
|
Available-for-Sale
|
|||||||||
|
|
Gross
|
|
Gross
|
|
|
|
||||
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|||
|
|
|
Profit
|
|
Losses
|
|
Value
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
2005
|
|
2005
|
||||
|
Equity
securities free trading
|
$
|
-
|
$
|
5,721
|
$
|
250,873
|
||||
|
Equity
securities restricted
|
-
|
-
|
-
|
|||||||
|
|
$ | - |
$
|
5,721
|
$
|
250,873
|
||||
Changes
in the unrealized loss on available-for-sale securities during the years ended
December 31, 2005 and 2004 reported as a separate component of
stockholders'
equity
are as follows:
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
|
2005
|
|
2004
|
||||
|
|
|
||||||
|
Beginning
Balance
|
$
|
(6,767
|
)
|
$
|
(862
|
)
|
|
|
Increase
in unrealized holding gains (losses)
|
1,046
|
(5,905
|
)
|
||||
|
Ending
Balance
|
$
|
(5,721
|
)
|
$
|
(6,767
|
)
|
|
During
the years ended December 31, 2005 and 2004, the Company recognized $155 and
$194,194 respectively, in permanent impairment expense on marketable
securities.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
7 -
PREFERRED STOCK AND COMMON STOCK
Preferred
The
Company has authorized up to 50,000,000 shares of preferred stock with a par
value of $.001 per share. The preferred stock can be issued in various series
with varying dividend rates and preferences.
As
of
April 15, 2006, the number of shares of Series A Convertible Preferred Stock
issued and outstanding is none. The Series A Convertible Preferred Shares have
voting rights which equate to 100 shares of common stock for every 1 Series
A
Preferred share and may be converted into $10 worth of common stock. A total
of
10,000,000 shares have been designated and authorized as Series A Preferred
Shares of a total number of 50,000,000 authorized shares of preferred
stock.
On
August
25, 2004, the Company filed with the Nevada Secretary of State a Certificate
of
Designation of the Rights and Preferences of Preferred Stock of Nexia Holdings,
Inc. This designation created 10,000,000 shares, par value $0.001, of Series
B
Convertible Preferred Stock, out of the 50,000,000 authorized shares of
preferred stock of the Company. The Series B Preferred Stock holds voting rights
equal to 500 shares of common stock for each share of the Series B Preferred
Stock issued, the shares do not have any conversion rights into common stock
or
any other class of stock of the Company. This filing was reported on an 8-K
filing made on August 31, 2004.
On
September 28, 2004, the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28,
2004.
On
November 8, 2004, the Company filed with the Nevada Secretary of State a
Certificate of Designation of the Rights and Preferences of Preferred Stock
of
Nexia Holdings, Inc. designated as Series C Preferred Stock. The designation
of
5,000,000 shares of the 50,000,000 authorized as Series C Preferred Stock
provides that the Series C shares will hold conversion rights into shares of
the
common stock of the Company equal in value to $5.00 per share and are subject
to
redemption by the Company upon a $5.00 cash payment. The Series C Preferred
Shares hold no voting rights. This filing was reported on a Form 8-K filing
made
on November 10, 2004.
On
November 10, 2004 an agreement was entered into with Joseph Corso, Jr. to sell
him 100,000 shares of its Series C Preferred Stock in exchange for a cash
payment of $50,000. These shares had not been registered for sale and the
exchange was handled as a private sale exempt from registration under section
4(2) of the Securities Act of 1933. This exchange was reported on a Form 8-K
filing made on November 12, 2004.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Common
Stock
The
Company, in early 2004 increased the number of authorized common shares from
1,000,000,000 to 10,000,000,000 shares of common stock with a par value of
$0.001 per share. On October 19, 2004 the Company carried out a reverse stock
split of the issued and outstanding shares of common stock on the basis of
1 one
share for 1,000 outstanding shares. This reverse stock split was carried out
without reducing the number of authorized shares.
The
Company has not declared a cash dividend for any of its classes of stock during
the fiscal year ended December 31, 2005.
NOTE
8 -
OUTSTANDING STOCK OPTIONS
As
permitted by FASB Statement 123 "Accounting
for Stock Based Compensation -
Transition and Disclosure"
(SFAS
No. 123), the Company elected to measure and record compensation cost relative
to employee stock option costs in accordance with Accounting Principles Board
("APB")
Opinion
25, "Accounting
for Stock Issued to Employees",
and
related interpretations and make pro forma disclosures of net income
and earnings per share as if the fair value method of valuing stock
options had
been
applied. Under APB opinion 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market price of
the
underlying common stock on the date of grant.
On
February 1, 2005, the Board of Directors of the Company amended the “2004
Benefit Plan of Nexia Holdings, Inc.” as originally adopted on January 12, 2004
for the 8th
time to
increase the number of shares of common stock that the Company may issue under
the terms of the plan to its employees, consultants, contractors, advisors
or
other individual persons to 3,503,650,000 shares, post November 1, 2004,
reverse-split shares.
On
February 4, 2005, the Board of Directors of the Company adopted the “2005
Benefit Plan of Nexia Holdings, Inc.” under which the Company may issue stock or
stock options to employees, consultants, advisors or other individual persons.
The total number of shares covered by the 2005 plan is 1,000,000,000 shares
of
the Company’s common stock. This plan expires on the earlier of the date that is
five years from the date the plan was adopted or the date on which the one
billionth share is issued.
During
2004, the Company granted employees, consultants, advisors and others
1,246,425,823 options to purchase common stock at a floating option price set
at
75% the market price at the time of exercise, resulting in the recording of
$1,275,738 in compensation expense for the intrinsic value and fair
values.
During
2005, the Company granted employees, consultants, advisors and others
1,000,000,000 options to purchase common stock at a floating option price set
at
either 65% or 75% of the market price at the time of exercise, resulting in
the
recording of $57,250 in compensation expense for the intrinsic value and fair
values.
