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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
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For
the annual period ended
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December
31, 2006
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Commission
File Number
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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. YES
[X]
NO
[ ]
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, $.0001 Par Value - 1,582,995,086 shares as of April 12,
2007.
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, 2006 were
$1,834,245.
The
aggregate market value of the registrant's common stock, $0.0001 par value
(the
only class of voting stock), held by non-affiliates was approximately $961,142
based on the average closing bid and asked prices for the Common Stock on March
30, 2007, of $0.0007 per share.
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TABLE
OF CONTENTS
PART
I
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PART
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Item
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PART
III
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PART
I
ITEM
1.
OUR
BUSINESS
Nexia’s
current operations consist of the acquisition, leasing and selling of real
estate, the operation of a salon and the operation of retail clothing stores.
Nexia’s subsidiaries currently own and operate a 38,000 square foot
retail/office building, an 11,000 square foot office building and a 7,000 square
foot retail building. All of these buildings are located in the greater Salt
Lake City, Utah area. A subsidiary of the Company has acquired the operations
of
Black Chandelier, a clothing and lifestyle retail operation with four stores,
three located in the Salt Lake City, Utah market and one in the Provo, Utah
market. Nexia subsidiary, Landis, LLC, operates a hair salon that sells Aveda™
products exclusively.
DESCRIPTION
OF BUSINESS
This
report contains forward-looking statements which involve risks and
uncertainties, including trends in the real estate investment market, projected
leasing and sales and future prospects of Nexia’s retail operations. Actual
results could differ materially from those discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
General
Nexia
currently has three general areas in which it conducts business operations.
The
oldest is the acquisition, leasing and selling of commercial real estate
properties in the greater Salt Lake City, Utah area. A subsidiary of the Company
has acquired an 85% ownership interest in Landis, LLC which owns and operates
Landis Lifestyle Salon, an Aveda™ lifestyle salon located in Salt Lake City,
Utah. Another subsidiary, Gold Fusion Laboratories, Inc., operates 4 retail
clothing stores operating under the name Black Chandelier in Utah.
The
corporate structure is as set forth in the following chart:
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 is 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 2006 Market Review of Commerce CRG published by
national real estate broker Cushman & Wakefield, Utah’s thriving economy is
drawing increased interest from out-of-state office users, as well as existing
in-state expansions. The overall vacancy rate was 10.28% in 2006, a 0.53% drop
from 2005 figures. A majority of tenants vacating the soon-to-be demolished
Key
Bank Tower, located in the central business district, have been accommodated
within the downtown area, pushing direct vacancy for high quality facilities
down to an historical low.
These
reported trends have not, however, led to large increased occupancy rates for
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 25.14%
for
the year of 2006 compared to an overall vacancy rate of 9.88% for the central
business district. However, for retail space, lease rates for Class A space
have
reached record highs and may encourage local retailers to move into Class B
and
C spaces with their lower lease rates.
All
of
the retail space in the Wallace/Bennett buildings owned by our subsidiary
Wasatch Capital is currently leased. A 2,500 square foot portion of a total
of
7,000 square feet of the retail space in the buildings located at 1374 South
State Street is leased and the balance is unoccupied at this time. The balance
of the Company’s holdings in the Salt Lake City market are of office or studio
space. Plans have been made to improve the vacant spaces and ready them for
more
aggressive marketing.
Our
Plan to Acquire and to Sell Commercial Properties
Our
business plan is to buy more properties that we believe are undervalued compared
to their cash flows and estimated resale value. We are looking for properties
with sufficient rental income to enable us to cover the operating costs of
our
overall portfolio. We will sell properties when market conditions are favorable.
Our
strategy is to identify properties with a favorable financing arrangement
already in place, assume that financing, and satisfy any new down-payment with
a
relatively nominal cash payment. We plan to lease primarily to commercial
tenants. We are prepared to make limited improvements to our properties so
that
we can increase occupancy, improve cash flows, and enhance potential resale
value. We do not plan to limit the geographical area in which we buy properties;
however, given our current financial condition, we will most likely seek
properties in the Salt Lake City area.
From
time
to time, we will sell our commercial properties when favorable market conditions
enable us to do so. While we are actively seeking tenants for all our
properties, our real estate agents are also seeking buyers for those properties.
Our goal ultimately is to maximize profits and not necessarily to be
landlords.
Landis
Salon
Nexia
currently owns 85% of Landis, LLC (“Landis”). In November 2005, the Company
acquired a 20% equity interest in Landis for a $100,000 cash payment. Landis
operates an AvedaTM
lifestyle salon that features AvedaTM
products
for retail sale. Landis is controlled by Nexia’s Chief Executive Officer. Nexia
has consolidated Landis for accounting purposes as of December 31, 2006, because
of its ownership interest and common control with our president. Nexia,
subsequent to the end of the second quarter, signed an agreement to acquire
Mr.
Surber’s 60% ownership interest in Landis. As consideration for that acquisition
Nexia and Diversified Holdings I, Inc. delivered to Mr. Surber (1) a promissory
note in the amount of $250,000, bearing interest at the rate of 24% per annum,
due in five annual payments, (2) issuance of 75,000 shares of Nexia’s Class A
Preferred Stock and (3) issuance of 2,000,000 shares of Nexia’s Class B
Preferred Stock. A 5% interest was acquired from Seth Bullough in exchange
for
the issuance by Nexia of 5,000 shares of Class A Preferred Stock. Landis Salon
has a single location in Salt Lake City, Utah and reported revenue of $1.33
million during the year ended December 31, 2006. Additional information on
the
Landis Salon can be found on its website at www.landissalon.com.
Landis
intends to limit the services offered in its salons predominately to hair,
makeup, facials, nails, manicures and pedicures. The current salon consists
of
three major components, an Aveda ™ retail store, an advanced hair salon and a
training academy (for the training of future staff about the culture, services
and products provided by Landis). Pricing of hair services will reflect the
experience level of the stylists with the training academy ranging from $16
to
$25 and the advanced hair salon from $30 to $75. The design of the studio is
intended to look clean, comfortable and modern, appealing to both genders and
all age groups.
The
target market for Landis is 70% female and 30% male, seeking customers with
high
expectations at a reasonable cost. The average customer is expected to visit
the
salon 7-9 times a year, spending an average of $47 on services and purchasing
$15 of retail Aveda™ product with each visit. The current space was selected for
its central location to the Salt Lake market area, the high income demographics
available within easy driving distance and the trendy, upwardly mobile nature
of
the area. The primary marketing efforts of Landis will be word of mouth,
supplemented by carefully selected advertising campaigns and seeking referrals
from the existing customer base.
The
operations of Landis are subject to normal government regulation at the federal,
state and local level. Landis must comply with governmental regulation regarding
employment, wages, access for handicapped and disabled persons and other laws,
rules, regulations and ordinances. Although there are no anticipated changes
in
existing local, state or federal regulations, if changes should occur, Landis
Salon operations would adapt to such new regulations without any significant
effect on revenues or operations. However, no assurances can be made that
compliance or failure to comply with future regulations will not have a
materially adverse effect on the business, operating results or financial
situation of Landis.
Primary
competition will come from salons offering above-and-beyond customer service
in
the Salt Lake Area market. Currently identified as offering this level of
competition are salons named, Lunatic Fringe, Salon Zazou and Salon RZ. Landis
will also be in competition with large scale hair cutting operations such as
Great Clips, Supercuts, and Fantastic Sams, though these operations do not
compete in offering the extra services and products that Landis offers. No
other
salons in the Salt Lake area provide the Aveda™ experience with the Aveda™
product line offered by Landis.
Gold
Fusion Laboratories
In
August
of 2006, Gold Fusion Laboratories, Inc., a 100% owned subsidiary of the Company
signed an asset purchase agreement with Diversified Holdings X, Inc. to acquire
the rights, assets, inventories and receivables of the Black Chandelier clothing
lines. Diversified Holdings X, Inc. is controlled by Richard Surber and is
deemed an affiliate of Nexia currently. Included in Gold Fusion Laboratories’
operations are the four retail outlets operated under the Black Chandelier
label, in Trolley Square, Fashion Place Mall and Gateway shopping centers
located in Salt Lake City and The Shops at Riverwoods located in Provo, Utah,
as
well as the on line shopping site, www.blackchandelier.com.
Black
Chandelier designs, produces and manufactures a majority of all items sold
in
its stores that are sold under the trademarks, Black Chandelier, Jared
Gold,
Olfactory Surrealism and Pink Chandelier. The stores also carry merchandise
from
Kill
City Jeans,
Le
Sportsac,
Taschen
books,
Lomography
Cameras,
7
Diamonds, Seychelle
shoes,
and
Tokidoki
Italy.
The
first
Black Chandelier retail location has been in operation for over three years
at
the Trolley Square. Jared Gold has designed two pilot stores to be used as
a
model for the opening of additional stores. The newly designed Black Chandelier
stores are located in the Gateway Shopping Center in downtown Salt Lake City
and
in the Fashion Place Mall in Murray. A virtual tour of the Gateway store can
be
viewed at http://www.blackchandelier.com/Gateway.html.
The
Company has announced plans to explore the potential for opening additional
stores in the U.S. and abroad over the next 3-5 years and beyond.
Black
Chandelier is a lifestyle company that produces clothing, candles and active
wear. The mission of Black Chandelier is to offer products designed with
deliberateness and wild inspiration that indulge an individual’s innate drive to
be unique. The overarching concept is to provide the consumer with an affordable
alternative to “mass-market” offerings by extending a product that conveys a
sense of eccentricity that stands apart in quality, style and price, from most
of the homogenous fare being offered consumers by the mainstream apparel market.
The clothing items are produced in small runs keeping merchandise offered in
the
stores fresh.
Black
Chandelier stands in a unique position to establish a niche market among its
customers. The clothing, accessories and other products are designed with an
edgy sophistication that allows customers to fulfill their need to express
their
uniqueness. The consumer base of Black Chandelier has a very large age range.
Female shoppers vary in age from 15 to 65. The income ranges vastly among this
large age spread, however the average is $37,000. This typical consumer is
fashion conscious, follows current trends and subscribes to or reads several
fashion oriented women’s magazines. The expanding men’s division has garnered a
large fanbase in the age group from 15 to 35. These consumers read weekly
entertainment guides and local underground publications and
fanzines.
The
operations of Black Chandelier are subject to normal government regulation
at
the federal, state and local level. Black Chandelier must comply with
governmental regulation regarding employment, wages, access for handicapped
and
disabled persons and other laws, rules, regulations and ordinances. Although
there are no anticipated changes in existing local, state or federal
regulations, if changes should occur, Black Chandelier operations would adapt
to
such new regulations without any significant effect on revenues or operations.
However, no assurances can be made that compliance or failure to comply with
future regulations will not have a materially adverse effect on the business,
operating results or financial situation of Black Chandelier.
The
Company believes that local competition for the Black Chandelier retail is
Lollabella and JMR. This assumption is based on their marketing and customer
demographics. Nationally Black Chandelier will face Diesel, Urban Outfitters
and
Anthropologie. These specialty retailers manufacture their own goods as well
as
sell third party product, are nationally marketed, and maintain company operated
boutiques in most major cities. Black Chandelier’s edge over its competition is
its sales of exclusive product in a market that is presently saturated with
larger brands. Ancillary items are purchased from other vendors in small amounts
and with studied curation, in order to keep merchandise on the cutting edge.
Although the apparel industry is mature and slow growing, it exists in a dynamic
and competitive environment. The apparel industry is extremely competitive
and
highly fragmented. The power of the big retailers is a major challenge to any
new designer and manufacturer; however, specialized product with limited
distribution can create a unique identity among retailers.
Employees
Nexia
currently employs 6 people on a full time basis and from time to time hires
outside contractors to perform various services as required by the operations
of
the Company. Landis employs approximately 37 employees and Gold Fusion
Laboratories employs approximately 43 employees.
Risk
Factors
An
investment in the common stock of the Company is risky. The common stock of
the
Company inherently involves a high degree of risk, and you should carefully
consider the possibility that you may lose your entire investment. Given this
possibility, we encourage you to evaluate the following risk factors and all
other information contained in this report, public disclosures and other filing
by the Company with the SEC before buying the common stock of Nexia. Any of
the
following risks, alone or together, could adversely affect our business, our
financial condition, or the results of our operations, and therefore the value
of your Nexia common stock.
Risks
Related to Nexia’s Business
There
is substantial doubt about Nexia’s ability to continue as a going concern due to
insufficient revenues to cover our operating costs, which means that we may
not
be able to continue operations unless we obtain additional
funding.
Our
independent auditors added a going concern qualification to their report issued
in connection with their audit of our December 31, 2005 and 2006 financial
statements. The auditors noted in their report that Nexia generated significant
losses from operations, had an accumulated deficit of $15,568,646 and a working
capital deficit of $990,123 as of December 31, 2006. These factors raised for
the auditors substantial doubt about Nexia’s ability to continue as a going
concern. These general conditions continued through the first quarter of 2007,
resulting in additional deficits in the operations of the Company.
Management
anticipates that Nexia will incur net losses for the year end results of
December 31, 2007. To the extent that Nexia does not generate additional revenue
from its existing properties, existing retail operations, acquire additional
properties that generate revenue, obtain additional funding, that its stock
price does not increase, that additional adjustments are not made to decrease
operating expenses do not occur, then Nexia may not have the ability to continue
as a going concern. The financial statements which accompany this filing do
not
include any adjustments that might result from the outcome of this
uncertainty.
Real
Estate
Nexia's
real estate investments are inherently risky and dependent on rental
income.
Real
estate investments are inherently risky. The value of a company’s real estate
investments depends largely on the rental income and the capital appreciation
generated by the properties which the 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 real estate business and have it become profitable will be adversely
affected.
Income
from real estate investments may be adversely affected by a number of factors,
including:
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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);
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prospective
tenants' perceptions of a building's safety, convenience and
attractiveness, or the overall appeal of a particular
building;
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the
property owner's ability to provide adequate management, maintenance
and
insurance;
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expenses
for periodically renovating, repairing and re-letting
spaces;
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falling
operating costs for competing properties, which would allow them
to
undercut our rental rates;
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rising
unemployment rates in the area, which may reduce the demand for rental
space;
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adverse
changes in zoning laws, tax laws, or other laws affecting real estate
or
businesses in the area;
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damage
from earthquakes or other natural
disasters;
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mortgage
interest rates and the availability of
financing.
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Some
significant expenses associated with real estate investment (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are fixed and
generally can not be reduced if circumstances cause lower rental incomes from
a
building. For example, if we can not meet the mortgage payments, we could lose
some or all of our investment in a building due to foreclosure by the holder
of
the lien on the property.
Our
real estate investments have limited liquidity and no certainty of capital
appreciation.
Our
real
estate investments have limited liquidity. Real estate investments in general
are relatively illiquid. Our ability to vary our portfolio in response to
changes in economic and other conditions will be limited. We cannot ascertain
whether we will be able to sell an investment when a sale would be advantageous
or necessary. The sale price may not be enough to recoup the amount of our
investment. Nexia can provide no assurance that the value of its properties
will
appreciate.
There
are
numerous uncertainties in estimating real estate values and prospective
appreciation value. The estimated values set forth in appraisals are based
on
various comparisons to other property sales; predictions about market conditions
such as demand, vacancy rates, prospective vacancy rates, renewal terms and
other factors; assumptions about the property’s condition, conformance with laws
and regulations, absence of material defects; estimates of lease revenues and
operating expenses; and other factors. Any significant change in these
comparisons, predictions, assumptions, and estimates, most of which are beyond
our control, could materially and adversely affect the market values and
appreciation potential of our properties.
We
compete with substantially larger companies to acquire suitable
buildings.
The
commercial real estate market is highly competitive. We compete with
substantially larger companies for the acquisition, development and operation
of
properties that fit within the parameters of our business plan. Some of these
companies are national or regional companies with far greater resources than
ours. The presence of these competitors may significantly impede our business
growth or survival.
Nexia's
ability to generate enough revenue to operate its real estate holdings
profitably 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 2006 the rate of default on tenant’s obligations
billed during that period was 8%. A total of 20,522 square feet of space, or
59%
of the rentable square feet available to the Company, are represented by leases
that will expire within the next 12 months or are currently being leased on
a
month to month basis.
Our
ability to satisfy fixed operating costs that may rise over time cannot be
reduced in response to any decrease in our rental income, or passed through
to
our tenants.
Our
ability to satisfy fixed operating costs associated with our property could
be
seriously affected by any rise in expenses such as: mortgage payments,
insurance, utilities, cleaning, ventilation, air-conditioning, security,
landscaping, building repairs and maintenance. While our tenants must often
pay
a portion of these escalating costs, there can be no assurance that they will
agree to any increase in current fixed costs or that any increase in tenant
payments would cover increased operating costs. Our current fixed costs for
any
future time period cannot be reduced in response to any decrease in rental
income resulting from vacancies or non payment of rent and our ability to
operate would be severely affected by any increase in the costs associated
with
owning our property.
All
of
Nexia’s material real estate holdings are located in the Salt Lake City, Utah
market making the Company vulnerable to changes in economic conditions in that
market.
All
of
Nexia’s material real estate holdings are located in the Salt Lake City, Utah
market which creates a greater risk of harm from a downturn in that single
market as compared to wider more diversified holdings in several geographic
areas. Any significant change in the office or retail space in the Salt Lake
City market will directly affect Nexia’s real estate operations.
Nexia
may invest in properties in other real estate markets outside of the Salt Lake
City, Utah area where the Company has no experience.
Nexia
may
make selected acquisitions or develop properties outside the area of its current
focus of Salt Lake City, Utah as appropriate opportunities are located or as
they may arise. No area outside of Salt Lake City has been identified nor has
any market area been excluded from consideration. The historical experience
of
Nexia is in the Salt Lake City market area, and management may not be able
to
operate successfully in other market areas. Some of the risks in operating
in
new market areas would include: a lack of market knowledge and understanding
of
the local economies, an inability to identify promising acquisition or
development opportunities, an inability to obtain qualified development and
maintenance personnel, and a lack of familiarity with local government and
permitting procedures. Any of these factors could cause Nexia to incur costs
greater than anticipated and limit the success of any acquisition and
development that may be undertaken, which would reduce the Company’s
profitability and limit its growth.
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 filings, 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
project that in 2007 and beyond, our salon and retail store businesses will
be
able to generate sufficient revenues to meet their internal financial needs
and
$200,000 annually of excess cash available for our other operations. We project
the cash burn rate for the next twelve months, for the Company’s general needs
and rental operations will be approximately $950,000. Funds to cover the burn
rate will come from excess cash flow provided by the salon and retail
operations, $200,000; gross rents, $200,000; the ESOP plan to pay employee
expenses, $400,000; and sale of stocks from an investment portfolio of at least
$300,000. The total provided to cover the Company’s general needs and the rental
operations will be approximately $1,100,000. These amounts do not include any
funds that may be received from the Dutchess equity line of credit.