On
March
21, 2006, the Board of Directors of the Company adopted the “2006 Benefit Plan
of Nexia Holdings, Inc.” under which the Company may issue stock or stock
options to employees, consultants, advisors or other individual persons. The
total number of shares covered by the 2006 plan is 500,000,000 shares of the
Company’s common stock. This plan expires on the earlier of the date that is
five years from the date the plan was adopted or the date on which the five
hundred millionth share is issued.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
A
summary
of the status of the Company's
stock
option plans as of December 31, 2005 and 2004 and changes during the years
is
presented below. The stated number of options reflect the effect of the November
1, 2004 reverse stock split:
|
|
|
2005
|
2004
|
||||||||||
|
|
Weighted
|
Weighted
|
|||||||||||
|
Average
|
Average
|
||||||||||||
|
Exercise
|
Exercise
|
||||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
||||||||||
|
Outstanding,
beginning of year
|
722,500
|
$
|
0.001
|
-
|
$
|
-
|
|||||||
|
Granted
|
1,000,000,000
|
0.00016
|
1,246,425,823
|
0.001
|
|||||||||
|
Exercised,
expired, cancelled
|
(1,000,587,500
|
|
0.00016
|
(1,245,703,323
|
)
|
0.001
|
|||||||
|
Outstanding
end of year
|
135,000
|
$
|
0.001
|
722,500
|
$
|
0.001
|
|||||||
|
Exercisable
|
135,000
|
$
|
0.001
|
722,500
|
$
|
0.001
|
|||||||
The
Company determined the fair value of the stock option issued during the periods
at the grant dates using the fair market value on the dates of the options
granting, less the 75% shares of cash to be received by the Company for the
option purchase price.
The
outstanding end of year options at December 31, 2005 and 2004 are all options
issued in 2004. The outstanding end of year option price is an average price
per
options issued in 2004.
NOTE
9 -
LONG-TERM DEBT
On
January 9, 2003, Kearns Development Corporation refinanced the underlying debt
associated with certain land and real property. The new debt obligation is
for
$660,000 with an interest rate of 7.16% and monthly installment payments of
$5,223 through January 9, 2013 at which time the remaining unpaid balance is
due
and payable in full. This debt obligation is secured by a first trust deed
on
the land and building and is personally guaranteed by the president of the
Company. Proceeds from this refinancing were used to retire the previous debt
associated with the land and real property having an outstanding balance of
$615,012 at December 31, 2002.
On
January 30, 2003, West Jordan Real Estate Holdings, Inc. entered into a capital
lease for a photocopy machine. The lease has a term of 5 years, calls for a
$1,056 advance payment with monthly payments of $352 and an option to purchase
the photocopy machine for fair market value at the end of the lease. The lease
has an outstanding balance of $7,261 at December 31, 2005.
On
March
14, 2003, West Jordan Real Estate Holdings, Inc. executed a promissory note
with
an unrelated individual to borrow $30,000 to be repaid on or before March 14,
2004. The obligation bears interest at a rate of 4% and is unsecured. In
connection with this debt transaction, the Company issued to this
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
individual
5,000 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, $10.00 per share
or
$50,000 in total. This amount was recognized as current balance costs and was
amortized over the 12 month life of the loan. This loan was paid in full in
April of 2005.
|
|
2005
|
|
2004
|
||||
|
Note
payable bearing interest at 8%, monthly payments of
|
|||||||
|
$13,487,
due on demand or in monthly payments through
|
|||||||
|
July
2012, secured by first trust deed on land and buildings.
|
$
|
-
|
$
|
958,416
|
|||
|
Note
payable bearing interest at 7.15%, monthly payments
|
|||||||
|
of
$5,223 through January 2013, secured by first trust deed
|
|||||||
|
on
land and building, guaranteed by the Company's president
|
|||||||
|
and
CEO. The note was amended in December 2004 to
|
|||||||
|
remove
the “on demand” clause.
|
612,388
|
630,203
|
|||||
|
Mortgage
payable bearing interest at 7.5%, monthly payments
|
|||||||
|
of
$8,875 through May 2008, then lump sum balloon payment
|
|||||||
|
due,
secured by first trust deed on land and building, and
|
|||||||
|
guaranteed
by the Company's
President and CEO.
|
827,938
|
798,056
|
|||||
|
Note
payable bearing interest at 7.16%, monthly payments
|
|||||||
|
of
$3,061, in monthly payments through December 2012,
|
|||||||
|
secured
by deed of trust on land and buildings and guaranteed
|
|||||||
|
by
the Company’s President and CEO. The note was amended
|
|||||||
|
in
December 2004 to remove the “on demand” clause.
|
366,057
|
376,820
|
|||||
|
Note
payable bearing interest at 6.99%, monthly payments
|
|||||||
|
of
$900, due November 2007, secured by vehicle.
|
19,395
|
27,784
|
|||||
|
Notes
payable, bearing interest at 4%, due January 14, 2005,
|
|||||||
|
unsecured.
|
2,922
|
21,353
|
|||||
|
Mortgage
payable bearing interest at 8.25%, monthly
|
|||||||
|
payments
of $304, due September 2016, secured by
|
|||||||
|
first
trust deed on building.
|
25,579
|
27,964
|
|||||
|
Capital
lease payable in monthly payments of $330 through
|
|||||||
|
January
2008, secured by leased equipment.
|
7,266
|
12,322
|
|||||
|
Mortgage
payable bearing interest at 8.125%, monthly payments
|
|||||||
|
Of
$5,331, due February 2029, secured by first trust deed on Building
.
|
547,012
|
-
|
|||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
|
Capital
lease payable in monthly installments of $1,122 through December
2010 and secured by the leased equipment.
|
45,690 | - | |||||
|
2,454,247
|
2,852,918
|
||||||
|
Less
current portion
|
|
(929,908
|
)
|
(120,757
|
)
|
||
|
|
$
|
1,524,339
|
$
|
2,732,161
|
Scheduled
principal reductions are as follows:
|
Year
Ending December 31:
|
||||
|
|
||||
|
2006
|
$
|
929,908
|
||
|
2007
|
76,438
|
|||
|
2008
|
67,609
|
|||
|
2009
|
72,485
|
|||
|
2010
|
77,437
|
|||
|
Thereafter
|
1,230,370,
|
|||
|
|
$
|
2,454,247
|
||
At
December 31, 2005, the Company was current on all notes payable.
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. At December
31,
2005, there were 20,038,340 (pre-reverse split) shares of common stock reflected
as treasury stock at a cost of $100,618.
|
NOTE
11 -
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company and various subsidiary companies have filed suit seeking recovery of
assets and other redress relating to the sale of assets, subsidiary companies
or
the performance of consulting services. The ultimate outcome of these various
actions and their potential impact, if any, on the Company's
consolidated financial statements is not presently determinable.
NOTE
12 -
SIGNIFICANT EVENTS
In
May
2004, Hudson Consulting, a subsidiary of the Company, sold its stock investment
in Caye Chapel for $90,573. There was a net gain on the sale of $36,918 after
payments of Caye Chapel creditors from the sale proceeds, as agreed to in the
contract of sale.
In
September 2004 the Company’s subsidiary, Diversified Holdings I, Inc., recorded
rental expense of $105,000 for rent on the 400 South office building for 2004
until the date of move in November 2004, in
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
accordance
with an agreement with Diversified Financial Resources Corporation. The contra
entry was a Gain on Sale of Subsidiary, Wichita Development Corporation, to
recognize part of the gain from the sale.
On
December 31, 2004, the stock of four subsidiary companies was sold to We are
Electric, LLC, an unrelated company, for $100. The four subsidiaries were Golden
Opportunity Development Corporation, Canton Tire Recycling of West Virginia,
Inc., Canton’s Wild Horse Ranch-II and Oasis International Hotel and Casino,
Inc.
On
the
basis of a written agreement, the intercompany account balances of the retained
Nexia companies with the four companies sold were forgiven. This resulted in
a
net forgiveness of debt income to the retained Nexia companies of $1,470,541.
The sale of the four subsidiaries resulted in a net gain on sale of subsidiaries
of $242,352.
In
April
of 2005 West Jordan Real Estate Holdings Corporation , (WJRHC) sold the Glendale
Plaza Shopping Center for a cash price of $1,860,000 and paid off the
outstanding loan on the property in the sum of $952,665.92. There was a
recognized gain on the sale of $756,471. As this was the only operating asset
of
WJRHC, this entity will be discontinued in 2006.
Landis
LLC, is a Utah limited liability company (Landis) and was organized for the
purpose of operating an AvedaTM
Lifestyle Salon. DHI acquired a 20% interest in exchange for a $100,000 cash
investment. Nexia’s president, Richard Surber, holds a 60% interest in Landis
and is the sole operating member of the LLC. Landis operations have been
consolidated in these statement based upon the common control of Nexia and
Landis. The Company holds a 20% interest in Landis, LLC
The
loan
secured by the Wallace-Bennett building held by Wasatch Capital Corporation
is
due on May 10, 2006. The Company and Wasatch are seeking to refinance or extend
this loan package. The current loan balance as of April 20, 2006 of $813,940
is
being carried as a current liability.
NOTE
13 -
SEGMENT INFORMATION
Nexia
Holdings, Inc. has identified two reportable segments in which it operates
based
on the services it provides, using the guidelines set forth in SFAS No. 131,
Information “Disclosures about Segments of an Enterprise and Related
Information”. The reportable segments are as follow - real estate operations
(“Real Estate”), which includes primarily the purchase, sale and rental of
commercial real estate and sales - salon and consulting (“Sales-Salon and
Consulting”), which is primarily a new salon business. The Company has phased
out consulting. There was a small amount of consulting revenue in 2005 and
no
related expenses.
Common
overhead costs are included in the Consulting and other segment as other
expenses.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
Summarized
financial information concerning reportable segments is shown in the following
table:
|
For
the year
|
Sales
- Salon
|
Real
|
||||||||||||||
|
Ended
Dec. 31,
|
and
Consulting
|
Estate
|
Total
|
|||||||||||||
|
Revenues
|
2005
|
$
|
134,394
|
$
|
281,351
|
$
|
415,745
|
|||||||||
|
2004
|
121,633
|
512,456
|
634,089
|
|||||||||||||
|
|
||||||||||||||||
|
Cost
of revenues (including
|
2005
|
(50,607
|
)
|
(435,647
|
)
|
(486,254
|
)
|
|||||||||
|
mortgage
interest)
|
2004
|
(1,069,329
|
)
|
(1,055,139
|
)
|
(2,124,468
|
)
|
|||||||||
|
|
||||||||||||||||
|
Expenses
|
2005
|
(137,873
|
)
|
(591,144
|
)
|
(729,017
|
)
|
|||||||||
|
2004
|
(1,349,885
|
)
|
(652,765
|
)
|
(2,002,650
|
)
|
||||||||||
|
|
||||||||||||||||
|
Miscellaneous
expense
|
2005
|
-
|
(241
|
)
|
(241
|
)
|
||||||||||
|
2004
|
-
|
(26,187
|
)
|
(26,187
|
)
|
|||||||||||
|
|
||||||||||||||||
|
Interest
Income
|
2005
|
22
|
43,466
|
43,488
|
||||||||||||
|
2004
|
5,493
|
-
|
5,493
|
|||||||||||||
|
|
||||||||||||||||
|
Interest
expense (not
|
2005
|
(618
|
)
|
(
68,769
|
)
|
(69,378
|
)
|
|||||||||
|
mortgage
expense)
|
2004
|
-
|
(31,521
|
)
|
(31,521
|
)
|
||||||||||
|
|
||||||||||||||||
|
Income
from litigation settlement
|
2005
|
-
|
206,500
|
206,500
|
||||||||||||
|
2004
|
-
|
-
|
-
|
|||||||||||||
|
|
||||||||||||||||
|
Gain
on sale of real estate
|
2005
|
-
|
756,471
|
756,471
|
||||||||||||
|
2004
|
-
|
-
|
-
|
|||||||||||||
|
|
||||||||||||||||
|
Income
(loss) on sale of subsidiaries
|
2005
|
-
|
-
|
-
|
||||||||||||
|
2004
|
-
|
528,192
|
528,192
|
|||||||||||||
|
|
||||||||||||||||
|
Unrealized
gain - convertible
|
2005
|
-
|
114,286