Environmental
liability could affect our real estate investments.
Various
federal, state and local environmental laws make a real estate owner liable
for
the costs of removal or remediation of certain hazardous or toxic substances
on
a property. These laws often impose environmental liability regardless of
whether the owner was responsible or knew of the presence of hazardous
substances. The presence of hazardous substances, or the failure to properly
remediate them, may adversely affect our ability to sell or rent a property
or
to borrow using the property as collateral. No assurance can be given that
the
environmental assessments of our properties revealed all environmental
liabilities, or that a material, adverse environmental condition does not exist
on our properties.
We
may
face an uninsured loss.
Owners
of
real estate are subject to certain types of losses such as civil disturbance
or
pollution, which are either uninsurable or too expensive to insure. If an
uninsured loss or a loss in excess of insured limits occurs, Nexia's investment
in our real properties, as well as anticipated future revenues could be lost.
Meanwhile, obligations on any mortgage debt for the properties would continue.
Accordingly, any uninsured loss could adversely affect our financial condition
and results of operation.
The
Americans With Disabilities Act and similar legislation may increase our
costs.
The
Americans with Disabilities Act of 1980 (ADA) requires that commercial
facilities and places of public accommodation be accessible to disabled people.
A number of additional federal, state and local laws impose other requirements
on owners concerning access by disabled people. We may need to make both
structural and non-structural changes to our property in order to comply with
the ADA and similar laws. Noncompliance could result in government fines or
an
award of damages to a private litigant. We have not been informed that any
of
our properties fail to comply with such laws. However, we may incur costs,
which
we cannot fully ascertain now, to ensure compliance in the future. While we
do
not expect the prospective costs of compliance to have a material effect on
our
operations, a potential for substantial costs exists. If changes are required,
our financial condition and results of operations could be adversely
affected.
Management
We
are
dependent on key personnel, specifically Richard Surber, and have no employment
agreement with him.
We
are
dependent on the services of Richard Surber, our President. We do not have
an
employment agreement with Mr. Surber, and losing his services would likely
have
an adverse effect on our ability to conduct business. Mr. Surber serves as
an
Officer and Director of Nexia. Mr. Surber is currently employed by other
businesses, and he will only allocate a portion of his time (estimated at an
average of 50 hours per week) to the business of Nexia and its subsidiaries.
Therefore, there is a risk that he might not devote enough time to Nexia in
fulfilling our business plan. Further, Nexia has a limited number of full time
employees.
The
operation of Landis Lifestyle Salon and Gold Fusion Laboratories operations
are
each dependent on key personnel.
Our
subsidiary, Landis, LLC, owns Landis Lifestyle Salon. The operations of Landis
Lifestyle Salon are dependent on the day to day management of Matthew Landis,
the namesake of the salon’s name who works in the salon and trains its
personnel. Losing his services would likely have an adverse effect on the
operations and business development of the salon business owned and operated
by
Landis, LLC.
Our
subsidiary, Gold Fusion, Laboratories has acquired the retail operations
operated under the name of Black Chandelier which is dependent upon the fashion
sense and design creations of Jared Gold for its operations. Losing his services
would likely have an adverse effect on the design functions, development of
new
clothing lines and future business growth of Gold Fusion’s planned acquisitions
and the related retail operations.
Our
ability to provide adequate management, maintenance and
insurance.
To
provide for adequate management, maintenance and insurance for the properties
owned by Nexia, rental income will need to exceed the operating costs for those
properties. Vacancies, falling rents, bankruptcy of tenants, unexpectedly higher
maintenance costs or a loss not covered by insurance could adversely affect
the
ability of Nexia to provide adequate management, maintenance and insurance
for
its properties. If these services are not provided on an adequate basis,
deterioration of the property would have a severely negative impact on
Nexia.
Nexia
has
hedged its risk of losing the above mentioned key employees by having Andy
Dunham to assist and help with growing Gold Fusion Laboratories and Sean
Pasinsky to assist with the growth plans for Landis, LLC. Each has consulting
agreements with Nexia Holdings, Inc., which are at will agreements.
Risks
related to Nexia’s and its predecessors’ operating histories
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
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 $79,000 per month, or $950,000
per year. We will need to raise additional funds within the next twelve months
in order to fund the current level of operations of the Company. We expect
that
the majority of these funds will come from the sale of our common shares to
Dutchess or the sale or transfer of some of our preferred shares to private
investors. Either method of funding could result in a significant dilution
of
ownership interests by the holders of our common stock.
Changes
in consumer tastes and fashion trends can have a negative impact on our
financial performance.
Both
Landis, LLC and Gold Fusion Laboratories, Inc. operations could be negatively
impacted by unforeseen and unfavorable changes in consumer tastes and fashion
trends away from those targeted by the marketing and sales efforts of Landis
and
Gold Fusion Laboratories. As these tastes and trends are not predictable and
their effect on the operations of either retail operation cannot be estimated
in
advance, great effort is made in the operations of both companies to ensure
that
their products and services reasonably and adequately anticipate the business
operation changes for each company. However, there is no way to assure success
with these efforts.
The
Series B Preferred Stock held by Richard Surber creates an anti-takeover or
change of control limitation. Richard Surber currently holds voting control
of
Nexia through his ownership of voting preferred stock.
The
ten
million shares of Series B Preferred Stock held by Richard Surber provide him
with voting control over any proposal requiring a vote of the shareholders.
Through his ownership of 10,000,000 shares of the Series B Preferred Stock
of
the Company, he holds voting rights equal to 5,000,000,000 shares of common
stock. This effectively gives him a veto over any attempt to take over or change
control of the Company. Such an event would include a vote by the board of
directors to conduct a reverse split of the common stock. The shares held by
Mr.
Surber thus have a strong anti-takeover effect. His interests may not always
conform to the interests of the common stockholders, in general, and thus his
voting rights may not always be exercised in the best interests of the common
stockholders of the Company. The issuance of 8 million preferred shares was
to
compensate Mr. Surber for serving as the personal guarantor of the loans used
to
acquire all of the real estate holdings currently under the Company’s control,
and an additional 2 million shares were recently issued as partial compensation
for the transfer of Mr. Surber’s interest in Landis, LLC.
The
Company is currently conducting discussions with the Department of Commerce
in
the State of Utah concerning private offerings made by the Company and their
compliance with Utah regulations.
In
October of 2006, the State of Utah through its Department of Commerce requested
information from the Company to determine the compliance with Utah regulations
regarding all offerings made by the Company within the past five years.
Preliminary indications are that some shares have been issued within the State
of Utah without full compliance with registration or qualification requirements
under the securities laws of Utah. These discussions have lead to the Company
agreeing to offer a right of rescission to all residents of the state of Utah
whose purchase of shares from the Company were not made in full compliance
with
registration or qualification requirements in the State of Utah. Upon any final
agreement being reached with the State of Utah full disclosure will be made
at
that time.
Risks
Related to Landis, LLC’s Operation of Landis Lifestyle
Salon
The
Landis Lifestyle Salon operations are dependent on key
personnel.
The
operations of Landis Lifestyle Salon is dependent on the day to day management
of Matthew Landis, the namesake of the salon’s name who works in the salon and
trains its personnel. Losing his services would likely have an adverse effect
on
the operations and business development of the salon business owned and operated
by Landis, LLC.
Our
success depends on our ability to attract and retain trained stylists in order
to support our existing salon business and to staff future
expansion.
Landis
is
actively recruiting qualified candidates to fill stylist positions for the
salon. There is substantial competition for experienced personnel in this area,
which we expect to continue. We will compete for experienced candidates with
companies who have substantially greater financial resources than we do. If
we
fail to attract, motivate and retain qualified stylists, it could harm our
business and limit our ability to be successful and hamper expansion plans.
For
example, we will depend upon the expertise and training abilities of Matthew
Landis, the principal manager of the salon. Since we do not maintain insurance
policies on any of our employees, if we lose the services of any key officers
or
employees, like Mr. Landis, it could harm our business and results of
operations.
We
face significant competition in the salon business, which could harm our sales
and profitability
The
primary competition to Landis operations will come from salons offering
above-and-beyond customer service in the Salt Lake Area market. Currently
identified as offering this level of competition are salons named, Lunatic
Fringe, Salon Zazou and Salon RZ. Landis will also be in competition with large
scale hair cutting operations such as Great Clips, Supercuts, and Fantastic
Sams, though these operations do not compete in offering the extra services
and
products that Landis offers.
The
loss of distribution rights to the Aveda™ line of products would damage the
operation of the Landis Lifestyle Salon and have a significant and negative
impact on its ability to operate and generate revenues.
Landis,
LLC operates the Landis Lifestyle Salon and has a Retail Product Use Agreement
with a distributor of the Aveda™ line of products, which are used exclusively in
the services provided to customers of the salon and offered for retail sale
at
the salon location. Loss of the right to sell Aveda product would have a
significant and negative impact on the operation of the salon and its ability
to
generate revenues from either retail sales of health and beauty products or
from
providing services to consumers at the salon. Landis believes that the high
quality and reputation of this line of products is key to its current operations
and future success.
Changes
in consumer tastes and hairstyling trends can have a negative impact on our
financial performance.
Landis’
salon operations could be negatively impacted by unforeseen and unfavorable
changes in consumer tastes and hairstyling trends away from those targeted
by
the marketing and sales efforts of Landis. As these tastes and trends are not
predictable and their effect on the operations of the salon cannot be estimated
in advance, great effort is made in the operations of the salon to ensure that
its products and services reasonably and adequately anticipate such changes
and
that theses changes are met with modifications in the salon’s operations to
ensure continued consumer demand for its services and products. However, there
is no way to assure success with these efforts.
Risks
Related to Gold Fusion Laboratories Operation of Black Chandelier Clothing
Line
The
success of the Gold Fusion Laboratories business plan depends in large part
on
our ability to identify fashion trends and to react to changing customer demand
in a timely manner.
Consequently,
we depend, in part, upon favorable market response to the creative efforts
of
the Gold Fusion Laboratories operation.
Failure
on our part to anticipate, identify, and respond effectively to changing
consumer demands and fashion trends will adversely affect our
sales.
If
we are
unable to obtain raw materials, or find manufacturing facilities, our financial
condition may be harmed. Outside of a small sample room, we do not own any
manufacturing facilities, and therefore depend on a limited number of third
parties to manufacture our products. We place all of our orders for production
of merchandise and raw materials by purchase order and do not have any long-term
contracts with any manufacturer or supplier. If we fail to obtain sufficient
quantities of raw materials, it could have a harmful effect on the results
of
our operations. Furthermore, we may receive shipments of products from
manufacturers that fail to conform to our quality control standards. In such
an
event, unless we are able to obtain replacement products in a timely manner,
we
may lose sales. If we fail to maintain favorable relationships with these
production facilities, or fail to obtain an adequate supply of quality raw
materials on commercially reasonable terms, it could harm our business and
results of operations.
Gold
Fusion will be dependent on third party manufacturers for production, and its
sales may be negatively affected if the manufacturers do not perform acceptably,
or if design changes are communicated after the production has
begun.
We
will
develop a significant portion of our merchandise in conjunction with third-party
apparel manufacturers. In some cases, we select merchandise directly from these
manufacturers’ lines. We do not have long-term contracts with any third party
manufacturers and will purchase all of the merchandise from such manufacturers
by purchase order. Furthermore, we may receive, in the future, shipments of
products from third-party apparel manufacturers that fail to conform to our
quality control standards. In such an event, unless we are able to obtain
replacement products in a timely manner, we may lose sales. We cannot assure
you
that third party manufacturers (1) will not supply similar products to our
competitors, (2) will not stop supplying products to us completely or, (3)
will
supply products that satisfy our quality control standards. In addition, certain
of our third party manufacturers will store our raw materials. In the event
our
inventory is damaged or destroyed, and we are unable to obtain replacement
raw
materials, our ability to generate earnings may be negatively impacted. In
addition, if we decide to change a key design element, after the manufacturing
process has begun, we may negatively impact the manufacturer's ability to
deliver the products on a timely basis, which could impact our ability to
generate earnings.
Our
success depends on our ability to attract and retain key employees in order
to
support our existing business and future expansion.
We
are
actively recruiting qualified candidates to fill key executive positions within
the Company. There is substantial competition for experienced personnel, which
we expect to continue. We will compete for experienced personnel with companies
who have substantially greater financial resources than we do. If we fail to
attract, motivate and retain qualified personnel, it could harm our business
and
limit our ability to be successful. For example, we will depend upon the
expertise and design talents of Jared Gold, the founder of the Black Chandelier
line of products. Since we do not maintain insurance policies on any of our
employees, if we lose the services of any key officers or employees, like Mr.
Gold, it could harm our business and results of operations.
We
face significant competition in the retail and apparel industry, which could
harm our sales and profitability.
The
retail and apparel industries are highly competitive and are characterized
by
low barriers to entry. We expect competition in our markets to increase. The
primary competitive factors in our markets are: brand name recognition, sourcing
strategies, product styling, quality, presentation and pricing, timeliness
of
product development and delivery, customer service, and convenience. We compete
with specialty store retailers, business to consumer websites, off-price
retailers and direct marketers for, among other things, raw materials, market
share, finished goods, sourcing and personnel. Because many of these competitors
are larger and have substantially greater financial, distribution and marketing
resources than we do, we may lack the resources to adequately compete with
them.
If we fail to compete in any way, it could harm our business, financial
condition, and future results of operations.
Purchases
of the merchandise we sell are generally discretionary and are therefore
particularly susceptible to economic slowdowns.
If
economic conditions are not favorable or if they should suffer a downward trend,
our retail businesses, financial condition, and results of operations could
be
adversely affected. Consumers are generally more willing to make discretionary
purchases, including purchases of fashion products and high-end home products,
during periods in which favorable economic conditions prevail.
If
we
are not able to successfully protect our intellectual property, our ability
to
capitalize on the value of the Black Chandelier brand name may be
impaired.
Even
though we intend to take actions to establish, register and protect our
trademarks and other proprietary rights, we cannot assure you that these efforts
will be successful. These include the use of the existing Black Chandelier
trademark and other product lines developed by Jared Gold that have been
acquired by Gold Fusion Laboratories and newly developed products as well.
There
is a risk that others will imitate our products or infringe upon our
intellectual property rights. In addition, we cannot assure you that others
will
not resist or seek to block the sale of our products as infringements of their
trademark and proprietary rights. We are seeking to register our trademarks
in
the United States markets and other markets as they develop demand. In some
of
these markets, obstacles exist that may prevent us from obtaining a trademark
for the Black Chandelier or related names. Furthermore, in some jurisdictions,
despite successful registration of our trademarks, third parties may allege
infringement and bring actions against us. We are not aware of any actual
infringement by our products on any other trademarked product.
If
an
independent manufacturer violates labor or other laws, is accused of violating
any such laws, or if their labor practices diverge from those generally accepted
as ethical, it could harm our business and brand image.
While
all
our manufacturers are contractually required to comply with ethical labor
practices, we cannot control the actions or public perception of such
manufacturers, nor can we assure that these manufacturers will conduct their
businesses using ethical or legal labor practices. Apparel companies may be
held
jointly liable for the wrongdoings of those that manufacture their products.
While we do not control independent manufacturer’s employment conditions, or
their business practices, people in general act in their own self-interest,
and
may act in a manner that produces a negative public perception of the Company.
Accordingly, we could receive negative publicity or perhaps a court
determination that we are jointly liable for such improper practices.
Additional
capital is necessary to implement the Company's Business Plan for Gold Fusion
Laboratories.
The
Company does not believe that it has sufficient cash, cash equivalents and
operating income to maintain its business at its existing level through the
next
12 months. The Gold Fusion Laboratories’ operation will require significant new
capital in order to execute its business plan. The Company’s success in raising
this capital will depend upon its ability to access equity capital markets.
We
may not be able to do so, or do so on acceptable terms. If the Company fails
to
obtain funds on acceptable terms, it will not be able to execute the Gold Fusion
Laboratories business plan and would have to delay or abandon some or all of
its
plans for growth.
Risks
Related to Investment
Nexia
expects the price of its common stock to be volatile. As a result, investors
could suffer greater market losses in a down market than they might experience
with a more stable stock. Volatility in our stock may also increase the risk
of
having to defend a securities class action suit, which could be expensive and
divert management’s attention from managing Nexia’s business.
The
market price of Nexia’s common shares has been subject to wide fluctuations in
response to several factors, such as:
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Significant
dilution
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Actual
or anticipated variation in the results of
operations
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Announcements
of acquisitions
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Changes
in the areas of operations of the
company
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Conditions
and trends in the real estate market in Salt Lake City, Utah and
nationally
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The
stock
markets generally, and the OTC Bulletin Board in particular, have experienced
extreme price and volume fluctuations that are often unrelated and
disproportionate to the operating performance of a particular company. These
market fluctuations, as well as general economic, political and market
conditions such as recessions or interest rate or international currency
fluctuations, may adversely affect the market for the common stock of the
company. In the past, class action litigation has often been brought against
companies after periods of volatility in the market price of their securities.
If such a class action suit is brought against the Company it could result
in
substantial costs and a diversion of management’s attention and resources, which
would hurt business operations.
Our
stock value is dependent on our ability to generate net cash
flows.
A
large
portion of any potential return on our common stock will be dependent on our
ability to generate net cash flows.
If
we can
not operate our commercial property and/or retail operations at a net profit,
there will be no return on shareholders’ equity, and this could result in a loss
of share value. No assurance can be given that we will be able to operate at
a
net profit now or in the future.
Our
stock may be subject to significant restrictions on resale due to federal penny
stock regulations.
Our
stock
differs from many stocks because it is a penny stock. The Securities and
Exchange Commission (“SEC”) has adopted a number of rules to regulate penny
stocks. These rules require that a broker or dealer, prior to entering into
a
transaction with a customer, must furnish certain information related to the
penny stock. The information that must be disclosed includes quotes on the
bid
and offer, any form of compensation to be received by the broker in connection
with the transaction and information related to any cash compensation paid
to
any person associated with the broker or dealer.
These
rules may affect your ability to sell our shares in any market that may develop
for Nexia stock. Should a market for our stock develop among dealers, it may
be
inactive. Investors in penny stocks are often unable to sell stock back to
the
dealer that sold it to them. The mark-ups or commissions charged by
broker-dealers may be greater than any profit a seller can make. Because of
large dealer spreads, investors may be unable to sell the stock immediately
back
to the dealer at the same price the dealer sold it to them. In some cases,
the
stock value may fall quickly. Investors may be unable to gain any profit from
any sale of the stock, if they can sell it at all.
Potential
investors should be aware that, according to the SEC Release No. 34-29093,
the
market for penny stocks has suffered in recent years from patterns of fraud
and
abuse. These patterns include:
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control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
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manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases;
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boiler
room practices involving high pressure sales tactics and unrealistic
price
projections by inexperienced sales
persons;
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excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
inevitable collapse of those prices with consequent investor
losses.