|
114,286
|
||||||||||||
|
debenture
derivative
|
2004
|
-
|
-
|
-
|
||||||||||||
|
|
||||||||||||||||
|
Loss
from discontinued operations
|
2005
|
-
|
(316,779
|
)
|
(316,779
|
)
|
||||||||||
|
2004
|
-
|
-
|
-
|
|||||||||||||
|
|
||||||||||||||||
|
Net
income (loss) applicable to
|
2005
|
(57,035
|
)
|
308,634
|
251,599
|
|||||||||||
|
segment
|
2004
|
(2,761,621
|
)
|
(166,139
|
)
|
(2,927,760
|
)
|
|||||||||
|
|
||||||||||||||||
|
Minority
share of income (loss)
|
2005
|
(3,015
|
)
|
68,383
|
65,368
|
|||||||||||
|
2004
|
-
|
(7,176
|
)
|
(7,176
|
)
|
|||||||||||
|
|
||||||||||||||||
|
Total
assets
|
2005
|
395,996
|
3,923,920
|
4,319,916
|
||||||||||||
|
(net
of intercompany accounts)
|
2004
|
471,584
|
3,534,476
|
4,006,060
|
||||||||||||
|
|
||||||||||||||||
|
Property
and equipment acquisitions
|
2005
|
330,460
|
1,124,514
|
(1
|
)
|
1,454,974
|
||||||||||
|
2004
|
6,308
|
358,453
|
364,761
|
|||||||||||||
|
|
||||||||||||||||
|
Depreciation
and amortization
|
2005
|
5,507
|
135,792
|
141,299
|
||||||||||||
|
2004
|
4,965
|
131,060
|
136,025
|
|||||||||||||
|
(1)
Includes $903,603 from acquisition of Salt Lake Development corporation
on
August 8, 2005
|
||||||||||||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
14 -
STOCK SUBSCRIPTIONS RECEIVABLE
|
The
Company had stock subscriptions receivable of $11,325 and $375,009
at
December 31, 2005 and 2004
respectively.
|
NOTE
15 -
CONVERTIBLE DEBENTURES
On
October 31, 2003, the Company issued two convertible debentures for $30,000
each. The debentures accrue interest at 18% per annum, are due November 1,
2004
and are convertible at any time after 45 days into common stock at a conversion
equal to 70% of the average closing bid price of the common stock for the three
trading days immediately proceeding the date of election. The Company recognized
a beneficial conversion feature debt discount of $11,609 which was fully
amortized to interest expense by December 31, 2003.
All
except $5,000 of the debentures were paid by cash or issuing Nexia stock as
of
December 31, 2004, and the $5,000 balance was paid in January 2005.
On
November 1, 2004, the Company issued a convertible debenture for $200,000.
The
debenture accrues interest at 24% per annum, is due November 1, 2007 and is
convertible, except for $5,000, anytime after one year into common stock at
a
price equal to 70% of the average closing bid price of the common stock for
three trading days immediately preceding the date of election.
|
NOTE
16 - CONVERTIBLE DEBENTURE DERIVATIVE AND CORRECTION OF 2004 FINANCIAL
STATEMENTS
|
||||||||
|
The
convertible debenture issued on November 1, 2004, and described in
detail
in NOTE
15 - CONVERTIBLE DEBENTURES, could be converted into Nexia common
stock
effective November 1, 2005 and became subject to accounting required
for
derivatives.
|
||||||||
|
This
transaction, to the extent that it is to be satisfied with common
stock of
the Company,
would normally be included as equity obligations. In this instance,
however,
due to the indeterminate number of shares which might be issued under
the
embedded convertible host debt conversion feature, the Company is
required
to
record a liability relating to the embedded convertible feature of
the
convertible debenture
payable (included in long-term liabilities as a "Convertible
debenturederivative").
|
||||||||
|
The
accompanying financial statements comply with current requirements
relating to
embedded derivatives as described in FAS 133, EITF 98-5 and APB 14
as
follows:
|
||||||||
|
The
Company allocated the proceeds received to the convertible debt
derivative
with the initial allowable derivative
recording.
|
||||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Subsequent
to to the initial allowable derivative recording, the increase in the
intrinsic value of the embedded derivative in the conversion feature of
the
convertible debenture are accrued as adjustments to the liabilities at
December
31, 2005.
The
expense relating to the increase in the fair value of the Company's stock,
reflected in the change in the fair value of the derivative (noted above),
is
included as another comprehensive income item as an unrealized gain or
loss
arising from convertible financing on the Company's balance
sheet.
Accreted
principal of $16,440 as of December 31, 2005.
The
following table summarizes the various components of the convertible debenture
as
of
December 31, 2005:
| Convertible debenture |
$
|
16,440
|
||
| Convertible debenture derivative |
85,714
|
|||
|
102,154
|
||||
|
Adjustment
of convertible debenture derivative
to fair value
|
114,286
|
|||
|
Accretion
of principal related to convertible debenture
|
(16,440
|
)
|
||
|
Total
convertible debenture
|
$
|
200,000
|
Subsequent
to the issuance of the December 31, 2004 consolidated financial statements,
the
Company determined that these Convertible Debentures issued in November 2004
had
not been accounted for properly. A beneficial conversion feature totaling
$83,571 had been recognized at the time the debt was issued in 2004 when the
conversion feature was not yet in effect until November 2005, as previously
discussed. In addition, the provisions of EITF - 00-27 and ABP 14 were utilized
not considering the derivative features of the convertible debt requiring
consideration of the provisions of EITF 00-19 and FAS 133. The effect of the
correction of this error reduced additional paid-in capital by $83,571 and
also
reduced interest expense, net loss and total comprehensive loss by a
corresponding amount in the December 31, 2004 consolidated financial statements,
as restated.
NOTE
17 -
DISCONTINUED OPERATIONS
On
April
21, 2005, West Jordan Real Estate Holdings, Inc.(WJREH) a consolidated
subsidiary of Nexia sold Glendale Plaza, a commercial retail strip mall in
Salt
Lake City, to an unrelated party, and WJREH ceased to be an operating
company.
Hudson
Consulting Group, Inc., a consolidated subsidiary of the Company, discontinued
providing any consulting services in early 2005. Hudson was, and continued
to
be, the main operating company in the Nexia consolidated group. This
responsibility was primarily being the employer entity which involved hiring
and
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
terminating
employees, paying salaries and wages and preparing periodic payroll tax returns
and paying the taxes. Hudson ceased all activities as of December 31, 2005,
and
its functions were transferred to another company in the Nexia Consolidated
Group.
The
following is a summary of the combined companies’ operating loss from
discontinued operations for the year ended December 31, 2005:
|
|
For
the Years Ended
|
|||
|
December
31,
|
||||
|
|
2005
|
|||
|
REVENUE
|
||||
|
Rental
Revenue
|
$
|
39,218
|
||
|
Consulting
Revenue
|
1,848
|
|||
|
Total
Revenue
|
41.066
|
|||
|
COST
OF REVENUE
|
||||
|
Cost
associated with rental revenue
|
79,714
|
|||
|
Interest
expense associated with rental revenue
|
26,444
|
|||
|
Cost
associated with consulting revenue
|
-
.
|
|||
|
TOTAL
COST OF REVENUE
|
106,158
|
|||
|
GROSS
MARGIN (DEFICIT)
|
(65,092
|
)
|
||
|
EXPENSES
|
||||
|
General
and administrative expense
|
261,645
|
|||
|
TOTAL
EXPENSES
|
261,645
|
|||
|
OPERATING
LOSS
|
(326,737
|
)
|
||
|
OTHER
INCOME (EXPENSE)
|
||||
|
Interest
expense
|
(2,214
|
)
|
||
|
Interest
income
|
8,828
|
|||
|
Gain
on sale of marketable securities
|
212
|
|||
|
Other
income
|
3,132
|
|||
|
TOTAL
OTHER INCOME (EXPENSE)
|
9,958
|
|||
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
(316,779
|
|||
|
MINORITY
INTEREST IN INCOME (LOSS)
|
-
|
|||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS -
|
||||
|
DISCONTINUED
OPERATIONS
|
||||
|
Loss
from discontinued operations
|
(316,779
|
)
|
||
| NET LOSS | - | |||
| OTHER COMPREHENSIVE INCOME (LOSS) | - | |||
| TOTAL COMPREHENSIVE (LOSS) | $ | - | ||
No
income
tax benefit has been attributed to the loss from discontinued
operations.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
18 -
SUBSEQUENT EVENTS
On
April
19, 2006 a closing for the sale of the office building owned by SLD, located
at
268 West 400 South, Salt Lake City took place. The sales price was $850,000.
As
of the closing date the outstanding loan balance secured by this building was
$553,548. The Company received net proceeds from the sale, after payment of
all
fees and costs of $238,646.
On
March
30, 2006, the Company and Diversified Holdings X, Inc dba Black Chandelier
agreed to a joint venture operation in which 50% of the net profits from Black
Chandelier’s internet sales will be paid to Nexia as a result of allowing Black
Chandelier the use of equipment and space located in the Wallace Bennett
buildings owned by the Company’s subsidiary Wasatch Capital Corporation. The
bulk of these assets were seized for failure to pay rent and are currently
being
used in furtherance of the joint venture operation.
NOTE
19 -
CONSOLIDATED STATEMENTS OF OPERATIONS GROSS PROFIT (LOSS)
The
following schedule shows the comparative gross profit / (loss) for each of
the
operating segments of the Company, years ended December 31, 2005 and
2004
|
2005
|
2004
|
||||||
|
Gross
loss from real estate operations
|
$
|
(154,297
|
)
|
$
|
(542,683
|
)
|
|
|
Gross
profit from sales - salon and retail
|
73,262
|
-
|
|||||
|
Gross
profit (loss) from consulting operations
|
10,525
|
(947,696
|
)
|
||||
|
$
|
(70,510
|
)
|
$
|
(1,490,379
|
)
|
||
The
Company ceased consulting operations at the end of 2004. The gross profit in
2005 was from residual collections.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
NOTE
20 -
INCOME FROM LITIGATION SETTLEMENTS
A
settlement was reached between a Nexia subsidiary, Diversified Holdings, Inc.
(DH1), and Technoconcepts, Inc. on June 15, 2005. DH1 received $20,000 cash
and
35,000 shares of Technoconcepts common stock (restricted) valued at $154,000
on
June 15, 2005, a total settlement of $174,000.
A
settlement was reached in June 2005 between Diversified Holdings, Inc. (DH1)
and
West America Securities for $42,500 to satisfy a receivable written off as
part
of the 2003 audit. The settlement is payable in monthly installments. DH1
received $32,500 in 2005.
NOTE
21 -
GAIN ON SALE OF SUBSIDIARIES
A
Nexia
subsidiary, Diversified Holdings, Inc. (DH1), sold four inactive subsidiary
corporations to an unrelated company for $100 on December 31, 2004. The gain
of
$528,192 from the sale resulted from the effect of writing off intercompany
balances between the four subsidiary corporations and the other Nexia companies
as net gain from forgiveness of debt.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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 is
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)
of Regulation S-B.