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Investors
must contact a broker-dealer to trade over-the-counter bulletin board
securities. As a result, you may not be able to buy or sell our securities
at
the times you may wish.
Even
though our securities are quoted on the OTC Bulletin Board, that may not permit
our investors to sell securities when and in the manner that they wish. Because
there are no automated systems for negotiating trades on the OTC Bulletin Board,
they are conducted via telephone. In times of heavy market volume, the
limitations of this process may result in a significant increase in the time
it
takes to execute investor orders. When investors place market orders to buy
or
sell a specific number of shares at the current market price it is possible
for
the price of a stock to go up or down significantly during the lapse of time
between placing a market order and its execution.
If
we
fail to remain current on the reporting requirements that apply to Nexia, we
could be removed from the OTC Bulletin Board which would limit the ability
of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities.
Companies
trading on the OTC Bulletin Board, such as Nexia, must be reporting issuers
under Section 12 of the Securities Exchange Act of 1934, as amended, and must
be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, shares of our common stock could be removed from the
OTC
Bulletin Board. As a result of that removal, the market liquidity for our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market. We filed late on our annual report
for
the year ended December 31, 2005. If we file late two more times,
within one year on any of our quarterly or annual reports, we will be
removed from the OTCBB and become traded on the Pink Sheets.
Reports
to Security Holders
We
are
not required to deliver an annual report to security holders and do not plan
to
send a copy of the annual report to them. If we choose to create an annual
report, it will contain audited financial statements. We intend to file all
required information with the SEC. We plan to file with the SEC our Forms
10-KSB, 10-QSB and all other forms that are or may become applicable to
us.
The
public may read and copy any materials filed with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling
the
SEC at 1-800-SEC-0330. We have filed all statements and forms with the SEC
electronically, and they are available for viewing or copy on the SEC's Internet
site, that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The
Internet address for this site is http://www.sec.gov.
ITEM
2. DESCRIPTION OF PROPERTY
Location
and Description
Each
of
our properties competes with other general retail or office space in the greater
Salt Lake City market. Occupancy rates for the area as a whole will most
significantly impact our properties and the efforts to improve and upgrade
the
properties will enhance our ability to obtain tenants and maintain occupancy
rates that will sustain the operating costs of the properties
themselves.
Wasatch
Capital Corporation ("Wasatch")
Wasatch,
a 100% owned subsidiary of Nexia, owns the Wallace-Bennett Building, located
at
55-65 West 100 South, Salt Lake City, Utah. The building is a 36,797 square
foot, turn-of-the-century multi-story office building. The building was acquired
in November of 1994 for a price of $800,000.
At
the
beginning of 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 $1,024
for
1350 square feet. A lounge occupies 1,900 square feet of the ground floor retail
space at a monthly rental of $2,850 for the first year of a five year term
ending March 31, 2012. 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 $13.50 per square foot or $102,126 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 $560,000 as of December 31, 2006.
Wasatch,
on or about August 23, 2006, closed on a $1,000,000 refinancing of the
Wallace-Bennett Building with a new loan secured by the building. The terms
of
the loan include a total loan in the sum of $1,000,000; a term of 10 years,
with
an interest rate of 7.125% fixed for ten years and would provide for monthly
payments based upon a 30 year amortization. The loan was personally guaranteed
by Richard D. Surber, Nexia's President and C.E.O. Proceeds from the new
financing were used to retire the prior loan secured by the building in the
sum
of $812,053 and included a cash payment of $149,572 to Wasatch. Wasatch intends
to improve the remaining upper floor space as office space, studio locations
and
production space for low impact business. The terms set forth above, reclassify
the loan held by Wasatch Capital from short-term debt to long-term debt which
has substantially increased Nexia’s working capital.
Management
believes that the building is adequately insured.
Downtown
Development, Corp. ("DDC")
DDC,
a
99.08% owned subsidiary of Nexia, owns a one story retail building located
at
1374 South State Street, Salt Lake City, Utah, which it purchased on December
1,
1999 for $535,000. The balance on the financing owing at December 31, 2005
was
$366,057. The building was appraised at $600,000 in November of 2002. In
December of 2002, DDC obtained permanent financing with Community First National
Bank; the loan bears interest at the rate of 7.16% per annum, with monthly
payments of $3,061, with a final balloon payment due on December 5, 2012
(estimated amount $260,800). The loan was personally guaranteed by Richard
D.
Surber, Nexia's President and C.E.O. The building is 7,000 square feet, one
story tall and constructed in the late 1960's. A bakery currently occupies
2,500
square feet of retail space under a lease in the building. DDC expended $34,100
through March 31, 2004 in renovations to the space occupied by the bakery in
the
property. The tenant is liable for its pro-rata shares of the taxes and
insurance for the building as well as its use of utilities. This figure does
not
include substantial improvements made by the tenant to the same portion of
the
property. The balance of the space in the building is currently not occupied
and
the search for a tenant is ongoing. DDC believes the property is adequately
insured. The retail space in the building competes for tenants with other retail
space on State Street which is a commercial zone for over one mile in each
direction from the property. On December 23, 2004 a Second Deed of Trust was
granted against this property in favor of Joseph Corso, Jr. as security for
a
debenture granted to Mr. Corso in the sum of $200,000.
DDC
on
August 18, 2006 closed on the purchase of a lot immediately adjacent to the
above described property and building located at 1374 South State Street. The
total purchase price for the property was $250,000. This purchase price was
financed with a short term (90 days) loan. The additional property will provide
ample parking for current and future tenants of the building. DDC intends to
begin making renovations to the entire property to take advantage of the added
property and the potential for additional use by prospective
tenants.
On
September 21, 2006, DDC closed on refinancing of the loans on the building
and
lot on South State Street. A loan in the sum of $568,000 was secured from Cyprus
Credit Federal Credit Union, the loan bears interest at the rate of 7.00% per
annum, with monthly payments of $3,779, with a final balloon payment due on
September 22, 2016 (estimated amount $491,000). The loan was personally
guaranteed by Richard D. Surber, Nexia’s president. The remaining balance due to
Rich Investment, LLC in the sum of $57,000 was restated in a new note bearing
interest at the rate of 12% per annum. The $57,000 new note was repaid in full
on March 15, 2007.
Management
believes the property held by DDC is adequately insured.
Kearns
Development Corporation. ("Kearns")
Kearns,
a
99% owned subsidiary of Nexia, owns one office building located on West Sams
Boulevard in Kearns, Utah (a suburb of the Greater Salt Lake area). The building
contains approximately 11,709 square feet of total floor space in a single
story. The building was purchased on November 29, 2000 for a total price of
$750,000. The purchase was financed with a $625,000 first mortgage from Brighton
Bank with an initial variable rate of 10.97% amortized over 25 years and monthly
payments of $5,632. The loan was personally guaranteed by Richard D. Surber,
Nexia's President and C.E.O. This property was refinanced on January 9, 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 9, 2013 (estimated amount of $441,325). The
balance owing on this loan as of December 31, 2006 was $593,629. At the time
of
the refinancing, the building was appraised at $980,000.
The
building is leased to a tenant occupying 35% of the office space and generating
monthly rentals of $3,452 at an average rate of $10.25 per square foot, the
gross annual rental income from the building is $41,420. Kearns has no present
plans to renovate or improve the building. The building competes for tenants
with other office space in the Kearns area. Management believes that this
building is adequately insured.
None
of
the financing for the above described properties provides for pre-payment
penalties.
Contractual
Obligations
|
Total
|
2007
|
2008
|
2009
|
2010
|
2011
|
Thereafter
|
||||||||||||||||
|
Mortgage
debt
|
$
|
2,157,321
|
$
|
36,843
|
$
|
39,556
|
$
|
42,468
|
$
|
45,594
|
$
|
49,051
|
$
|
1,943,809
|
||||||||
|
Promissory
notes
|
977,116
|
535,687
|
112,662
|
111,767
|
110,000
|
107,000
|
-
|
|||||||||||||||
|
Vehicle
contract
|
8,865
|
8,865
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Capital
lease
|
||||||||||||||||||||||
|
obligation
|
87,117
|
15,444
|
17,198
|
19,156
|
25,106
|
10,213
|
-
|
|||||||||||||||
|
Operating
lease
|
||||||||||||||||||||||
|
obligation
|
1,909,253
|
248,893
|
238,142
|
244,530
|
250,531
|
223,990
|
703,167
|
|||||||||||||||
|
Convertible
debenture
|
107,808
|
107,808
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Convertible
debenture-
|
||||||||||||||||||||||
|
derivative
|
10,179
|
10,179
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
$
|
5,257,659
|
$
|
963,719
|
$
|
407,558
|
$
|
417,921
|
$
|
431,231
|
$
|
390,254
|
$
|
2,646,976
|
|||||||||
|
Property
Acquisitions and Dispositions:
There
was one property acquisition and two property dispositions during
the year
ended December 31, 2006.
On
August 18, 2006, our subsidiary Downtown Development Corporation
acquired
one-third of an acre adjacent to the existing building it owns on
State
Street in Salt Lake City. The newly acquired property has no buildings
or
other improvements and will be used to enhance the existing building’s
potential uses. The purchase price of $250,000 had short term financing
and has been combined with the existing building in a long-term loan
package on both properties that closed on September 21, 2006.
In
April 2006, a 15,000 square foot office building in Salt Lake City,
Utah,
owned by Salt Lake Development Corporation, a subsidiary of the Company,
was sold. The mortgage pay off was $545,071. In the same month, a
condominium at Brian Head, a mountain recreation area near Cedar
City,
Utah, was sold. The mortgage pay off was
$25,369.
|
|
Detail
of Costs Associated with Rental Revenue,
|
|||||||||||||
|
Years
Ended December 31, 2006 and 2005
|
|||||||||||||
|
Year
Ended
|
|||||||||||||
|
December
31,
|
Change
|
||||||||||||
|
Expense
Description
|
2006
|
2005
|
$
|
%
|
|||||||||
|
Mortgage
interest
|
$
|
142,591
|
$
|
144,876
|
(2,285
|
)
|
(1.58
|
)
|
|||||
|
Depreciation
|
91,053
|
104,798
|
(13,745
|
)
|
(13.12
|
)
|
|||||||
|
Payroll
- mgt. and maintenance
|
10,392
|
48,823
|
(38,431
|
)
|
(78.71
|
)
|
|||||||
|
Utilities
|
21,524
|
46,928
|
(25,404
|
)
|
(54.13
|
)
|
|||||||
|
Property
Tax
|
36,512
|
63,131
|
(26,619
|
)
|
(42.16
|
)
|
|||||||
|
Maintenance
and repairs
|
10,107
|
29,552
|
(19,445
|
)
|
(65.80
|
)
|
|||||||
|
Advertising
|
-
|
15,516
|
(15,516
|
)
|
(100.00
|
)
|
|||||||
|
Insurance
|
7,857
|
5,658
|
2,199
|
38.87
|
|||||||||
|
$
|
320,036
|
$
|
459,282
|
(139,246
|
)
|
(30.32
|
)
|
||||||
ITEM
3. LEGAL
PROCEEDINGS
The
following civil actions may have a material impact on Nexia:
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. A judgment in the sum of $88,036, attorney’s fees of $13,205, plus
interest and cost of suit has been granted to the Company. Enforcement of the
judgment is being sought through the District Court of Clark County, Nevada,
Case NO. A510656, Dept. No. XIII.
Hallmark
Construction & Development, L.L.C. v. Wasatch Capital Corporation, Community
First National Bank, CUBCO, Inc. and John Does 1-10.
Action
was filed on or about August 18, 2005, in the Third Judicial District Court
of
Salt Lake County, State of Utah, Civil Case No. 050914860. Hallmark Construction
& Development LLC has filed suit against Wasatch Capital Corporation seeking
collection of $92,000 in alleged unpaid construction costs for the improvements
and work provided on the Wallace/Bennett buildings owned by Wasatch Capital.
Wasatch has responded with a demand that, as provided in the underlying
contract, the matters in dispute between the parties be submitted to
arbitration. Wasatch denies that it is currently indebted to Hallmark for any
services or work provided for the improvement of the said buildings and believes
that it has actions for damages against Hallmark. On June 20, 2006 a full
release of this lien was filed by Hallmark Construction and Development L.L.C.
releasing the subject real estate from all claims asserted by Hallmark. The
matter was subsequently heard by the assigned arbitrator who entered a finding
in favor of Wasatch Capital, granting a judgment to Wasatch against Hallmark
on
August 7, 2006. The total judgment was for $99,791, which includes overpayment,
damages for defective work, attorney fees, costs, arbitration fees and provides
for interest both pre and post-judgment. A Motion to Confirm Arbitration Award
was filed with the Court and a final order and judgment has been signed by
the
Court.
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, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
The
Company's common stock is quoted on the OTC Bulletin Board under the symbol,
"NEXA". Trading of 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 for the years ended December
31,
2005, 2006 and the quarter ending March 31, 2007 are as follows:
|
YEAR
|
PERIOD
ENDING
|
HIGH
|
LOW
|
|
|
|
|
|
|
2005
|
March
31, 2005
|
$0.006
|
$0.001
|
|
|
|
|
|
|
June
30, 2005
|
$0.002
|
$0.001
|
|
|
|
|
|
|
|
September
30, 2005
|
$0.003
|
$0.001
|
|
|
|
|
|
|
|
|
December
31, 2005
|
$0.003
|
$0.001
|
|
|
|
|
|
|
2006
|
March
31, 2006
|
$0.006
|
$0.001
|
|
|
|
|
|
|
|
June
30, 2006
|
$0.006
|
$0.002
|
|
|
|
|
|
|
September
30, 2006
|
$0.004
|
$0.002
|
|
|
December
31, 2006
|
$0.003
|
$0.002
|
|
|
2007
|
March
31, 2007
|
$0.005
|
$0.0006
|
150,000
Shares of Series A Preferred Stock are issued and outstanding as of December
31,
2006.
There
is
only one holder of Series B Preferred Stock, Richard Surber, who holds 10
million shares.
There
are
four holders of Series C Preferred Stock, Joseph Corso, who holds 100,000
shares, John E. Fry, Jr. who holds 10,500 shares, Jared Gold who holds 50,000
shares, and Sean Pasinsky who holds 30,000.
Effective
February 20, 2007, a 1 for 10 reverse stock split of the common stock was
declared effective.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements and
accompanying notes and the other financial information appearing elsewhere
in
this report. Our fiscal year end is December 31.
General
Our
business plan for the next twelve months involves the continued operation of
our
office buildings in Salt Lake City, Utah coupled with our ongoing attempts
to
locate and acquire additional commercial space in the greater Salt Lake area
and
elsewhere and to locate suitable buyers for the properties as the circumstances
may permit. We have acquired 85% of Landis and have plans to open two more
locations over the next 18 months. We also operate four Black Chandelier stores
and have plans to open at least three more in the Western United States by
December 31, 2007. We anticipate opening an additional six locations over the
next 18 to 24 months.
Results
of Operations
Revenues
Year
ended December 31, 2006. Gross
revenues for the fiscal years ended December 31, 2005 and 2006 were $392,414
and
$1,834,245, respectively. This represents a $1,441,831 or 367% increase from
2005 to 2006.
Gross
rental revenues for the fiscal years ended December 31, 2005 and 2006 were
$257,627 and $184,230, respectively. This was a decrease of $73,397 or 28%
from
2005 to 2006. 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 and Gold Fusion totaled $1,649,365
for the year ended December 31, 2006 compared to $124,262 of sales generated
by
Landis for the two months ended December 2005. There are no comparable revenue
figures for 2005 because Landis commenced operations in November
2005.
Expenses
Year
ended December 31, 2006. Total
expenses for the fiscal years ended December 31, 2005 and 2006 were $844,266
and
$4,985,222, respectively. This is a $4,140,956 increase or a 490% increase
from
2005 to 2006. The increase was attributable primarily to the amount of costs
incurred for consulting fees, $2,345,598 and promotional and marketing expenses
of $360,328, incurred during 2006 and the increased expenses resulting from
the
expansion of operations by Landis and Gold Fusion of $1,012,654.
Depreciation
and amortization expenses for the year ended December 31, 2006, were $166,874
compared to $125,489 for same period in 2005. The increase in expense of
$41,385, or 33%, was primarily the result of the acquisition of assets and
inventory by Landis and Gold Fusion over the course of the year 2006. The
primary causes for this increase are as follows: Landis’s operations increased
by $35,494, because there were only two months of operations in 2005. Gold
Fusion’s operations began in 2006 resulting in an increase of total depreciation
of $16,950. In 2005, West Jordan Real Estate Holdings sold a building creating
an $18,864 decrease in depreciation for the year ended December 31, 2006. Salt
Lake Development sold a building in 2006 creating a decrease of $1,293 in
depreciation for 2006.
Nexia
expects expenses as a percent of revenues to continue to increase through 2007
as Nexia steps up its effort to expand its retail operations as well as acquire
additional properties.
The
net
increase in the general and administrative expenses from December 31, 2005
to
2006 is explained in detail in the table below:
|
|
Increase
|
|||
|
Increase
for Landis, LLC G&A (Landis was open for less then two
|
||||
|
months
in 2005)
|
$
|
701,668
|
||
|
Increase
for Gold Fusion Laboratories G&A expenses (no Gold Fusion
|
||||
|
expense
in 2005)
|
310,986
|
|||
|
Increase
in marketing Company stock expense
|
360,328 | |||
|
Increase
in payroll expenses
|
181,938
|
|||
|
Adjustment
to convertible debenture derivative
|
62,052
|
|||
|
Stock
subscriptions receivable
|
47,222
|
|||
|
Bad
debt expense
|
44,036
|
|||
|
Licenses
and Permits
|
30,155
|
|||
|
Consulting
option shares
|
30,000
|
|||
|
Medical
insurance
|
18,361
|
|||
|
Other
miscellaneous expense increases
|
19,564
|
|||
|
NET
INCREASE FROM 2005 TO 2006
|
$
|
1,806,310
|
||
Income
/ Losses
Year
ended December 31, 2006. Nexia
recorded an operating loss of $756,822 at December 31, 2005, as compared to
an
operating loss of $3,988,085 for the comparable period in 2006. Nexia recorded
a
net loss of $1,533,005 for the fiscal year ended December 31, 2006, compared
to
net gain of $294,304 for the comparable period in 2005. Nexia's losses increased
as a result of the Company’s increase in operating expenses which were partly
offset by a $2,301,967 gain on marketable securities.
Operating
Losses
Nexia
recorded an operating loss of $3,988,085 for the year ended December 31, 2006
compared to a loss of $756,822 for the comparable period in the year 2005.
The
increase in operating loss of $3,231,263 or a 427% increase, was the result
of
the increased operating expenses related to the operation of the Landis Salon,
Black Chandelier costs of expansion and a large expense related to the use
of
shares of China Fruits Corporation (CHFR) for the payment of various consulting
expenses with non reoccurring amounts of $2,265,000 and $360,328 for investor
relations, promotional and marketing related fees paid during the year ended
December 31, 2006.
Net
Losses
Nexia
recorded a net loss of $1,533,005 for the period ended December 31, 2006, as
compared to a net gain of $294,304 for the comparable period in 2005. The change
from income to a net loss represents a change of $1,827,309, or 621% decrease,
compared to the same period in 2005, reported above. The largest contributing
factor to the significant increase in operating losses and net losses was the
result of a one time payment for various consulting expenses in the form of
shares of a newly reorganized company named China Fruits Corporation (OTCBB:
CHFR) which were expensed in the amounts of $2,265,000. The value of the CHFR
shares paid for such services was determined based upon the market price as
quoted on the over the counter bulletin board on the date of payment for such
services.
Nexia
does not expect to operate at a profit through fiscal 2007. Since Nexia's
activities in the past were tied to its ability to operate its real estate
properties at a profit, future profitability or its revenue growth tended to
follow changes in the real estate market place. The recent diversification
into
retail operations represented by its investment in Landis, LLC and Gold Fusion
Laboratories will broaden Nexia’s operations and make it less dependent on the
real estate market and its fluctuations. There can be no guarantee that
profitability or revenue growth will be realized in the future.
Impact
of Inflation
The
Company believes that inflation may have a negligible effect on future
operations. The Company believes that it may be able to offset inflationary
increases in the cost of revenue by increasing revenue and improving operating
efficiencies.
Liquidity
and Capital Resources
On
December 31, 2006, Nexia had current assets of $1,022,549 and $4,734,635 in
total assets compared to current assets of $532,278 and total assets of
$4,319,916 as of December 31, 2005. Nexia had net working capital deficit of
$990,123 at December 31, 2006, as compared to a net working capital deficit
of
$951,843 at December 31, 2005. The increase in working capital deficit of
$38,280 is due primarily to increases in accounts payable and accrued
expenses.
On
June
1, 2006, Diversified Holdings I, Inc., (“DHI”) a subsidiary of the Company,
signed a Settlement Agreement and Release with Diversified Financial Resources
Corporation (“CHFR”) whereby DHI released all claims remaining under a June 30,
2003 Stock Purchase Agreement between the two parties in exchange for the
delivery of 2,000,000 shares of CHFR common stock without a restrictive legend.
DHI has agreed to deliver 1.6 million of those shares to three different
recipients in exchange for various services to be provided to DHI resulting
in
pre-paid expenses reported on the balance sheet of the Company. DHI has retained
400,000 shares which had a market value of $220,000 at December 31, 2006. (The
shares of CHFR are thinly traded with a closing fair market value of $0.55
as of
the last reported trade price on December 31, 2006.) The obligation of CHFR
to
DHI had earlier been written off as unlikely to be collected, and the receivable
was not included in the financial statements as of December 31, 2005 and for
the
first quarter ended March 31, 2006. (All share numbers reflect a 1 for 12.5
reverse stock split by CHFR effective July 12, 2006.) Subsequent to the end
of
the year, the majority of the CHFR shares were sold, generating net proceeds
of
approximately $260,188 as of March 26, 2007.
Cash
used
by operating activities was $1,215,381 for the year ended December 31, 2006,
compared to cash used by operating activities of $360,949 for the comparable
period in 2005. The increase in cash used of $854,432 was attributable to the
increases in accounts payable and accrued liabilities of $828,588. The increase
in expenses generated by its newly acquired retail operations created an overall
Company increase in accounts payable and accrued liabilities compared to no
such
costs during the year ended December 31, 2005.
Net
cash
provided by investing activities was $309,544 for the year ended December 31,
2006, compared to net cash provided by investing activities of $239,153 for
the
year ended December 31, 2005. The increase in cash of $70,391 was attributable
primarily to the sales of two real estate properties and marketable securities.
The supplemental schedules of non-cash investing activities show transactions
requiring no cash.
Cash
provided by financing activities was $869,555 for the year ended December 31,
2006, compared to cash provided of $49,745 for the year ended December 31,
2005.
The increase of $819,810 in cash provided by financing activities was due
primarily to the net proceeds from the issuance of new long-term debt, mortgage
refinancing, the issuance of short term notes for cash received, and the sale
of
a commercial property, recognized during the year ended December 31,
2006.
We
project that in 2007 and beyond, our salon and retail store businesses will
be
able to generate sufficient revenues to meet their internal financial needs
and
$200,000 annually of excess cash available for our other operations. We project
the cash burn rate for the next twelve months, for the Company’s general needs
and rental operations, will be approximately $950,000. Funds to cover the burn
rate will come from excess cash flow provided by the salon and retail
operations, $200,000; gross rents, $200,000; the ESOP plan to pay employee
compensation expenses, $400,000; and sale of stocks from an investment portfolio
of at least $300,000. The total provided to cover the Company’s general needs
and the rental operations will be approximately $1,100,000. These amounts do
not
include any funds that may be received from the Dutchess equity line of credit
as described in the Company’s SB-2 Registration Statements and amendments
thereto as filed with the Securities and Exchange Commission.
ITEM
7. FINANCIAL STATEMENTS
NEXIA
HOLDINGS, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
As
of
December 31, 2006
|
C
O
N T E N T S
|
|
|
Report
of independent registered public accounting firm
|
F-3
|
|
|
|
|
Consolidated
balance sheets
|
F-4
|
|
|
|
|
Consolidated
statements of operations and other comprehensive income
(loss)
|
F-6
|
|
|
|
|
Consolidated
statements of stockholders’ equity (deficit)
|
F-9
|
|
Consolidated
statements of cash flows
|
F-13
|
|
Notes
to the consolidated financial statements
|
F-17
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Nexia
Holdings, Inc. and Subsidiaries
Salt
Lake
City, Utah
We
have
audited the accompanying consolidated balance sheets of Nexia Holdings, Inc.
and
subsidiaries as of December 31, 2006 and 2005, and the related consolidated
statements of operations and other comprehensive income (loss), stockholders'
equity (deficit) and cash flows for the years 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 audits.
We
conducted our audits 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 audits 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 audits provide a reasonable basis for our
opinion.
In
our
opinion, based on our audits of 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, 2006 and 2005, and
the
results of their consolidated operations and other comprehensive income (loss)
and cash flows for the years ended December 31, 2006 and 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, 2006 of $15,568,646, and has a working capital
deficit of $990,123 at December 31, 2006 all of which raise substantial doubt
about its ability to continue as a going concern. Management's plan in regard
to
these matters is also discussed in Note 2. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/
De
Joya Griffith & Company, LLC
CERTIFIED
PUBLIC ACCOUNTANTS
Henderson,
NV
March
21,
2007
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets
|
|||||||
|
As
of
|
As
of
|
||||||
|
December
31,
|
December
31,
|
||||||
|
ASSETS
|
2006
|
2005
|
|||||
|
(Revised)
|
|||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
124,158
|
$
|
160,440
|
|||
|
Accounts
and notes receivable, trade - net of allowance
|
|||||||
|
of
$103,732 and $18,870, respectively
|
32,841
|
36,833
|
|||||
|
Accounts
receivable - related parties (Note 3)
|
12,070
|
7,342
|
|||||
|
Notes
receivable - net of allowance of $90,000 and
|
|||||||
|
$345,000,
respectively (Note 4)
|
10,142
|
13,164
|
|||||
|
Inventory
|
370,639
|
35,435
|
|||||
|
Prepaid
expenses
|
207,167
|
28,191
|
|||||
|
Marketable
securities (Note 5)
|
265,532
|
250,873
|
|||||
|
TOTAL
CURRENT ASSETS
|
1,022,549
|
532,278
|
|||||
|
PROPERTY
AND EQUIPMENT
|
|||||||
|
Property
and equipment, net (Note 6)
|
3,033,228
|
2,478,434
|
|||||
|
Land
(Note 6)
|
633,520
|
389,295
|
|||||
|
Property,
net - held for sale (Note 11)
|
-
|
915,939
|
|||||
|
TOTAL
NET PROPERTY AND EQUIPMENT
|
3,666,748
|
3,783,668
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Loan
costs, net
|
43,958
|
3,970
|
|||||
|
Trademarks
|
1,380
|
-
|
|||||
|
TOTAL
OTHER ASSETS
|
45,338
|
3,970
|
|||||
|
TOTAL
ASSETS
|
$
|
4,734,635
|
$
|
4,319,916
|
|||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Balance Sheets (Continued)
|
|||||||
|
As
of
|
As
of
|
||||||
|
December
31,
|
December
31,
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
2006
|
2005
|
|||||
|
(Revised)
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
765,059
|
$
|
233,606
|
|||
|
Accounts
payable - related parties (Note 3)
|
44,032
|
29,731
|
|||||
|
Accrued
liabilities
|
590,822
|
293,687
|
|||||
|
Deferred
revenue
|
28
|
988
|
|||||
|
Refundable
deposits
|
15,892
|
15,892
|
|||||
|
Current
maturities of long-term debt (Note 8)
|
420,814
|
910,217
|
|||||
|
Current
maturities of long-term debt - related parties (Note 9)
|
176,025
|
-
|
|||||
|
TOTAL
CURRENT LIABILITIES
|
2,012,672
|
1,484,121
|
|||||
|
LONG-TERM
LIABILTIES
|
|||||||
|
Convertible
debenture derivative (Note 10)
|
10,179
|
85,714
|
|||||
|
Convertible
debenture (Note 10)
|
107,808
|
16,440
|
|||||
|
Long-term
debt (Note 8)
|
2,196,580
|
997,018
|
|||||
|
Long-term
debt - property held for sale (Note 11)
|
-
|
547,012
|
|||||
|
Long-term
debt - related parties (Note 9)
|
437,000
|
-
|
|||||
|
TOTAL
LONG-TERM LIABILITIES
|
2,751,567
|
1,646,184
|
|||||
|
TOTAL
LIABILITIES
|
4,764,239
|
3,130,305
|
|||||
|
MINORITY
INTEREST
|
91,344
|
226,426
|
|||||
|
STOCKHOLDERS'
EQUITY (Note 12)
|
|||||||
|
Preferred
Series A stock, $0.001 par value, 10,000,000
|
|||||||
|
shares
authorized, 150,000 shares issued and outstanding
|
150
|
-
|
|||||
|
Preferred
Series B stock, $0.001 par value, 10,000,000
|
|||||||
|
shares
authorized, 10,000,000 and 8,000,000 shares issued
|
|||||||
|
and
outstanding, respectively
|
10,000
|
8,000
|
|||||
|
Preferred
Series C stock, $0.001 par value, 5,000,000
|
|||||||
|
shares
authorized, 190,500 and 100,00 shares issued
|
|||||||
|
and
outstanding, respectively
|
191
|
100
|
|||||
|
Common
stock $0.0001 par value, 50,000,000,000 shares
|
|||||||
|
authorized,
811,476,885 and 353,994,503 shares issued
|
|||||||
|
(post
reverse split) and outstanding, respectively
|
81,148
|
353,995
|
|||||
|
Additional
paid-in capital
|
15,602,504
|
14,320,192
|
|||||
|
Treasury
stock, 1,469 and 1,469 shares at cost, respectively (Note 14)
|
(100,618
|
)
|
(100,618
|
)
|
|||
|
Stock
subscriptions receivable
|
(365,262
|
)
|
(11,325
|
)
|
|||
|
Other
comprehensive gain (loss)
|
219,585
|
(5,721
|
)
|
||||
|
Accumulated
deficit
|
(15,568,646
|
)
|
(13,601,438
|
)
|
|||
|
Total
Stockholders’ Equity
|
(120,948
|
)
|
963,185
|
||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
|||||||
|
EQUITY
|
$
|
4,734,635
|
$
|
4,319,916
|
|||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Operations and Other Comprehensive Income
(Loss)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
|
2005
|
|||||
|
REVENUE
|
|||||||
|
Rental
revenue
|
$
|
184,230
|
$
|
257,627
|
|||
|
Sales
- Salon and Retail
|
1,649,365
|
124,262
|
|||||
|
Consulting
revenue
|
650
|
10,525
|
|||||
|
TOTAL
REVENUE
|
1,834,245
|
392,414
|
|||||
|
COST
OF REVENUE
|
|||||||
|
Cost
associated with rental revenue
|
94,517
|
143,605
|
|||||
|
Depreciation
and amortization associated with rental revenue
|
104,005
|
110,758
|
|||||
|
Cost
of sales - Salon and Retail
|
638,586
|
50,607
|
|||||
|
TOTAL
COST OF REVENUE
|
837,108
|
304,970
|
|||||
|
GROSS
INCOME (Note 16)
|
997,137
|
87,444
|
|||||
|
EXPENSES
|
|||||||
|
General
and administrative expense
|
2,871,214
|
627,854
|
|||||
|
Consulting
fees
|
2,345,598
|
56,805
|
|||||
|
Depreciation
and amortization expense
|
62,869
|
14,731
|
|||||
|
Interest
expense associated with rental revenue
|
142,591
|
144,876
|
|||||
|
TOTAL
EXPENSES
|
5,422,272
|
844,266
|
|||||
|
OPERATING
LOSS
|
(4,425,135
|
)
|
(756,822
|
)
|
|||
|
OTHER
INCOME (EXPENSE)
|
|||||||
|
Interest
expense
|
(128,666
|
)
|
(52,938
|
)
|
|||
|
Interest
expense - accretion of debt (Note 10)
|
(79,623
|
)
|
(16,440
|
)
|
|||
|
Interest
income
|
15,476
|
43,488
|
|||||
|
Income
from litigation settlement (Note 17)
|
109,791
|
206,500
|
|||||
|
Gain
on disposal of assets (Note 18)
|
34,124
|
756,471
|
|||||
|
Securities
received in agreement settlements (Note 19)
|
2,301,967
|
-
|
|||||
|
Unrealized
gain related to adjustment of derivative
|
|||||||
|
liability
to fair value of underlying security
|
73,393
|
114,286
|
|||||
|
Other
income (Note 20)
|
128,618
|
64
|
|||||
|
Other
expense (forgiveness of debt)
|
-
|
(305
|
)
|
||||
|
TOTAL
OTHER INCOME
|
2,455,080
|
1,051,126
|
|||||
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
(1,970,055
|
)
|
294,304
|
||||
|
MINORITY
INTEREST IN (INCOME) LOSS
|
2,847
|
(65,368
|
)
|
||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
$
|
(1,967,208
|
)
|
$
|
228,936
|
||
|
The
accompanying notes are an integrtal part of these consolidated
financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Operations and Other Comprehensive Income
(Loss)(Continued)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
(Revised)
|
|||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
$
|
(1,967,208
|
)
|
$
|
228,936
|
||
|
DISCONTINUED
OPERATIONS
|
|||||||
|
Loss
from operations expenses
|
-
|
(343,674
|
)
|
||||
|
Depreciation
expense
|
-
|
(15,810
|
)
|
||||
|
LOSS
FROM DISCONTINUED OPERATIONS (Note 22)
|
-
|
(359,484
|
)
|
||||
|
NET
LOSS
|
(1,967,208
|
)
|
(130,548
|
)
|
|||
|
OTHER
COMPREHENSIVE INCOME
|
|||||||
|
Change
in unrealized gain on marketable securities (Note 5)
|
225,306
|
1,046
|
|||||
|
TOTAL
COMPREHENSIVE LOSS
|
$
|
(1,741,902
|
)
|
$
|
(129,502
|
)
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Operations and Other Comprehensive Income (Loss)
(Continued)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
(Revised)
|
|||||||
|
NET
LOSS PER COMMON SHARE, BASIC:
|
|||||||
|
|
|||||||
|
Net
loss (before comprehensive income)
|
$
|
(1,967,208
|
)
|
$
|
(130,548
|
)
|
|
|
Net
loss per share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
|
|||||||
|
Total
comprehensive Loss
|
$
|
(1,741,902
|
)
|
$
|
(129,502
|
)
|
|
|
Net
loss per share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
|
|||||||
|
Weighted
average shares outstanding - basic
|
517,497,916
|
317,112,939
|
|||||
|
|
|||||||
|
|
|||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||||||||||||||||||||
|
Consolidated
Statement of Stockholders' Equity
|
|||||||||||||||||||||||||||||||
|
For
the Year Ended December 31, 2005
|
|||||||||||||||||||||||||||||||
|
Post
Reverse Split Effective February 20, 2007
|
|||||||||||||||||||||||||||||||
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
|
Stock
|
|
Other
|
|
|
|
Total
|
|
||||||||||||
|
|
|
of
Preferred
|
|
Preferred
|
|
of
Common
|
|
Common
|
|
|
|
Treasury
|
|
Subscriptions
|
|
Comprehensive
|
|
Retained
|
|
Stockholders
|
|
||||||||||
|
Description
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
APIC
|
|
Stock
|
|
Receivable
|
|
Income
- (Loss)
|
|
Deficit
|
|
Equity
|
|||||||||||
|
Balance
forward, Dec 31, 2004
|
8,100,000
|
$
|
8,100
|
174,794,583
|
$
|
174,795
|
$
|
14,211,805
|
$
|
(100,618
|
)
|
$
|
(375,009
|
)
|
$
|
(6,767
|
)
|
$
|
(13,470,890
|
)
|
$
|
441,416
|
|||||||||
|
Common
stock issued for services
|
-
|
-
|
99,675,000
|
99,675
|
20,350
|
-
|
-
|
-
|
-
|
120,025
|
|||||||||||||||||||||
|
Common
stock issued to EquitiLink, LLC (Rule 144 legend, Restr.)