On
January 26, 2006, De Joya Griffith & Company, LLC, (the “New Accountant”) of
6330 McLeod Drive, Suite 1, Las Vegas, Nevada 89120, was retained as the
auditors for Nexia Holdings, Inc. (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. The board and management of the Company
concluded that the geographical proximity would benefit the Company in working
with the New Accountant and promote the timely completion of work requested
from
the New Accountant.
During
the two fiscal years ended December 31, 2003 and December 31, 2004 and through
January 24, 2006, the Company did not consult with De Joya Griffith &
Company, LLC regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-B.
On
January 26, 2006 the Company informed its prior accountant Bongiovanni &
Associates, P.A. (the “Former Accountant”) of 17111 Kenton Drive, Suite 204-B,
Cornelius, North Carolina 28031, that it was dismissed as the Company’s
auditors.
During
the Company’s two most recent fiscal years and the subsequent interim period
through the date of dismissal, there were no disagreements with 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.
ITEM
8A. CONTROLS AND PROCEDURES
We
carried out an evaluation, under the supervision and with the participation
of
our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of
the design and operation of our disclosure controls and procedures, as defined
in Exchange Act Rule 13a-14(c) as of the end of the period covered by this
Annual Report on Form 10-KSB and as of a date within 90 days of the filing
of
this report. Based on that evaluation, they concluded that our disclosure
controls and procedures are effective to ensure that information required to
be
disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to them to allow timely decisions regarding required
disclosure.
There
has
been no change in our internal control over financial reporting that occurred
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Name Age Position(s)
and Office(s)
Richard
Surber
33
President
and Director
Gerald
Einhorn
66
Vice
President, Secretary and Director
Adrienne
Bernstein 60
Director
Richard
D. Surber, 33,
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.
Gerald
Einhorn, 66,
was
appointed to the board in June of 2002 as a Director, Vice-President and
Secretary of Nexia. He has been employed by Hudson Consulting Group, Inc.
(currently a subsidiary of Nexia) in its legal department since February 1996
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 of a period of 10 years before entering
the food distribution business.
Adrienne
Bernstein, 60,
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 publicly traded
company specializing in finance, insurance and manufacturing. In this capacity,
Ms. Bernstein's primary emphasis involved real estate management and sales
activities.
ITEM
10. EXECUTIVE COMPENSATION
Except
as
set forth below, no compensation in excess of $100,000 was awarded to, earned
by, or paid to any executive officer of the Company during the years 2005,
2004
and 2003. The following table and the accompanying notes provide summary
information for each of the last three fiscal years concerning cash and non-cash
compensation paid or accrued by Richard Surber, the Company's chief executive
officer for the past three years.
|
SUMMARY
COMPENSATION TABLE
|
|||||||||
|
Annual
Compensation
|
Long
Term Compensation
|
||||||||
|
Awards
|
Payouts
|
||||||||
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compen-sation ($)
|
Restricted
Stock Award(s)
($)
|
Securities
Underlying Options
SARs(#)
|
LTIP
pay-outs
($)
|
All
Other
Compen
sation
($)
|
|
|
Richard
Surber, President
|
2005
|
$150,000(3)
|
|||||||
|
Richard
Surber, President
|
2004
|
$150,000
|
-
|
8,000
4
|
-
|
-
|
-
|
-
|
|
|
Richard
Surber, President
|
2003
|
51,0001
2
|
$32,248
|
-
|
-
|
-
|
-
|
-
|
|
|
(1)
During the years 2003, 2004 and 2005, Mr. Surber was paid a salary
by
Hudson Consulting Group, Inc. which was acquired as a subsidiary
by the
Company in February 2002.
|
|||||||||
|
(2)
Of this amount $39,231 represents salary paid and $11,769 is accrued
but
unpaid salary due to Mr. Surber, which was paid during
2004.
|
|||||||||
|
(3)
Of this amount $121,154 represents salary paid during 2005 and $28,845
is
accrued but unpaid salary
due
to Mr. Surber as of December 31, 2005.
|
|||||||||
|
(4)
The board of directors awarded Mr. Surber 8,000,000 shares of Class
B,
Preferred Stock with a value of
$8,000.
|
|||||||||
During
the year ended December 31, 2005, Richard Surber received $13,000 in litigation
settlement proceeds paid to corporations that were formerly related parties
due
to common control as a result of Surber serving as president of the Company
and
the parties to the litigation. The litigation filed to collect these sums was
filed in California and did not arise from entities that are consolidated into
the Company’s financial statements.
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 fixed 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.
ITEM
11.
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 March 31, 2006, with respect to: (i) each person
known to the Company to be the beneficial owner of more than five percent of
the
Company's common stock; (ii) all directors; and (iii) directors and executive
officers of the Company as a group. The notes accompanying the information
in
the table below are necessary for a complete understanding of the figures
provided below. As of March 31, 2006, there were 3,889,945,030 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
|
20,091,937
Direct
12,862
Indirect(1)
|
0.52%
|
|
|
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
|
20,127,756
|
0.517%
|
|
(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 20,091,937
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.
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company has entered into the following 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.
On
September 28, 2004 the Company authorized the issuance of 8,000,000 shares
of
Series B Convertible Preferred Stock to the president of the Company, Richard
Surber. The shares were issued as compensation for both his service as president
of the Company and for acting as a guarantor on real estate mortgages for
subsidiaries of the Company. The shares were issued in a private transfer exempt
from registration under Section 4(2) of the Securities Act of 1933. This
issuance was reported on a Form 8-K filing made on September 28,
2004.
On
November 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.
Subsequent
Events to December 31, 2005
On
March
30, 2006 the Company and Black Chandelier, Inc. agreed to a joint venture
operation in which 50% of all sales proceeds from Black Chandelier’s internet
sales will be paid to Nexia as a result of allowing Black Chandelier the use
of
equipment and space located in the Wallace Bennett buildings owned by the
Company’s subsidiary Wasatch Capital Corporation. The bulk of these assets were
seized for failure to pay rent and are currently being used in furtherance
of
the joint venture operation.