|
-
|
-
|
10,000,000
|
10,000
|
10,000
|
-
|
-
|
-
|
-
|
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
|
-
|
-
|
(800,000
|
)
|
(800
|
)
|
(19,200
|
)
|
-
|
-
|
-
|
-
|
(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
|
-
|
-
|
40,000,000
|
40,000
|
(5,500
|
)
|
-
|
(34,500
|
)
|
-
|
-
|
-
|
|||||||||||||||||||
|
Common
stock issued to contractors applied to accounts payable
|
-
|
-
|
20,325,000
|
20,325
|
29,317
|
-
|
-
|
-
|
-
|
49,642
|
|||||||||||||||||||||
|
Common
stock issued to contractor for building improvements
|
-
|
-
|
5,000,000
|
5,000
|
5,000
|
-
|
-
|
-
|
-
|
10,000
|
|||||||||||||||||||||
|
Proceeds
from options stock sales applied to accounts payable
|
-
|
-
|
-
|
-
|
7,985
|
-
|
-
|
-
|
-
|
7,985
|
|||||||||||||||||||||
|
Change
in comprehensive loss to December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,046
|
-
|
1,046
|
|||||||||||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||||||||||||||||||||
|
Consolidated
Statement of Stockholders' Equity
|
|||||||||||||||||||||||||||||||
|
For
the Year Ended December 31, 2005
|
|||||||||||||||||||||||||||||||
|
Post
Reverse Split Effective February 20, 2007
|
|||||||||||||||||||||||||||||||
|
|
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
|
Stock
|
|
Other
|
|
|
|
Total
|
|
||||||||||
|
|
|
of
Preferred
|
|
Preferred
|
|
of
Common
|
|
Common
|
|
|
|
Treasury
|
|
Subscriptions
|
|
Comprehensive
|
|
Retained
|
|
Stockholders
|
|
||||||||||
|
Description
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
APIC
|
|
Stock
|
|
Receivable
|
|
Income
- (Loss)
|
|
Deficit
|
|
Equity
|
|||||||||||
|
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)
|
-
|
-
|
5,000,000
|
5,000
|
-
|
-
|
-
|
-
|
-
|
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
|
-
|
-
|
(80
|
)
|
(0
|
)
|
-
|
-
|
-
|
-
|
-
|
(0
|
)
|
||||||||||||||||||
|
Net
consolidated loss for year ended December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(130,548
|
)
|
(130,548
|
)
|
|||||||||||||||||||
|
Balance
at December 31, 2005
|
-
|
$
|
-
|
4,999,920
|
$
|
5,000
|
$
|
3,685
|
$
|
-
|
$
|
1,493
|
$
|
-
|
$
|
(130,548
|
)
|
$
|
(120,370
|
)
|
|||||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||||||||||||||||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||||||||||||||||||||
|
Consolidated
Statement of Stockholders' Deficit
|
|||||||||||||||||||||||||||||||
|
For
the Year Ended December 31, 2006
|
|||||||||||||||||||||||||||||||
|
Post
Reverse Split Effective February 20, 2007
|
|||||||||||||||||||||||||||||||
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
|
Stock
|
|
Other
|
|
|
|
Total
|
|
||||||||||||
|
|
|
of
Preferred
|
|
Preferred
|
|
of
Common
|
|
Common
|
|
|
|
Treasury
|
|
Subscriptions
|
|
Comprehensive
|
|
Retained
|
|
Stockholders
|
|
||||||||||
|
Description
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
APIC
|
|
Stock
|
|
Receivable
|
|
Income
- (Loss)
|
|
Deficit
|
|
Equity
|
|||||||||||
|
Balance
forward, Dec 31, 2005
|
8,100,000
|
$
|
8,100
|
353,994,503
|
$
|
353,995
|
$
|
14,320,192
|
$
|
(100,618
|
)
|
$
|
(11,325
|
)
|
$
|
(5,721
|
)
|
$
|
(13,601,438
|
)
|
$
|
963,185
|
|||||||||
|
Intrinsic
value of options issued for past services
|
-
|
-
|
-
|
-
|
41,250
|
-
|
-
|
-
|
-
|
41,250
|
|||||||||||||||||||||
|
Fair
value of options issued for past services
|
-
|
-
|
-
|
-
|
19,500
|
-
|
-
|
-
|
-
|
19,500
|
|||||||||||||||||||||
|
Common
stock issued for options exercised
|
-
|
-
|
219,000,000
|
188,400
|
449,850
|
-
|
(394,704
|
)
|
-
|
-
|
243,546
|
||||||||||||||||||||
|
Stock
certificate returned and cancelled
|
-
|
-
|
(118
|
)
|
-
|
(11,800
|
)
|
-
|
-
|
-
|
-
|
(11,800
|
)
|
||||||||||||||||||
|
Adjust
stock subscriptions receivable for sale of stock at fair market
values
less than the value when the stock was issued
|
-
|
-
|
-
|
-
|
(12,397
|
)
|
-
|
12,397
|
-
|
-
|
-
|
||||||||||||||||||||
|
Adjust
for cash received on subscriptions receivable in excess of amount
receivable from an employee
|
-
|
-
|
-
|
-
|
(1,576
|
)
|
-
|
-
|
-
|
-
|
(1,576
|
)
|
|||||||||||||||||||
|
Common
stock issued for services
|
-
|
-
|
3,482,500
|
348
|
12,100
|
-
|
-
|
-
|
-
|
12,448
|
|||||||||||||||||||||
|
Add
net credit balance to common stock paid-in capital resulting from
writing
off intercompany balances by forgiving debt of other Nexia companies
or
debt being forgiven by other Nexia companies
|
-
|
-
|
-
|
-
|
7,118
|
-
|
-
|
-
|
-
|
7,118
|
|||||||||||||||||||||
|
Preferred
stock issued for increased investment in Landis
|
2,080,000
|
2,080
|
(76,579
|
)
|
(74,499
|
)
|
|||||||||||||||||||||||||
|
Preferred
stock issued for acquisition of Black Chandelier net assets from
DHX,
Inc.
|
157,500
|
158
|
241,454
|
241,612
|
|||||||||||||||||||||||||||
|
Preferred
stock issued for acquisition of Black Chandelier net assets from
DHX, Inc.
and making loan to Nexia Holdings, Inc.
|
3,000
|
3
|
14,997
|
15,000
|
|||||||||||||||||||||||||||
|
Adjust
stock subscriptions receivable for difference between market value
when
stock was issued and sales proceeds
|
-
|
-
|
-
|
-
|
(32,487
|
)
|
-
|
24,365
|
-
|
-
|
(8,122
|
)
|
|||||||||||||||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||||||||||||||||||||||||||
|
Consolidated
Statement of Stockholders' Deficit
|
|||||||||||||||||||||||||||||||
|
For
the Year Ended December 31, 2006
|
|||||||||||||||||||||||||||||||
|
Post
Reverse Split Effective February 20, 2007
|
|||||||||||||||||||||||||||||||
|
|
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
|
Stock
|
|
Other
|
|
|
|
Total
|
|
||||||||||
|
|
|
of
Preferred
|
|
Preferred
|
|
of
Common
|
|
Common
|
|
|
|
Treasury
|
|
Subscriptions
|
|
Comprehensive
|
|
Retained
|
|
Stockholders
|
|
||||||||||
|
Description
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
APIC
|
|
Stock
|
|
Receivable
|
|
Income
- (Loss)
|
|
Deficit
|
|
Equity
|
|||||||||||
|
Common
stock issued to Diversified Holdings X, Inc. re. acquisition of
net assets
of Black Chandelier operation from DHX, Inc.(restricted)
|
-
|
-
|
200,000,000
|
20,000
|
21,903
|
-
|
-
|
-
|
-
|
41,903
|
|||||||||||||||||||||
|
Common
stock issued as compensation for a loan to Nexia Holdings,
Inc.
|
10,000,000
|
1,000
|
29,000
|
30,000
|
|||||||||||||||||||||||||||
|
The
company increased its number of authorized shares to 50,000,000,000
and
par value adjusted from $0.001 to $0.0001
|
-
|
-
|
-
|
(485,095
|
)
|
485,095
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
|
Common
stock issued for partial conversion of convertible
debenture
|
-
|
-
|
25,000,000
|
2,500
|
50,000
|
-
|
-
|
-
|
-
|
52,500
|
|||||||||||||||||||||
|
Adjust
Stock Subscriptions Receivable for differences between stock sales
net
proceeds and amount when stock was issued
|
-
|
-
|
-
|
-
|
-
|
-
|
4,005
|
-
|
-
|
4,005
|
|||||||||||||||||||||
|
Adjust
amounts received from option stock sales at prices less than fair
market
value when the shares were issued from charges against paid-in
capital to
expense
|
44,884
|
44,884
|
|||||||||||||||||||||||||||||
|
Change
in comprehensive income, year ended December 31, 2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
225,306
|
-
|
225,306
|
|||||||||||||||||||||
|
Net
consolidated loss for the year ended December 31, 2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,967,208
|
)
|
(1,967,208
|
)
|
|||||||||||||||||||
|
Balance
at December 31, 2006
|
10,340,500
|
$
|
10,341
|
811,476,885
|
$
|
81,148
|
|
$
|
15,602,504
|
$
|
(100,618
|
) |
$
|
(365,262
|
) |
$
|
219,585
|
$
|
(15,568,646
|
)
|
$
|
(120,948
|
)
|
||||||||
|
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,
|
|||||||
|
2006
|
2005
|
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
|
Net
loss
|
$
|
(1,967,208
|
)
|
$
|
(130,548
|
)
|
|
|
Adjustments
to reconcile net loss
|
|||||||
|
to
net cash used in operating activities:
|
|||||||
|
Change
in minority interest
|
(135,082
|
)
|
211,111
|
||||
|
Depreciation
expense
|
153,922
|
129,390
|
|||||
|
Depreciation
expense capitalized in inventory
|
11,558
|
-
|
|||||
|
Accumulated
depreciation transferred from another entity
|
7,029
|
-
|
|||||
|
Amortization
of lease / loan costs
|
12,952
|
11,909
|
|||||
|
Intrinsic
and fair value of stock options issued
|
60,750
|
56,751
|
|||||
|
Issued
preferred and common stock for services
|
26,821
|
86,519
|
|||||
|
Issued
option shares for services
|
70,125
|
-
|
|||||
|
Expense
stock sales at values lower than stock issue values
|
4,005
|
-
|
|||||
|
Allowance
for bad debts
|
84,862
|
80,574
|
|||||
|
Accretion
of convertible debenture
|
91,368
|
16,440
|
|||||
|
Gain
on sale of retail shopping plaza
|
-
|
(756,471
|
)
|
||||
|
Unrealized
loss related to adjustment of derivative
|
|||||||
|
to
fair value of underlying security
|
(73,393
|
)
|
(114,286
|
)
|
|||
|
Stock
certificate issued in 2003 returned and cancelled
|
(11,800
|
)
|
-
|
||||
|
Gain
on sale of residential real estate
|
(35,085
|
)
|
-
|
||||
|
Loss
on sale of commercial real estate
|
107,870
|
-
|
|||||
|
Loss
on sale of vehicle
|
961
|
||||||
|
Net
gain on sale from securities received in agreement settlements
|
(2,301,967
|
)
|
-
|
||||
|
Consulting
fees paid with securities received
from settlement agreement
|
2,400,000
|
-
|
|||||
|
Adjusted
amounts received from option stock sales, at prices
lower
|
|||||||
|
than
fair market value when the shares were issued, from
|
|||||||
|
charges
against paid-in capital to expense
|
44,884
|
||||||
|
Restricted
stock received in litigation settlement
|
-
|
(154,000
|
)
|
||||
|
Impairment
of marketable securities
|
-
|
155
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(80,870
|
)
|
95,217
|
||||
|
Accounts
receivable - related parties
|
(4,728
|
)
|
16,466
|
||||
|
Note
receivable
|
-
|
(202
|
)
|
||||
|
Inventory
|
(335,204
|
)
|
(35,435
|
)
|
|||
|
Prepaid
expense
|
(178,976
|
)
|
(9,408
|
)
|
|||
|
Accounts
payable
|
510,063
|
39,190
|
|||||
|
Accounts
payable - related parties
|
14,301
|
29,731
|
|||||
|
Accrued
liabilities
|
297,135
|
87,559
|
|||||
|
Unearned
rent
|
-
|
(23,094
|
)
|
||||
|
Deferred
revenue
|
(960
|
)
|
632
|
||||
|
Refundable
deposits
|
-
|
851
|
|||||
|
Net
cash used in operating activities
|
(1,226,667
|
)
|
(360,949
|
)
|
|||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows (Continued)
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
|
Sale
of commercial real estate
|
802,126
|
-
|
|||||
|
Sale
of residential real estate
|
70,205
|
-
|
|||||
|
Sale
of marketable securities
|
113,684
|
-
|
|||||
|
Purchase
of marketable securities
|
(7,022
|
)
|
(47,431
|
)
|
|||
|
Purchase
of property, plant and equipment
|
(405,270
|
)
|
(551,371
|
)
|
|||
|
Purchase
of land
|
(251,575
|
)
|
-
|
||||
|
Capitalized
payroll expense as property, plant and equipment
|
(1,318
|
)
|
-
|
||||
| Collect note receivable | 100 | - | |||||
|
Sale
of retail shopping plaza
|
-
|
1,745,021
|
|||||
|
Acquisition
of Salt Lake Development Corp.
|
-
|
(903,603
|
)
|
||||
|
Purchase
of marketable securities - restricted
|
-
|
(4,002
|
)
|
||||
|
Correction
of duplicate entry, previous year
|
-
|
539
|
|||||
|
Net
cash provided by investing activities
|
320,930
|
239,153
|
|||||
|
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,
|
|||||||
|
2006
|
2005
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
|
Payments
on long-term debt
|
(85,684
|
)
|
(106,311
|
)
|
|||
|
Proceeds
from issuance of new long-term debt, mortgage refinancing
|
1,568,790
|
110,914
|
|||||
|
Proceeds
from issuance of short-term debt for land purchase
|
250,000
|
-
|
|||||
|
Issued
notes payable in connection with increasing investment in Landis,
LLC
|
|||||||
|
and
acquiring certain assets of Black Chandelier from DHX,
Inc.
|
550,000
|
-
|
|||||
|
Pay
off mortgages replaced by refinancing
|
(1,153,402
|
)
|
-
|
||||
|
Pay
off part of short term debt for land purchase
|
(193,000
|
)
|
-
|
||||
|
Pay
off note payable, sale of commercial property
|
(545,071
|
)
|
-
|
||||
|
Pay
off note payable, sale of condominium
|
(25,055
|
)
|
-
|
||||
|
Pay
off note payable, sale of retail shopping plaza
|
-
|
(938,255
|
)
|
||||
|
Pay
off capitalized equipment lease liability
|
(5,901
|
)
|
-
|
||||
|
Receipt
of stock subscriptions receivable
|
152,046
|
396,691
|
|||||
|
Cash
received on subscriptions receivable in excess of receivable
balance
|
(1,576
|
)
|
-
|
||||
|
New
loan costs
|
(45,241
|
)
|
-
|
||||
|
Issued
two short term notes payable for cash received
|
300,000
|
-
|
|||||
|
Capitalized
two new equipment leases from banks
|
48,223
|
-
|
|||||
|
Issued
three short term notes payable for cash received from a related
party
|
66,025
|
-
|
|||||
|
Payment
on note payable to DHX, Inc.
|
(3,000
|
)
|
-
|
||||
|
Loan
costs paid in connection with loan pay off for building
sale
|
(7,699
|
)
|
-
|
||||
|
Issuance
of common stock for stock options exercised
|
-
|
38,506
|
|||||
|
Mortgage
assumed, acquisition of Salt Lake Development Corp.
|
-
|
551,707
|
|||||
|
Pay
off convertible debenture
|
-
|
(5,000
|
)
|
||||
|
Old
stock subscription receivable reclassified
|
-
|
1,493
|
|||||
|
Net
cash provided by financing activities
|
869,455
|
49,745
|
|||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(36,282
|
)
|
(72,051
|
)
|
|||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
160,440
|
232,491
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
124,158
|
$
|
160,440
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF INFORMATION
|
|||||||
|
CASH
PAID FOR:
|
|||||||
|
Interest
|
$
|
271,251
|
$
|
243,424
|
|||
|
Income
taxes
|
$
|
-
|
$
|
-
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
|
|||||||
|
FINANCING
ACTIVITIES:
|
|||||||
|
Preferred
and common stock issued for services
|
$
|
96,946
|
$
|
86,519
|
|||
|
Intrinsic
and fair value of options issued
|
$
|
60,750
|
$
|
56,751
|
|||
|
Common
stock issued for subscriptions receivable
|
$
|
546,750
|
$
|
34,500
|
|||
|
Common
stock issued for building improvements and a website
|
$
|
17,625
|
$
|
10,000
|
|||
|
Common
stock issued and applied on vendor accounts payable
|
$
|
18,753
|
$
|
49,642
|
|||
|
Unrealized
gain on adjustment of derivative
|
|||||||
|
to
fair value of underlying security
|
$
|
(75,535
|
)
|
$
|
(114,286
|
)
|
|
| Change in other comprehensive gain | $ | 225,306 | $ | 1,046 | |||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
|
|||||||
|
Consolidated
Statements of Cash Flows (Continued)
|
|||||||
|
Supplemental
Schedule of Non-Cash Investing Activities
|
|||||||
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Excess
value of note payable and stock given over increased
|
|||||||
|
investment
in Landis, LLC
|
$
|
(74,499
|
)
|
$
|
-
|
||
|
Issued
preferred and common stock to acquire certain net assets
|
|||||||
|
of
Black Chandelier from DHX, Inc.
|
283,515
|
-
|
|||||
|
80%
of stock received in settlement of a written off note receivable
given
|
|||||||
|
to
three consultants as compensation for their services
|
(2,265,000
|
)
|
-
|
||||
|
Adjustment
between notes receivable and
|
|||||||
|
notes
payable balances
|
-
|
1,839
|
|||||
|
$
|
(2,055,984
|
)
|
$
|
1,839
|
|||
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
|||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
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
operating subsidiaries during the year ended December 31, 2006 were Diversified
Holdings I, Inc., Downtown Development Corporation, Wasatch Capital Corporation,
Canton Industrial Corporation of Salt Lake City Inc. (inactive), West Jordan
Real Estate Holdings, Inc. (inactive), Salt Lake Development, Inc. (dissolved
on
May 5, 2006), Landis, LLC, Gold Fusion Laboratories, Inc. 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 1, Inc. (DH1), a Nevada corporation is a 100% owned subsidiary of
Nexia. DH1 was formed on March 22, 1996. DH1 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% of Wasatch common stock as of December 31, 2006. During 2005 DH1
purchased additional shares of Wasatch’s common stock, increasing their
ownership from 98% to 100%. 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
is
90% owned by DH1. 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. The office building was the primary asset of SLD, and
it
was sold April 19, 2006. SLD was 100% owned by DH1. SLD was dissolved May
5,
2006.
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 99% by DH1.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
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.
CICSLC
is 80% owned by DH1 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. DH1 acquired a 20% interest in exchange for a $100,000
cash
investment. An
additional 65% interest was acquired by DH1 July 13, 2006, with 60% from
Richard
Surber and 5% from Seth Bullough, by issuing a $250,000 note payable, 80,000
Series A Preferred shares and 2,000,000 Series B Preferred shares. Landis
is 85%
owned by DH1 and a minority interest of 15% is held by Landis manager,
Matthew
Landis.
Gold
Fusion Laboratories, Inc. (GFL), a Nevada corporation, was incorporated
July 19,
2006 for the purpose of acquiring certain assets and liabilities of the
Black
Chandelier, a fashion and lifestyle design, manufacture and retail sales
operation from Diversified Holdings X, Inc. (DHX), a wholly owned corporation
of
Nexia CEO Richard Surber in exchange for issuing to DHX a $300,000 promissory
note, 70,000 shares of Series A Preferred Stock and 200,000,000 shares
(post
reverse split 2-20-2007) of restricted Common Stock. GFL is 100% owned
by
DH1.
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.
Reclassification
Certain
prior year balances have been reclassified to conform to the current year
presentation.
e.
Cash
and Cash Equivalents
Cash
and
cash equivalents represent cash and short-term, highly liquid investments
with
original maturities of three months or less and amounts in-transit from
banks
for customer credit and debit cards. The process of transferring these
funds
usually takes between one to two business days and is classified as cash
and
cash equivalents on our Consolidated Balance Sheets.
f.
Provision for Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets
are
recognized for deductible temporary differences and operating loss and
tax
credit carryforwards and deferred tax liabilities are recognized for
taxable
temporary differences. Temporary differences are the differences between
the
reported amounts of assets and liabilities and their tax bases. Deferred
tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax
assets
will be realized. Deferred tax assets and liabilities are adjusted for
the
effects of changes in tax laws and rates on the date of
enactment.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
Net
deferred tax asset consists of the following components as of December
31,
2006 and 2005:
|
|||||||
|
2006
|
|
2005
|
|||||
|
Deferred
tax assets:
|
|||||||
|
NOL
carryover
|
$
|
2,736,994
|
$
|
2,514,026
|
|||
|
Capital
loss carryover
|
-
|
137,991
|
|||||
|
Accrued
expense
|
45,682
|
9,808
|
|||||
|
Bad
debts allowance, accounts receivable
|
36,306
|
6,416
|
|||||
|
Bad
debts allowance, notes receivable
|
31,500
|
117,300
|
|||||
|
Charitable
contributions carryover
|
4,294
|
2,633
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Unrealized
gain on derivative
|
$
|
(25,687
|
)
|
$
|
(38,857
|
)
|
|
|
Valuation
allowance
|
(2,829,089
|
)
|
(2,749,317
|
)
|
|||
|
Net
deferred tax asset
|
$
|
-
|
$
|
-
|
|||
Deferred
income tax assets of $2,829,089 and $2,749,317 at December 31, 2006 and 2005,
respectively were offset in full by a valuation allowance. The valuation
allowance was increased by $79,772 in the year ended December 31,
2006.
A
reconciliation between the amounts of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is
as
follows:
As
of
As
of
December
31, December
31,
2006
2005
Statutory
federal income
tax (35.0%)
(34.0%)
Statutory
state income
tax
(
5.0%)
(
5.0%)
Change
in
valuation allowance on deferred tax
assets
40.0%
39.0%
At
December 31, 2006, the Company had a net operating loss carryforward of
approximately $8,220,121 that may be offset against future taxable income
from
the years 2007 through 2026. No tax benefit has been reported in the December
31, 2006 consolidated financial statements since the potential tax benefit
is
offset by a valuation allowance of the same amount. The Company has not filed
the 2006 corporation tax returns as of the date of filing of this Form 10-KSB.
The Company has filed an automatic extension to file the 2006 tax
returns.
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
December
31, 2006
g.
Merchandise Inventory
Inventory
is valued using the cost method, which values inventory at the lower of the
accrual cost or market. Cost is determined using the first-in, first-out
(“FIFO”) method. Market is determined based on the estimated net realizable
value, which generally is the merchandise selling price. We review our inventory
levels in order to identify slow-moving merchandise and damaged items and
use
markdowns to clear merchandise.
h.
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. All capital leases are added to
the
fixed assets and depreciated over the life of the assets. Depreciation is
computed on the straight line method for financial statement purposes over
the
following useful lives:
Building
and
improvements
6-39
Years
Furniture,
equipment and
fixtures 3-10
Years
Vehicles
5
Years
Computer
equipment and software 3
years
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
i.
Revenue Recognition
The
Company recognizes revenue from its four 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.
When
commercial buildings are sold, the net depreciated basis is deducted from
the
net cash received and the diffirence is a net gain or loss.
Sales
- Salon
Landis,
LLC, a hair and beauty salon began operating services and retail sales of
product in November 2005. The Company, through a subsidiary, has an 85%
investment in the salon. The Landis operations are included in the consolidated
financial statements. The salon records revenue on the accrual basis of
accounting.
All
sales
are paid by cash, debit card or credit card. Landis ceased accepting checks
the
latter part of 2006.
Sales
- Retail Clothing
Gold
Fusion Laboratories, Inc., a wholly-owned apparel selling subsidiary of the
Company, acquired the operations of Black Chandelier, a clothing manufacturer
and retailer, in September 2006 from a related company owned by the Company’s
CEO. Three new retail stores were opened in 2006 giving Black Chandelier
four
retail stores operating at December 31, 2006. Gold Fusion Laboratories, Inc.
records revenue on the accrual basis of accounting.
All
store
sales are paid by cash, debit card or credit card. There are occasional
wholesale sales from the manufacturing facility, but they must be paid before
shipping by check. If a check is returned by the bank, the amount is charged
to
a “returned check receivable” account until it is collected or written off as a
bad debt.
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 2006 and 2005 from consulting. The amount of deferred revenue
at
December 31, 2006 related to consulting services for which the Company received
restricted securities was $28 compared to $988 for the year ended December
31,
2005. This represents the fair value of the portion of the available for
sale
securities for which revenue was deferred at December 31,
2006.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
j.
Marketable Securities
The
Company follows the provisions of SFAS 115 regarding marketable securities.
The
Company’s securities investments that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities.
Trading securities are recorded at fair value on the balance sheet in current
assets, with the change in fair value during the period included in
earnings.
Securities
investments that the Company has the positive intent and ability to hold
to
maturity are classified as held-to-maturity securities and recorded at
amortized
cost in investments and other assets. Securities investments not classified
as
either held-to-maturity or trading securities are 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.
k.
Stock-based
Compensation
The
company has adopted SFAS 123 (revised), “Accounting for Stock-Based
Compensation”. The SFAS was required to be used for financial statements periods
ending after December 31, 2005. SFAS 123 (revised) applies to options issued
to
employees and non-employees for services.
In
December 2004, The FASB issued Statement No. 123 (revised 2004), “Share-Based
Payments” (SFAS No.123 (R) )”. This statement eliminates the option to apply the
intrinsic value measurement provisions of Accounting Principles Board (“APB”)
Opinion No. 25, “Accounting for stock issued to employees” to stock compensation
awards issued to employees. Rather, SFAS No.123 (R) requires companies
to
measure the cost of employee services received in exchange for an award
of
equity instruments based on the grant-date fair value of the award using
option
pricing models (ie: Black Scholes). That cost will be recognized over the
period
during which an employee is required to provide services in exchange for
the
award--the requisite service period (usually the vesting period). SFAS
No. 123
(R) applies to all awards granted after the required effective date as
well as
to existing awards that are modified, repurchased, or cancelled after the
effective date.
Options
granted by the Company are most often exercised immediately after the grant
date. Consequently, the Company has determined that fair the value of the
options on date of grant is based on the actual fair value of the stock
price.
The
Company issues options to employees only for past services. The options
are
“cashless” with a floating 75% cost (the Company can, at its discretion, vary
the floating cost; however, it seldom does). The other 25% of the option
value
is expensed. The Company receives the 75% cost from proceeds of the option
stock
sales. The Company believes its method of issuing and accounting for stock-based
payments to employees precludes it from having to apply the provisions
of SFAS
No. 123 (R).
l.
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.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
m.
Impairment of Long-Lived Assets
The
Company evaluates its long-lived assets in accordance with Statement of
Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal
of Long Lived Assets. The Company recognizes impairment losses as the difference
between historical cost and fair value of the asset, less costs to sell,
when
management determines that events and circumstances indicate a need to assess
impairment, and when that assessment indicates that historical cost materially
exceeds fair value, less costs to sell. There was no impairment expense of
long-lived assets for the years ended December 31, 2006 and 2005.
n.
Advertising Expense
The
Company expenses advertising costs as incurred. Advertising expense was $118,377
and $15,516 for the years ended December 31, 2006 and 2005, respectively.
The
large increase is attributed to a full year of operation by Landis, LLC,
compared to seven weeks in 2005 and the acquisition of the Black Chandelier
operations in September 2006.
o.
Loss
Per Common Share; Basic
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, 2006 and 2005, options were
excluded from the computation of basic and diluted loss per share because
their
effect would be anti-dilutive.
p.
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.
q.
Newly
Issued Accounting Pronouncements
FASB
Interpretation No. 48 “Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109” -
In June 2006, FASB issued this interpretation to clarify the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes. “The
interpretation prescribes a recognition threshold and measurement attribute
for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return.” This interpretation is effective for
fiscal years beginning after December 15, 2006 (January 1, 2007). The adoption
of Interpretation No. 48 will not have a material effect on the Company’s
financial statements for several years into the future due to the large net
operating loss carry forward.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
FASB
Interpretation No. 157 “Statement
of Financial Accounting Standards” (“SFAS 157”) - In October 2006, the FASB
issued SFAS No. 157 - The purpose of SFAS 157 is to provide users of financial
statements with better information about the extent to which fair value
is used
to measure recognized assets and liabilities, the inputs used to develop
the
measurements, and the effect of certain of the measurements on earnings
for the
period. SFAS No. 157 also provides guidance on the definition of fair
value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. This changes the definition of fair value
to be
the price that would be received to sell an asset or paid to transfer a
liability, an exit price, as opposed to the price that would be paid to
acquire
the asset or received to assume the liability, an entry price. SFAS No.
157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods with those fiscal
years
(e.g., January 1, 2008, for calendar year-end entities.) We do not expect
the adoption of SFAS No. 157 to have a material impact on its consolidated
financial position, results of operations or cash flows.
FASB
Interpretation No. 158 -
In
September 2006, the FASB issued SFAS No. 158, (“SFAS 158”) “Statement of
Financial Accounting Standards” which amends SFAS No. 87, 88, 106, and
132(R). Post application of SFAS 158, an employer should continue to apply
the provisions in Statements 87, 88, and 106 in measuring plan assets and
benefit obligations as of the date of its statement of financial position
and in
determining the amount of net periodic benefit cost. SFAS 158 requires
amounts to be recognized as the funded status of a benefit plan, that is,
the
difference between plan assets at fair value and the benefit obligation.
SFAS 158 further requires recognition of gains/losses and prior service
costs or
credits not recognized pursuant to SFAS No. 87 or SFAS No. 106.
Additionally, the measurement date is to be the date of the employer’s fiscal
year-end. Lastly, SFAS 158 requires disclosure in the financial statements
effects from delayed recognition of gains/losses, prior service costs or
credits, and transition assets or obligations. SFAS No. 158 is effective
for years ending after December 15, 2006 for employers with publicly traded
equity securities and as of the end of the fiscal year ended after June
15, 2007
for employers without publicly traded equity securities. We do not
expect the
adoption of SFAS No. 158 to have a material impact on our consolidated
financial
position, results of operations or cash flows.
FASB
Interpretation No. 159 "The
Fair
Value Option for Financial Assets and Financial Liabilities, including
an
amendment of FASB Statement No. 115" (FAS 159) - In February 2007, the
FASB
issued Statement No. 159. FAS 159 permits companies to choose to measure
many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value and establishes presentation
and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets
and
liabilities. The provisions of FAS 159 become effective as of the beginning
of
our 2009 fiscal year. We are currently evaluating the impact that FAS 159
will
have on our future financial statements.
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, 2006 of $15,568,646 and
has a
working capital deficit of $990,123 at December 31, 2006 all of which raise
substantial doubt about the Company’s ability to continue as a going
concern.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
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:
|
•
|
Increase
retail sales of Landis, LLC and Gold Fusion
Laboratories
|
|
•
|
Opening
additional salon and Black Chandelier
locations
|
|
•
|
Using
stock and option-based compensation to cover payroll and other
permissible
labor costs
|
|
•
|
Raise
capital through the Company’s equity line of credit upon the effectiveness
of a pending SB-2 Registration
Statement
|
•
Increasing
revenues from rental properties by implementing new marketing
programs
|
•
|
Making
certain improvements to certain rental properties in order to
make them
more marketable
|
|
•
|
Reduce
expenses through consolidating or disposing of certain subsidiary
companies
|
|
•
|
Convert
certain debt into shares of the Company’s common
stock
|
|
•
|
Purchasing
revenue producing real estate
|
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.
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 owned a 60% interest in Landis in 2005. Nexia consolidated
Landis for accounting purposes because of its ownership interest and common
control in 2005.
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 were being used in furtherance of the joint venture operation.
Wasatch
reported revenue of $2,561 for the year ended December 31, 2006, refer
to note
20. The Joint venture agreement has been canceled effective January 1,
2007.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
On
July
13, 2006, Diversified Holdings 1, Inc. (“DH1”), a 100% owned subsidiary of the
Company, entered into an agreement with Richard D. Surber, CEO of the Company,
to acquire his 60% ownership interest in Landis, LLC. On July 17, 2006, DHl,
Inc. also entered into an agreement with Seth Bullough, an employee of Landis,
LLC, to acquire his 5% ownership interest in Landis, LLC. In exchange for
these
two purchase agreements, the Company issued a note payable for $250,000,
75,000
Series A Preferred shares and 2,000,000 Series B Preferred Shares to Richard
D.
Surber and 5,000 Series A Preferred shares to Seth Bullough. The aggregate
purchase price and the value of the note payable and preferred stock issued
in
consideration was determined to be $1,052,000 based on a written valuation
of
Landis, LLC.
On
August
15, 2006, Gold Fusion Laboratories, Inc., (“GFL”) a subsidiary of the Company
signed an Asset Purchase Agreement with Diversified Holdings X, Inc. (“DHX”) to
acquire all of the assets, inventory and receivables held by DHX in the
operation of Black Chandelier, a fashion and lifestyle design operation.
GFL was
incorporated in Nevada on July 19, 2006. The compensation promised for this
acquisition consisted of a promissory note by GFL in the face amount of
$300,000, bearing interest at the rate of 24% per annum, with a maturity
of five
years. The Company agreed to issue DHX 70,000 shares of Series A Preferred
Stock. As Richard Surber is the president and sole shareholder of DHX the
transaction has been treated as a related party transaction. On September
18,
2006, an addendum to the agreement was approved by the parties that provided
for
the issuance of 200,000,000 shares (post reverse split 2-20-2007) of the
Company’s restricted common stock to DHX as compensation for transfers made to
GFL. The acquisition closed on September 18, 2006. Black Chandelier operates
four retail outlets in the Salt Lake City and Provo, Utah and maintains a
website for the online sale of its merchandise. The Company expects to
contribute to the growth and expansion of Black Chandelier’s
operations.
On
October 5, 2006, the Company authorized the delivery of a promissory note
in the
face amount of $20,000 to Richard Surber, president of the Company. The note
was
authorized by the board of directors. The note was given in exchange for
funds
advanced to the Company by Mr. Surber. The terms of the note provided for
a
single payment due on January 5, 2007 and provide for an interest rate of
20%
per annum. This note was extended to September 30, 2007. Extension agreement
was
signed on February 23, 2007. The note balance was $15,000 at December 31,
2006.
On
November 7, 2006, the Company authorized the delivery of a promissory note
in
the face amount of $31,025 to Richard Surber, president of the Company. This
note was authorized by the board of directors. The note was given in exchange
for $31,025 advanced to the Company by Mr. Surber. The terms of the note
provide
for a single payment due on January 25, 2007 and provide for an interest
rate of
20% per annum. This note’s due date was extended to September 30, 2007 with an
extension agreement signed on February 23, 2007.
On
November 22, 2006, the Company authorized the delivery of a promissory note
in
the face amount of $20,000 to Richard Surber, president of the Company. The
note
was authorized by the board of directors. The note was given in exchange
for
funds advanced to the Company by Mr. Surber. The terms of the note provided
for
a single payment due on March 22, 2007 and provide for an interest rate of
20%
per annum.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
There
is
a receivable of $12,070 from Diversified Holdings X, Inc. (DHX) at December
31,
2006, arising from the overlapping of operations in Gold Fusion Laboratories,
Inc. (dba Black Chandelier), after it was acquired from DHX in September
2006.
There
is
an accounts payable of $44,032 at December 31, 2006 to Richard Surber. Richard
Surber advanced the funds to Nexia for the purchase of inventory and operating
expenses.
There
was
a note payable of $230,000 by Diversified Financial Resources Corporation
(“DVFN”) to WJREH, a subsidiary of Nexia Holdings, Inc. and there was DFVN stock
owned by the Company or an officer. On August 8, 2005, the note was settled
as
part of the acquisition by Nexia Holdings, Inc. of the DFRC subsidiary, Salt
Lake Development Corporation. Since that date, there has been no further
contractual debt between the two companies. Since August 8, 2005, the Company
has been, and is, no longer a related party.
NOTE
4 - NOTES RECEIVABLE
|
Notes
receivable consist of the following at December 31, 2006 and
2005:
|
|||||||
|
2006
|
|
2005
|
|||||
|
Notes
receivable from an individual, with interest at 8%,
|
|||||||
|
due
August 10, 2002, secured by a building
|
$
|
-
|
$
|
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 the
vehicle
|
10,142
|
13,064
|
|||||
|
Note
receivable from a company, non-interest bearing, due on
demand,
|
|||||||
|
unsecured
|
90,000
|
90,100
|
|||||
|
100,142
|
358,164
|
||||||
|
Allowance
for doubtful accounts
|
(90,000
|
)
|
(345,000
|
)
|
|||
|
Total
Notes Receivable
|
$
|
10,142
|
$
|
13,164
|
|||
|
At
December 31, 2006, two notes totaling $90,000, reported together
above,
were in default. Those two
|
|||||||
|
notes
were from Creative Marketing, Inc. Nexia Holdings has taken legal
action
against the company
|
|||||||
|
owing
the debt and its president, Rick
Bailey.
|
|||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
5 - INVESTMENT IN MARKETABLE EQUITY SECURITIES
|
The
following is a summary of the Company's investment in available-for-sale
securities as of December 31,
|
|||||||
|
2006
and 2005:
|
|||||||
|
2006
|
|
2005
|
|||||
|
Equity
securities free trading:
|
|||||||
|
Gross
unrealized gains
|
$
|
225,453
|
$
|
-
|
|||
|
Gross
unrealized losses
|
(5,868
|
)
|
(5,721
|
)
|
|||
|
Net
Unrealized Gain (Loss)
|
$
|
219,585
|
$
|
(5,721
|
)
|
||
|
Fair
Market Value
|
$
|
265,532
|
$
|
250,873
|
|||
|
Changes
in the unrealized loss on available-for-sale securities during
the years
ended
|
|||||||
|
December
31, 2006 and 2005 reported as a separate component of stockholders'
equity
as follows:
|
|||||||
|
|
|||||||
|
|
For
the Years Ended
|
||||||
|
December
31,
|
|||||||
|
2006
|
|
|
2005
|
||||
|
Beginning
balance
|
$
|
(5,721
|
)
|
$
|
(6,767
|
)
|
|
|
Increase
in unrealized holding gains
|
225,306
|
1,046
|
|||||
|
Ending
balance
|
$
|
219,585
|
$
|
(5,721
|
)
|
||
|
During
the years ended December 31, 2006 and 2005, the Company recognized
$0 and
$155 respectively, in
|
|||||||
|
permanent
impairment expense on marketable
securities.
|
|||||||
NOTE
6 - FIXED ASSETS
|
Fixed
assets consist of the following at December 31, 2006 and
2005:
|
|||||||
|
2006
|
|
2005
|
|||||
|
Building
and improvements
|
3,160,345
|
2,858,871
|
|||||
|
Construction
in progress
|
128,851
|
-
|
|||||
|
Furniture
and equipment
|
497,766
|
284,629
|
|||||
|
Website
and logo
|
27,111
|
-
|
|||||
|
Vehicles
|
15,638
|
3,650
|
|||||
|
Accumulated
depreciation
|
(796,483
|
)
|
(668,716
|
)
|
|||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
Total
property and equipment
|
3,033,228
|
2,478,434
|
|||||
|
Land
|
633,520
|
389,295
|
|||||
|
Property,
net - held for sale
|
-
|
915,939
|
|||||
|
Total
fixed assets
|
3,666,748
|
3,783,668
|
For
the
years ended December 31, 2006 and 2005, the Company recorded depreciation
expense of $153,922 and $129,390, respectively. An amount of $11,558 was
capitalized into inventory from depreciation expense.