ITEM
13. EXHIBITS
AND REPORTS ON FORM 8-K
|
(a)
|
Exhibits.
Exhibits required to be attached by Item 601 of Regulation S-B are
listed
in the Index to Exhibits of this Form 10-KSB, which is incorporated
herein
by reference.
|
|
(b)
|
Reports
on Form 8-K.
|
| (1) |
On
January 7, 2005, the Company filed a Form 8-K, in which the Company
reported the Unregistered Sale of Equity Securities to EquitiLink,
LLC.
The Company delivered 100,000,000 shares of its restricted common
stock to
EquitiLink as compensation for public relations and communication
services
performed by Equitilink for the benefit of the
Company.
|
| (2) |
On
April 25, 2005, the Company filed a Form 8-K, in
which the Company reported the sale of the Glendale Shopping Plaza
by its
subsidiary, West Jordan Real Estate Holdings, Inc., for a cash price
of
$1,860,000 and paid off a loan in the
amount of $952,665.92 that was secured by the
property.
|
| (3) |
On
May 27, 2005, the Company filed a Form 8-K, in which the Company
reported
the resignation of John E. Fry, Jr. as a director of the Company,
citing
personal reasons as the basis of his
resignation.
|
| (4) |
On
August 18, 2005, the Company filed a Form 8-K, reporting the execution
of
agreements with Dutchess Private Equities Fund, L.P. providing for
up to
$10,000,000 in equity financing.
|
| (5) |
On
August 30, 2005, the Company filed a Form 8-K, reporting
that the Company had acquired a 100% equity interest in Axis Labs,
Inc. in
exchange for the issuance of 165,000 shares of Nexia’s Series C Preferred
Stock, reported on an agreement for rescission of that agreement
and that
the Company president Richard Surber had granted an option to the
Company
to acquire 8,000,000 shares of the Series B Preferred Stock of the
Company
held by Mr. Surber.
|
| (6) |
On
November 8, 2005, the Company filed a Form 8-K, reporting
on the issuance of 50,000,000 shares of restricted common stock to
Barry
Burbank to satisfy all claims for personal services, time and effort
that
he has provided to the Company. The transaction was handled as a
private
sale exempt from registration under Section 4(2) of the Securities
Act of
1933.
|
| (7) |
On
December 5, 2005, the Company filed a Form 8-K reporting on the
resignation of its independent accountants, HJ & Associates,
LLC.
|
| (8) |
On
December 13, 2005, the Company filed a Form 8-K reporting the retention
of
Bongiovanni & Associates, PA to serve as the Company’s new independent
accountants.
|
Subsequent
filing to December 31, 2005:
| (1) |
On
January 6, 2006, the Company filed a Form 8-K/A, amending the prior
report
on December 13, 2005 reporting on the changing of the Company’s
independent accountants from HJ & Associates to Bongiovanni &
Associates.
|
| (2) |
On
January 27, 2006, the Company filed a Form 8-K reporting on the change
of
the Company’s independent accountants to De Joya Griffith & Company
LLC and at the same time reported the dismissal of Bongiovanni &
Associates, PA from the same
position.
|
| (3) |
On
February 15, 2006, the Company filed a Form 8-K reporting that Salt
Lake
Development Inc. had signed an agreement for the sale of real property
located at 268 West 400 South, Salt Lake City, Utah for a sales price
of
$850,000 and an expected closing date of April 27,
2006.
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
Company’s principal independent accountants for the performance of our audit for
the year ended December 31, 2004 was H.J. & Associates, LLC. The Company’s
principal independent accountants for the performance of our audit for the year
ended December 31, 2005 was De Joya Griffith & Company, LLC. The Company’s
previous independent accountants, HJ & Associates, performed reviews of the
Company’s financial statements for the two quarters ended March 31, 2005 and
June 30, 2005. Bongiovanni & Associates PA performed the review of the
Company’s financial statements for the quarter ended September 30,
2005.
| (i) |
Audit
Fees. For the fiscal years ended December 31, 2004 and 2005, the
aggregate
fees billed for services rendered for the audits of the annual financial
statements and the review of the financial statement included in
the
quarterly reports of Form 10-QSB and the services provided in connection
with the statutory and regulatory filings or engagements for those
fiscal
years were $60,125 for 2004 and $48,135 for
2005..
|
|
(ii)
|
Audit-Related
Fees. For the fiscal years ended December 31, 2004 and 2005, there
were no
fees billed for the audit or review of the financial statements that
are
not reported above under Audit
Fees.
|
|
(iii)
|
Tax
Fee. For the fiscal years ended December 31, 2004 and 2005, there
were no
fees billed for tax compliance services and there was no tax-planning
advice provided.
|
|
(iv)
|
Other
Fees. For the fiscal years ended December 31, 2004 and 2005, the
aggregate
fees billed for services other than services described above were
none.
|
Pre-approved
Policy for Audit and Non-Audit Services
The
Company does not have a standing audit committee and the full board of directors
performs all functions of an audit committee, including the pre-approval of
all
audit and non-audit services prior to Nexia engaging an accountant. All of
the
services rendered for Nexia by HJ & Associates, LLC, Bongiovanni &
Associates PA and De Joya Griffith & Company, LLC, were pre-approved by the
board of directors of Nexia.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
Registrant caused this Annual Report and any subsequent amendments thereto
to be
signed on its behalf by the undersigned, thereunto duly authorized.
| NEXIA HOLDINGS, INC. | ||
| |
|
|
| Date: May 5, 2006 | By: | /s/ Richard Surber |
|
Richard Surber CEO, President and CFO
|
||
Pursuant
to the requirements of the Securities Act of 1934, this Annual Report has been
signed below by the following persons in their respective capacities with the
Registrant and on the dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
|
|
||
|
/s/
Richard Surber
|
|
|
|
Richard
Surber
|
CEO,
Pres., CFO and Director
|
May
5, 2006
|
|
|
||
|
/s/
Gerald Einhorn
|
||
|
Gerald
Einhorn
|
Director
|
May
5, 2006
|
|
/s/
Adrienne Bernstein
|
|
|
|
Adrienne
Bernstein
|
Director
|
May 5, 2006 |
|
INDEX
OF EXHIBITS
|
||||
|
Exhibit
No.