NOTE
7 - CORPORATION CONSOLIDATED INCOME TAX RETURNS
A
consolidated corporate income tax return has not been filed since the year
ended
December 31, 2001. There have been losses in every year since 2001. The
Company
expects to file income tax returns for the years ended December 31, 2002
through
2005 by 2007. The 2006 income tax return will be filed within the 2006
extension
filing period.
NOTE
8 - 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. The president of the Company personally guaranteed
the
note. 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. As of December 31, 2006, the current mortgage
debt is $593,629.
On
August
23, 2006, Wasatch Capital Corporation refinanced the underlying debt associated
with certain land and real property. The new debt obligation is for $1,000,000
with an interest rate of 7.125% and monthly installment payments of $6,737
through September 1, 2021 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. The president of the Company has also personally guaranteed
this note. Proceeds from this refinancing were used to retire the previous
debt
associated with the land and real property having an outstanding balance
of
$827,938 at December 31, 2005. The Company received $149,572 after paying
off
the old mortgage and settlement costs. As of December 31, 2006, the current
mortgage debt is $997,786.
On
September 21, 2006, Downtown Development Corporation refinanced the underlying
debt associated with certain land and real property. The new debt obligation
is
for $568,000 with an interest rate of 7.00% and monthly installment payments
of
$3,779 through September 22, 2016 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
$366,057 at December 31, 2005. As of December 31, 2006, the current mortgage
debt is $565,906. A second mortgage with Rich Investments is also outstanding
in
the amount of $57,000 as of December 31, 2006.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
The
Company's long-term debt consists of the following at December
31, 2006
and 2005:
|
|||||||
|
2006
|
|
2005
|
|||||
|
Mortgage
payable bearing interest at 7.16%, monthly payments
|
|||||||
|
of
$5,223 through January 2013, secured by first trust deed
|
|||||||
|
on
land and building, guaranteed by the Company's president
|
|||||||
|
and
CEO. The note was amended in December 2004 to
|
|||||||
|
remove
the “on demand” clause.
|
$
|
593,629
|
$
|
612,388
|
|||
|
Mortgage
payable bearing interest at 7.125%, monthly payments
|
|||||||
|
of
$6,737 through May 2021, then lump sum balloon payment
|
|||||||
|
due,
secured by first trust deed on land and building, and
|
|||||||
|
guaranteed
by the Company's President and CEO.
|
997,786
|
827,938
|
|||||
|
Note
payable bearing interest at 7.00%, monthly payments
|
|||||||
|
of
$3,779, in monthly payments through September 22, 2016,
|
|||||||
|
secured
by deed of trust on land and buildings and guaranteed
|
|||||||
|
by
the Company’s President and CEO.
|
565,906
|
366,057
|
|||||
|
Note
payable bearing interest at 6.99%, monthly payments
|
|||||||
|
of
$900, due November 2007, secured by vehicle.
|
8,865
|
19,395
|
|||||
|
Notes
payable, bearing interest at 4%, due January 14, 2005,
|
|||||||
|
unsecured.
|
-
|
2,922
|
|||||
|
Mortgage
payable bearing interest at 8.25%, monthly
|
|||||||
|
payments
of $304, due September 2016, secured by
|
|||||||
|
first
trust deed on building.
|
-
|
25,579
|
|||||
|
Non-Interest
bearing note payable due in full on May 17, 2007
|
50,000
|
-
|
|||||
|
Note
payable bearing interest at 20% is due in full on
|
|||||||
|
May
17, 2007.
|
250,000
|
-
|
|||||
|
Note
payable for equipment at an interest rate of 18% with
|
|||||||
|
monthly
payments of $322 through January 2009, secured by
|
|||||||
|
the
equipment being purchased.
|
7,091
|
-
|
|||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
Note
payable bearing interest at 12% with monthly payments
|
|||||||
|
of
$10,000, until paid in full.
|
57,000
|
-
|
|||||
|
Total
Notes Payable
|
2,530,277
|
1,854,279
|
|||||
|
Capital
lease payable in monthly installments of $1,122 through
|
|||||||
|
December
2010 and secured by the leased equipment
|
-
|
45,690
|
|||||
|
Capital
lease payable in monthly payments of $330 through
|
|||||||
|
January
2008, secured by leased equipment.
|
-
|
7,266
|
|||||
|
Capitalized
lease for equipment with monthly payments of
|
|||||||
|
$194
through September 2011, secured by the equipment
|
9,611
|
-
|
|||||
|
Capitalized
lease for equipment with monthly payments of
|
|||||||
|
$825
through October 2010, secured by the equipment
|
38,676
|
-
|
|||||
|
Capitalized
lease for equipment with monthly payments of
|
|||||||
|
$194
through October 2011, secured by the equipment
|
38,830
|
-
|
|||||
|
Total
Capitalized Leases
|
87,117
|
52,956
|
|||||
|
2,617,394
|
1,907,235
|
||||||
|
Less
current portion
|
(420,814
|
)
|
(910,217
|
)
|
|||
|
Total
Long-term Debt
|
2,196,580
|
997,018
|
|
Scheduled
principal reductions are as follows:
|
||||
|
Year
Ending December 31:
|
||||
|
2007
|
$
|
420,814
|
||
|
2008
|
59,416
|
|||
|
2009
|
63,391
|
|||
|
2010
|
70,700
|
|||
|
2011
|
59,265
|
|||
|
Thereafter
|
1,943,808
|
|||
|
$
|
2,617,394
|
|||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
9 - LONG-TERM DEBT - RELATED PARTIES
|
The
Company's long-term debt - related parties consists of the
following at
December 31, 2006
|
|||||||
|
and
2005:
|
|||||||
|
2006
|
|
2005
|
|||||
|
Unsecured
note payable to an officer of the Company bearing
|
|||||||
|
interest
at 24% with annual payments of $50,000 plus interest
|
|||||||
|
due
June 20 of each year. All principal and interest payments
|
|||||||
|
are
due by November 20, 2011.
|
250,000
|
-
|
|||||
|
Unsecured
note payable to an officer of the Company bearing
|
|||||||
|
interest
at 20% with payment and interest due in full on
|
|||||||
|
September
30, 2007.
|
15,000
|
-
|
|||||
|
Unsecured
note payable to an officer of the Company bearing
|
|||||||
|
interest
at 20% with payment and interest due in full on
|
|||||||
|
September
30, 2007.
|
20,000
|
-
|
|||||
|
Unsecured
note payable to an officer of the Company bearing
|
|||||||
|
interest
at 20% with payment and interest due in full on
|
|||||||
|
September
30, 2007.
|
31,025
|
-
|
|||||
|
Unsecured
note payable to DHX, Inc. bearing interest at 24%
|
|||||||
|
with
annual payments of $60,000 due each September 18 through
|
|||||||
|
September
18, 2011 with all interest being due with the final
|
|||||||
|
payment.
|
297,000
|
-
|
|||||
|
613,025
|
-
|
||||||
|
Less
current portion
|
(176,025
|
)
|
-
|
||||
|
Total
Long-term Debt - Related Parties
|
437,000
|
-
|
|||||
|
Scheduled
principal reductions are as follows:
|
|||||||
|
Year
Ending December 31:
|
|||||||
|
2007
|
$
|
176,025
|
|||||
|
2008
|
110,000
|
||||||
|
2009
|
110,000
|
||||||
|
2010
|
110,000
|
||||||
|
2011
|
107,000
|
||||||
|
Thereafter
|
-
|
||||||
|
$
|
613,025
|
||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
10 - CONVERTIBLE DEBENTURE AND CONVERTIBLE DEBENTURE
DERIVATIVE
On
November 1, 2004, the Company issued a convertible debenture for $200,000.
The
debenture accrues interest at 24% per annum, is due November 1, 2007 and
is
convertible, except for $5,000, anytime after one year into common stock
at a
price equal to 70% of the average closing bid price of the common stock
for
three trading days immediately preceding the date of election.
The
convertible debenture issued on November 1, 2004, and described in detail
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 an equity obligation. In this instance,
however, due to the indeterminate number of shares which might be issued
under
the embedded convertible 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
debenture
derivative”)
The
accompanying financial statements comply with current requirements relating
to
embedded derivatives as described in FAS 133, EITF 00-19 and APB 14 as
follows:
The
Company allocated the proceeds received to the convertible debt derivative
with
the initial allowable derivative recording.
Subsequent
to the initial allowable derivative recording, the increase in the fair
value of
the embedded derivative in the conversion feature of the convertible debenture
is accrued as adjustments to the liabilities at December 31, 2006.
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 unrealized gain or loss
arising
from convertible financing on the Company's balance sheet.
The
following table summarizes the various components of the convertible debenture
as of December 31, 2006 and 2005:
|
2006
|
2005
|
||||||
| Convertible debenture |
$
|
107,808
|
$
|
16,440
|
|||
| Convertible debenture derivative |
10,179
|
85,714
|
|||||
|
117,987
|
102,154
|
||||||
| Adjustment of convertible debenture derivative to fair value |
137,321
|
114,286
|
|||||
| Accretion of principal related to convertible debenture |
(107,808
|
)
|
(16,440
|
)
|
|||
|
|
|||||||
| Total convertible debenture |
$
|
147,500
|
$
|
200,000
|
On
September 26, 2006, 25,000,000 (post 02/20/2007 reverse stock split) restricted
common shares were issued to Joseph Corso, holder of the convertible debenture,
for his election to convert $52,500 of the convertible debenture. The $52,500
was applied to reduce the convertible debenture liability from $200,000
to
$147,500.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
11 - PROPERTY HELD FOR SALE
At
December 31, 2005, the land and building, a net book value of $915,939, owned
by
Salt Lake Development, Corp., a subsidiary of the Company, was held for sale.
The related debt for this property as of December 31, 2005 was
$547,012. The property was sold for $850,000 on April 19, 2006, and
the Company received net proceeds of $238,647 from the sale. The loss on
the sale was $107,870. The subsidiary was formally dissolved shortly
after the property sale.
NOTE
12 - PREFERRED STOCK AND COMMON STOCK
PREFERRED
STOCK
The
Company has authorized up to 50,000,000 shares of preferred stock with a
par
value of $0.001 per share. The Preferred Stock can be issued in various series
with varying dividend rates and preferences. The company has designated
25,000,000 shares to series A, B, and C. The other 25,000,000 shares are
held in
reserve.
As
of
December 31, 2006, the number of shares of Series A Convertible Preferred
Stock
issued and outstanding was 150,000. The Series A Preferred shares have voting
rights equal to 100 shares of common stock for every 1 Series A Preferred
share,
and it 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 Stock.
As
of
December 31, 2006, the number of shares of Series B Convertible Preferred
Stock
issued and outstanding was 10,000,000. The Series B preferred stock holds
voting
rights equal to 500 share 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. A total of 10,000,000 shares
have been designated and authorized as Series B Preferred Stock.
As
of
December 31, 2006, the number of shares of Series C Preferred Stock issued
and
outstanding was 190,500. The Series C Preferred shares may be converted into
$5
worth of common stock and are subject to redemption by the Company upon a
$5
cash payment. The Series C Preferred shares hold no voting rights. A total
of
5,000,000 shares have been designated and authorized as Series C Preferred
Stock.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
COMMON
STOCK
The
Company has authorized 50 billion shares of common stock with a par value
of
$0.0001 per share. As of December 31, 2006, the number of common shares issued
and outstanding was 811,476,885 post reverse split. The common stock holds
voting rights of one vote per share. It has no dividend or preemptive rights.
The Company filed an amendment to its articles of incorporation that, as
of
September 18, 2006, increased the number of shares of authorized common stock
to
50 billion from 10 billion.
Effective
as of February 20, 2007, pursuant to shareholder consent, there was a reverse
split of the Company’s common stock on a 1 for 10 basis, which is reflected in
the number of shares issued as of December 31, 2006 and 2005, respectively
in
the comparative balance sheets.
The
Company has not declared a cash dividend for any of its classes of stock
during
the fiscal year ended December 31, 2006.
NOTE
13 - OUTSTANDING STOCK OPTIONS
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 450,000,000 (post reverse
split 2-20-2007) shares of the Company’s common stock after adjustment for stock
split. 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 four hundred and fifty
millionth share is issued.
On
August
10, 2006, the “2006 Benefit Plan of Nexia Holdings, Inc.” was amended to
increase the number of common shares covered by the plan by 100,000,000 to
150,000,000 (post reverse split 2-20-2007). On September 8, 2006, the 2006
plan
was amended to increase the number of common shares covered by the plan by
300,000,000 to 450,000,000, and that was the number of covered shares on
December 31, 2006.
During
2006, the Company granted employees, consultants, advisors and others
229,000,000 (post 2-20-2007 reverse stock split) options to purchase common
stock at a floating price set at 75% of the market price at the time of
exercise. There were 67,000,000 shares of the 229,000,000 options issued
during
the first six months of 2006, resulting in $60,750 being recorded as
compensation for the fair value of the options issued. Options are normally
exercised the same day the shares are issued. For the remaining 162,000,000
options issued in the latter six months of 2006, no amount was recorded for
the
value of the options.
Options
granted by the Company are most often exercised immediately after the grant
date. Consequently, the Company has determined that fair value of the options
on
date of grant is based on the actual fair value of the stock price. As a
result,
only the fair value of the stock is recorded.
A
summary
of the status of the Company’s stock option plans as of December 31, 2006 and
2005 and changes during those years are presented below. The numbers of options
have been adjusted for a February 20, 2007 reverse stock split on a 1 for
10
basis:
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
December
31, 2006
|
December
31, 2005
|
||||||||||||
|
Average
Exercise
|
Average
Exercise
|
||||||||||||
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|||||||
|
Outstanding,
beginning
|
|||||||||||||
|
of
period
|
13,500
|
$
|
0.010
|
72,250
|
$
|
0.010
|
|||||||
|
Granted
|
229,000,000
|
0.003
|
100,000,000
|
0.002
|
|||||||||
|
Exercised
|
229,000,000
|
0.003
|
(100,000,000
|
)
|
0.002
|
||||||||
|
Expired
|
(13,500
|
)
|
(0.010
|
)
|
(58,750
|
)
|
(0.010
|
)
|
|||||
|
Outstanding,
end of period
|
-
|
$
|
-
|
13,500
|
$
|
0.010
|
|||||||
|
Exercisable
|
-
|
$
|
-
|
13,500
|
$
|
0.010
|
|||||||
The
Company determined the fair value of the stock options issued during the
periods
at the grant dates by using the Fair Market Value on the date of option grant
less the 75% share of cash received by the Company.
NOTE
14 - 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,
2006, there were 1,469 (post-reverse split 2-20-2007) shares of common stock
reflected as treasury stock at a cost of $100,618. There were 14,692,000
shares
purchased in 2003 (pre-reverse splits in 2004 and 2007) at prices ranging
from
$0.005 to $0.010.
NOTE
15 - CAPITAL RESOURCES
Nexia
signed an equity line of credit agreement with Dutchess Private Equities
Fund
(“Dutchess”) on August 15, 2005. The agreement provides that, following notice
to Dutchess, Nexia may put to Dutchess up to $10 million in shares of Nexia
common stock for a purchase equal to 95% of the lowest closing best bid price
on
the Over-the-Counter (“OTC”) Bulletin Board of Nexia common stock during the
five day period following the notice to Dutchess. The number of shares Nexia
will be permitted to put, pursuant to the agreement, will be either: (a)
200% of
the average daily volume of Nexia common stock for the ten day trading period
prior to the applicable put notice, multiplied by the average of the three
daily
closing “best bid” price immediately preceding the day Nexia issues the put, or
(b) $100,000; provided that in no event will the put amount be more than
$1,000,000 with respect to any single put (best bid is defined in the agreement
as the highest posted bid price for the common stock). Dutchess will resell
the
shares of common stock in the open market; resell the shares to other investors
through negotiated transactions or hold the shares in its portfolio. These
shares are to be made available subject to an SB-2 Registration Statement
that
has not been declared effective and for which the Company filed an amendment
on
January 23, 2007. The Company has not received, and will not receive, any
funds
from Dutchess until the SB-2 is registered.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
16 - 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, 2006 and
2005:
|
2006
|
|
2005
|
|||||
|
Gross
loss from real estate and general operations
|
$
|
(14,292
|
)
|
$
|
3,264
|
||
|
Gross
profit from sales - salon operations
|
841,553
|
73,655
|
|||||
|
Gross
profit from sales - retail clothing
|
169,226
|
-
|
|||||
|
Gross
profit from consulting operations
|
650
|
10,525
|
|||||
|
$
|
997,137
|
$
|
87,444
|
||||
The
Company ceased consulting operations at the end of 2004. The gross profits
in
2006 and 2005 were from residual collections with no costs to
apply.
NOTE
17 - 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 $10,000 and $32,500 for the years ended December 31, 2006 and
2005,
respectively.
On
August
7, 2006, Wasatch Capital Corporation (“Wasatch”), a subsidiary of Nexia
Holdings, Inc., received an arbitrator’s award finding in favor of Wasatch
granting a judgment to Wasatch against Hallmark Construction & Development,
LLC (“Hallmark”) in the sum of $99,791. This finding satisfied evidence
submitted by Wasatch that Hallmark was overpaid for work done, damages
for
defective work, attorney fees, arbitration fees and other costs.