|
Exhibit
Page
No.
|
Description
|
||
|
3(i)(a) *
|
*
|
Articles
of Incorporation of the Company (incorporated herein by reference
from
Exhibit No. 3(i) to the Company's Form SB-2 as filed with the Securities
and Exchange Commission on January 12, 2006).
|
||
|
3(i)(b)
|
*
|
Articles
of Incorporation of Kelly’s Coffee Group, Inc. filed with the Secretary of
State of Nevada on August 3, 2000 (incorporated herein by reference
from
Exhibit No. 3(i) to the Company's Form SB-2 as filed with the Securities
and Exchange Commission on January 12, 2006).
|
||
|
3(i)(c)
|
*
|
Articles
of Merger merging Kelly’s Coffee Group, Inc., a Colorado Corporation into
Kelly’s Coffee Group, Inc., a Nevada Corporation, filed with the Secretary
of State of Colorado on September 22, 2000, and with the Secretary
of
State of Nevada on October 5, 2000 (incorporated herein by reference
from
Exhibit No. 3(i) to the Company's Form SB-2 as filed with the Securities
and Exchange Commission on January 12, 2006).
|
||
|
3(i)(d)
|
*
|
Bylaws
of the Company, as amended (incorporated herein by reference from
Exhibit
3(ii) of the Company's Form SB-2 as filed with the Securities and
Exchange
Commission on January 12, 2006).
|
||
|
3(ii)
|
*
|
Amendment
to the Articles of Incorporation changing the Company’s name from Kelly’s
Coffee Group, Inc. to Nexia Holdings, Inc. (incorporated herein by
reference as filed in the Company’s Form SB-2 as filed with the Securities
and Exchange Commission on January 12, 2006).
|
||
|
3(iii)
|
*
|
Amendment
to the Articles of Incorporation changing the number of authorized
shares
of common stock of the Company to 10,000,000,000 (incorporated herein
by
reference as filed in the Company’s Definitive 14(c) as filed with the
Securities and Exchange Commission on March 5, 2004).
|
||
|
3(iv)
|
*
|
Form
of certificate evidencing shares of "Common Stock” in the Company
(incorporated from Exhibit 4(a) to the Company's Form SB-2 as filed
with
the Securities and Exchange Commission on January 12,
2006).
|
||
|
MATERIAL
CONTRACTS
|
||||
|
10(i)
|
*
|
Investment
Agreement between Nexia Holdings, Inc. and Dutchess Private Equities
Fund,
L.P. Incorporated by reference from the Company’s Form SB-2 as filed on
January 12, 2006.
|
||
|
10(ii)
|
*
|
Registration
Rights Agreement between Nexia Holdings, Inc. and Dutchess Private
Equities Fund, LP. Incorporated by reference from the Company’s Form SB-2
as filed on January 12, 2006.
|
||
|
10(iii)
|
53
|
|||
|
CERTIFICATIONS
|
||||
|
31(i)
|
45
|
|||
|
31(ii)
|
46
|
|||
|
32(i)
|
47
|
|||
|
32(ii)
|
48
|
|||
|
OTHER
|
||||
|
99(i)
|
*
|
February
1, 2005, a Stock Option Agreement between the Company and John Mortensen
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(ii)
|
*
|
February
1, 2005, a Stock Option Agreement between the Company and Rafael
Prado
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(iii)
|
*
|
February
1, 2005, a Stock Option Agreement between the Company and Rocco Liebsch
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(iv)
|
*
|
February
9, 2005, a Stock Option Agreement between the Company and Michael
Golightly granting 25,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the shares
vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(v)
|
*
|
February
9, 2005, a Stock Option Agreement between the Company and Rocco Liebsch
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(vi)
|
*
|
February
9, 2005, a Stock Option Agreement between the Company and Edward
T. Wells
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(vii)
|
*
|
February
9, 2005, a Stock Option Agreement between the Company and Brent Sorensen
granting 25,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(viii)
|
*
|
February
21, 2005, a Stock Option Agreement between the Company and Michael
Golightly granting 75,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the shares
vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(ix)
|
*
|
February
23, 2005, a Stock Option Agreement between the Company and Reggie
Ainsworth granting 75,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the shares
vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(x)
|
*
|
February
23, 2005, a Stock Option Agreement between the Company and John Mortensen
granting 75,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xi)
|
*
|
February
23, 2005, a Stock Option Agreement between the Company and Alex Bustos
granting 75,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xii)
|
*
|
March
31, 2005, a Stock Option Agreement between the Company and Sandra
Jorgensen granting 50,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the shares
vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xiii)
|
*
|
March
31, 2005, a Stock Option Agreement between the Company and Ernie
Burch
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xiv)
|
*
|
March
31, 2005, a Stock Option Agreement between the Company and Alex Bustos
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xv)
|
*
|
March
31, 2005, a Stock Option Agreement between the Company and Michael
Golightly granting 50,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the shares
vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xvi)
|
*
|
March
31, 2005, a Stock Option Agreement between the Company and John Mortensen
granting 50,000,000 options with a floating option price set at 75%
of the
market price at the time of exercise, all of the shares vested
immediately. Incorporated by reference from the 10-KSB for the period
ended December 31, 2004 filed May 26, 2005.
|
||
|
99(xvii)
|
62
|
|||
|
99(xviii)
|
64
|
|||
|
99(xix)
|
66
|
|||
|
Subsequent
Events
|
||||
|
99(i)
|
68
|
|||
|
99(ii)
|
70
|
|||
|
99(iii)
|
72
|
|||
|
99(iv)
|
74
|
|||
|
99(v)
|
76
|
|||
*
Previously filed as indicated and Incorporated herein by
reference.
71