NOTE
18 - GAIN / LOSS ON DISPOSAL OF ASSETS
During
2006 the Company sold its condo at Brian Head, dissolved the entity Hudson
Consulting and sold a truck to a former employee for services rendered.
The
Company sold a commercial property in April of 2005 for a gain of $756,471.
A
subsidiary of the Company sold a commercial building in April of 2006 for
a loss
of $107,870. The subsidiary was dissolved shortly after the property sale.
The
net gains on disposal of assets were $34,124 and $756,471 for the years
ended
December 31, 2006 and 2005, respectively. The table below shows the breakdown
of
the gains on sale:
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
Year
Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Gain
from sale of Glendale Plaza Shopping Mall
|
$
|
-
|
$
|
756,471
|
|||
|
Gain
from sale of Brian Head condo
|
35,085
|
-
|
|||||
|
Loss
from sale of other assets
|
(961
|
)
|
-
|
||||
|
$
|
34,124
|
$
|
756,471
|
||||
NOTE
19 - SECURITIES RECEIVED IN AGREEMENT SETTLEMENTS
The
Company has stock that they have purchased in prior years or received for
consulting services rendered. There were no securities sold in 2005. On
June 1,
2006, Diversified Holdings I, Inc., (“DHI”) a subsidiary of the Company, signed
a Settlement Agreement and Release with Diversified Financial Resources
Corporation (“DVFN”) (the name and symbol have been changed to China Fruits
Corporation [“CHFR”]) whereby DHI released all claims remaining under a June 30,
2003 Stock Purchase Agreement between the two parties in exchange for the
delivery of 2,000,000 shares of CHFR common stock without a restrictive
legend.
DHI has agreed to deliver 1,600,000 of those shares to three different
recipients in exchange for various services to be provided to DHI resulting
in
pre-paid expenses reported on the balance sheet of the Company. The obligation
of CHFR to DHI had earlier been written off as unlikely to be collected,
and the
receivable was not included in the financial statements as of December
31, 2005.
DH1 received from Diversified Financial Resources Corporation (“CHFR”) stock
valued at $3,000,000. The amount of 80% of the stock, valued at $2,400,000,
was
given to three third party individuals for future consulting
services.
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. The stock was sold in 2006
for
$66,161 with a reported loss of ($87,839) from sale of stock.
The
Company’s gains from sales of securities in the years ended December 31, 2006
and 2005 were $2,301,967 and $0, respectively. The table below shows the
breakdown of the security sales for the year ended December 31,
2006:
|
Other
Stock
|
|||||||||||||
|
DFRC(CHFR)
|
Technoconcepts
|
Sales
|
TOTAL
|
||||||||||
|
Value
received for selling the stock
|
$
|
2,400,000
|
$
|
66,161
|
$
|
28,715
|
$
|
2,494,876
|
|||||
|
Minus
value of stock when received
|
-
|
(154,000
|
)
|
(34,515
|
)
|
$
|
(188,515
|
)
|
|||||
|
Minus
agent fees and expenses
|
-
|
-
|
(4,394
|
)
|
$
|
(4,394
|
)
|
||||||
|
Gain
(Loss) on sale of stock
|
$
|
2,400,000
|
$
|
(87,839
|
)
|
$
|
(10,194
|
)
|
$
|
2,301,967
|
|||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
20 - OTHER INCOME
The
Company received $100,000 in payment of a note receivable that had been
fully
expensed in a prior year as uncollectible. The Company received money from
current tenants for taxes, insurance and utilities in the amount of $9,779.
DHI
received $7,500 from a third party as part of a down payment on some property
as
well as its deposit of $1,000 on Brian Head back after it sold the condo.
The
Company also received income in the form of late payments from some of
their
renters in the amount of $5,250. Below is the breakdown of other income
for the
years ended December 31, 2006 and 2005:
|
Year
Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
|
2005
|
|||||
|
Money
received on a note receivable that was written off
|
|||||||
|
in
a prior year
|
$
|
100,000
|
$
|
-
|
|||
|
Tenant
payments on taxes, insurance and utilities
|
|||||||
|
for
2005 paid in 2006.
|
9,779
|
-
|
|||||
|
Payment
from a third party for a deposit on some property
|
7,500
|
-
|
|||||
|
Late
fees on overdue rent
|
5,250
|
-
|
|||||
|
Wasatch
had a joint venture with Gold Fusion's internet sales
|
2,561
|
-
|
|||||
|
Received
earnest money back from Brian Head after the
|
|||||||
|
sale
of the condo
|
1,000
|
-
|
|||||
|
Miscellaneous
income
|
2,528
|
64
|
|||||
|
$
|
128,618
|
$
|
64
|
||||
NOTE
21 - STOCK SUBSCRIPTIONS RECEIVABLE
The
Company had stock subscriptions receivable of $366,838 and $11,325 at December
31, 2006 and 2005, respectively.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
22 - DISCONTINUED OPERATIONS
On
April
21, 2005, West Jordan Real Estate Holdings, Inc.(WJREH) a consolidated
subsidiary of Nexia sold Glendale Plaza, a commercial retail strip mall
in Salt
Lake City, to an unrelated party, and WJREH ceased to be an operating
company.
Hudson
Consulting Group, Inc., a consolidated subsidiary of the Company, discontinued
providing any consulting services in early 2005. Hudson was, and continued
to
be, the main operating company in the Nexia consolidated group. This
responsibility was primarily being the employer entity which involved hiring
and
terminating employees, paying salaries and wages and preparing periodic
payroll
tax returns and paying the taxes. Hudson ceased all activities as of December
31, 2005.
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
|
115,181
|
|||
|
Interest
expense associated with rental revenue
|
26,444
|
|||
|
Cost
associated with consulting revenue
|
-
|
|||
|
TOTAL
COST OF REVENUE
|
141,625
|
|||
|
GROSS
MARGIN (DEFICIT)
|
(100,559
|
)
|
||
|
EXPENSES
|
||||
|
General
and administrative expense
|
268,883
|
|||
|
TOTAL
EXPENSES
|
268,883
|
|||
|
OPERATING
LOSS
|
(369,442
|
)
|
||
|
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
|
(359,484
|
)
|
||
|
MINORITY
INTEREST IN INCOME (LOSS)
|
-
|
|||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS -
|
||||
|
DISCONTINUED
OPERATIONS
|
||||
|
Loss
from discontinued operations
|
(359,484
|
)
|
||
|
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
December
31, 2006
NOTE
23 - SEGMENT INFORMATION
Nexia
Holdings, Inc has identified two reportable segments in which it operated
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 follows - salon and retail clothing
(“Salon & Retail”), which are primarily a new salon business and an
acquisition in 2006 of the Black Chandelier clothing manufacturing and
retail
sales operations. The other segment is the purchase, sale and rental of
commercial real estate and all of the other general operations of the Company
(“Real Estate & General).
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:
|
Year
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
Ended
|
|
|
|
|
|
Real
Estate
|
|
|
|
|||||
|
|
|
Dec.
31,
|
|
Salon
|
|
Retail
|
|
&
General
|
|
Total
|
||||||
|
Revenues
|
2006
|
1,326,013
|
323,352
|
184,880
|
1,834,245
|
|||||||||||
|
2005
|
134,394
|
-
|
258,020
|
392,414
|
||||||||||||
|
|
||||||||||||||||
|
Cost
of revenues (including
|
2006
|
(484,460
|
)
|
(154,126
|
)
|
(198,522
|
)
|
(837,108
|
)
|
|||||||
|
mortgage
interest)
|
2005
|
(50,607
|
)
|
-
|
(254,363
|
)
|
(304,970
|
)
|
||||||||
|
|
||||||||||||||||
|
Expenses
|
2006
|
(839,541
|
)
|
(298,156
|
)
|
(4,284,575
|
)
|
(5,422,272
|
)
|
|||||||
|
2005
|
(137,873
|
)
|
-
|
(706,393
|
)
|
(844,266
|
)
|
|||||||||
|
|
||||||||||||||||
|
Other
Income
|
2006
|
240
|
1,375
|
127,003
|
128,618
|
|||||||||||
|
2005
|
-
|
-
|
64
|
64
|
||||||||||||
|
|
||||||||||||||||
|
Other
Expenses
|
2006
|
-
|
-
|
-
|
-
|
|||||||||||
|
2005
|
-
|
-
|
(305
|
)
|
(305
|
)
|
||||||||||
|
|
||||||||||||||||
|
Interest
Income
|
2006
|
305
|
-
|
15,171
|
15,476
|
|||||||||||
|
2005
|
22
|
-
|
43,466
|
43,488
|
||||||||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
Year
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
Ended
|
|
|
|
|
|
Real
Estate
|
|
|
|
|||||
|
|
|
Dec.
31,
|
|
Salon
|
|
Retail
|
|
&
General
|
|
Total
|
||||||
|
Interest
expense (not
|
2006
|
(9,927
|
)
|
(23,748
|
)
|
(174,614
|
)
|
(208,289
|
)
|
|||||||
|
mortgage
expense)
|
2005
|
(618
|
)
|
-
|
(68,760
|
)
|
(69,378
|
)
|
||||||||
|
|
||||||||||||||||
|
Income
from litigation settlement
|
2006
|
-
|
-
|
109,791
|
109,791
|
|||||||||||
|
2005
|
-
|
-
|
206,500
|
206,500
|
||||||||||||
|
|
||||||||||||||||
|
Gain
on sale of real estate
|
2006
|
-
|
-
|
35,085
|
35,085
|
|||||||||||
|
2005
|
-
|
-
|
756,471
|
756,471
|
||||||||||||
|
|
||||||||||||||||
|
Loss
on sale of vehicle
|
2006
|
-
|
-
|
(961
|
)
|
(961
|
)
|
|||||||||
|
2005
|
-
|
-
|
-
|
-
|
||||||||||||
|
|
||||||||||||||||
|
Urealized
gain - convertible
|
2006
|
-
|
-
|
73,393
|
73,393
|
|||||||||||
|
debenture
derivative
|
2005
|
-
|
-
|
114,286
|
114,286
|
|||||||||||
|
|
||||||||||||||||
|
Gain
on marketable securities
|
2006
|
-
|
-
|
2,301,967
|
2,301,967
|
|||||||||||
|
2005
|
-
|
-
|
-
|
-
|
||||||||||||
|
|
||||||||||||||||
|
Net
income (loss) applicable to
|
2006
|
(7,370
|
)
|
(151,303
|
)
|
(1,811,382
|
)
|
(1,970,055
|
)
|
|||||||
|
segment
|
2005
|
(57,035
|
)
|
-
|
351,339
|
294,304
|
||||||||||
|
|
||||||||||||||||
|
Minority
share of income (loss)
|
2006
|
-
|
-
|
2,847
|
2,847
|
|||||||||||
|
2005
|
-
|
-
|
(65,368
|
)
|
(65,368
|
)
|
||||||||||
|
|
||||||||||||||||
|
Loss
from discontinued operations
|
2006
|
-
|
-
|
-
|
-
|
|||||||||||
|
2005
|
-
|
-
|
(359,484
|
)
|
(359,484
|
)
|
||||||||||
|
|
||||||||||||||||
|
Total
assets
|
2006
|
415,627
|
704,577
|
3,614,431
|
4,734,635
|
|||||||||||
|
(net
of intercompany accounts)
|
2005
|
395,996
|
-
|
3,923,920
|
4,319,916
|
|||||||||||
|
|
||||||||||||||||
|
Property
and equipment acquisition
|
2006
|
31,531
|
594,438
|
32,194
|
658,163
|
|||||||||||
|
2005
|
330,460
|
-
|
1,124,514
|
1,454,974
|
||||||||||||
|
|
||||||||||||||||
|
Depreciation
and amortization
|
2006
|
41,001
|
5,392
|
120,491
|
166,884
|
|||||||||||
|
2005
|
5,507
|
-
|
135,792
|
141,299
|
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
24 - OFFICER SALARY
There
was
an accrued salary liability of $130,521 payable to Richard Surber, President
and
CEO, at
December
31, 2006. Mr. Surber has been paid compensation of $48,326 during the year
ended
December 31, 2006, with $28,846 being applied to his 2005 salary and $19,479
applied to his 2006 salary. Mr. Surber has elected to defer being paid most
of
his accrued salary in an effort to boost available cash for the purchase
of
inventories. It is anticipated that Mr. Surber’s salary will be paid current by
the end of 2007.
NOTE
25 - CONSULTING CONTRACTS
On
June
1, 2006, Nexia signed consulting contracts with three investor relations
or
consulting firms, one in the U.S.A. and two in the People’s Republic of China.
Compensation for these services was China Fruits Corporation (CHFR); formerly
Diversified Financial Resources Corporation (“DVFN”) unrestricted 1,600,000
shares of common stock valued at $2,400,000 (see Note 19). Nexia recorded
a
prepaid amount of $2,400,000 at the same time they transferred the stock.
Consulting fees expensed from the prepaid account through December 31, 2006
total $2,265,000. The remaining balance of prepaid consulting fees as of
December 31, 2006 is $135,000. The $135,000 will be expensed in the first
quarter of 2007.
Two
of
the agreements are for the consultants to locate new business opportunities
and
develop potential manufacturers inside the People’s Republic of China. The third
agreement is for the consultant to help the Company develop relationships
with
manufactures in the People’s Republic of China. Gold Fusion anticipates
utilizing some manufactures in China to help produce clothing for the stores
as
the demand increases its production volume.
NOTE
26 - BUSINESS COMBINATION
On
August
15, 2006, Gold Fusion Laboratories, Inc., (“GFL”) a subsidiary of the Company
signed an Asset Purchase Agreement with Diversified Holdings X, Inc. (“DHX”) to
acquire all of the assets, inventory and receivables held by DHX in the
operation of Black Chandelier, a fashion and lifestyle design operation.
GFL was
incorporated in Nevada on July 19, 2006. The compensation promised for this
acquisition consisted of a promissory note by GFL in the face amount of
$300,000, bearing interest at the rate of 24% per annum, with a maturity
of five
years. The Company agreed to issue DHX 70,000 shares of Series A Preferred
Stock. Richard Surber is the president and sole shareholder of DHX.
Consequently, the transaction has been treated as a related party transaction.
On September 18, 2006, an addendum to the agreement was approved by the parties
that provided for the issuance of 200,000,000 (post reverse split) shares
of the
Company’s restricted common stock to DHX as compensation for transfers made to
GFL. The transfer was closed on September 18, 2006. Black Chandelier operates
four retail outlets in the Salt Lake City, Utah area and maintains a website
for
the online sale of its merchandise. The Company expects to contribute to
the
growth and expansion of Black Chandelier’s operations.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
On
September 18, 2006, the Company authorized the issuance of 50,000 shares
of
Nexia’s Class C Preferred Stock to Jared Gold and 30,000 shares of Nexia’s
Series C Preferred Stock to Sean Pasinsky in exchange for services provided
to
Gold Fusion Laboratories, Inc. and the development and preservation of
the
operations of Black Chandelier fashions and its related operations, including
the opening, designing and expansion of the retail operations of those
entities.
Series C Preferred Stock provides that the Series C shares will hold conversion
rights into shares of the common stock of the Company equal in value to
$5.00
per share and are subject to redemption by the Company upon a $5.00 cash
payment. The Series C Preferred Shares hold no voting rights.
The
following table summarizes the fair market value of the net assets acquired
at
the date of the addendum to the Asset Purchase Agreement, September 18,
2006:
|
At
|
||||
|
September
18,
|
||||
|
2006
|
||||
|
Register
and petty cash funds, receivables, inventory and deposits
|
$
|
216,756
|
||
|
Property,
plant and equipment
|
269,633
|
|||
|
Total
assets
|
486,389
|
|||
|
Liabilities
assumed
|
(194,632
|
)
|
||
|
Net
assets acquired
|
$
|
291,757
|
||
The
acquisition was from a commonly owned company and, accordingly, the assets
and
liabilities have been recorded by Gold Fusion Laboratories, Inc. at
predecessor’s cost. The excess value of the note given and stock issued over the
net assets acquired and investment in those net assets, of $1,053,985,
was
charged against paid in capital under the generally accepted accounting
requirement that net assets acquired from a commonly owned company must
be
recorded at predecessor’s cost. This means that there was no goodwill received.
Nexia obtained an appraisal of the Black Chandelier operations from Norman,
Townsend & Johnson, LLC., which valued the business at $1,700,000 as of
August 31, 2006.
The
following table sets out supplementary disclosure of the pro forma effect
of the
acquisition of the Black Chandelier operation on the assumption that the
business combination occurred at the beginning of the period reported on
below:
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
|
For
the Years Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
|
2005
|
|||||
|
NET
LOSS PER COMMON SHARE, BASIC:
|
|||||||
|
Revenue
|
$
|
2,143,116
|
$
|
577,840
|
|||
|
Loss
before extraordinary income
|
$
|
(1,627,129
|
)
|
$
|
(349,434
|
)
|
|
|
Net
loss before comprehensive income
|
$
|
(1,627,129
|
)
|
$
|
(708,918
|
)
|
|
|
Net
loss per share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
Total
comprehensive loss
|
$
|
(1,407,544
|
)
|
$
|
(707,872
|
)
|
|
|
Net
loss per share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
Weighted
average shares outstanding, basic
|
517,497,916
|
317,112,939
|
|||||
Weighted
average shares outstanding for the years ended December 31, 2006 and 2005
have
been adjusted retroactively for a 1:10 reverse stock split effective February
20, 2007.
NOTE
27 - ACQUISITION
On
July
13, 2006, Diversified Holdings 1, Inc., (“DHI”) a 100% owned subsidiary of the
Company, entered into an agreement with Richard D. Surber, CEO of the Company,
to acquire his 60% ownership interest in Landis, LLC. On July 17, 2006,
DH1,
Inc. also entered into an agreement with Seth Bullough, an employee of
Landis,
LLC, to acquire his 5% ownership interest in Landis, LLC. In exchange for
these
two purchase agreements, the Company issued a note payable for $250,000
and
80,000 Series A and 2,000,000 Class B preferred shares.
The
aggregate purchase price and the value of the note payable and preferred
stock
issued in consideration was determined to be $1,052,000 based on the agreed
amount of the note payable, market value of the equivalent common shares
for the
convertible Series A preferred shares and the $0.001 par value of the
nonconvertible Series B preferred shares.
The
acquisition has been accounted for using the purchase method. The acquisition
of
the additional 65% ownership interest in Landis, LLC was calculated to
be
$175,501. The amount of the $1,052,000 given, in excess of the $175,501
allocated to investment, of $876,499, was charged to paid in capital under
the
generally accepted accounting requirement that an additional investment
in
Landis, LLC acquired from a commonly owned interest (65% of the Landis,
LLC net
book value) precluded the recording of any goodwill.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
28 - 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
29 - SIGNIFICANT EVENTS
On
April
19, 2006, an office building in Salt Lake City, Utah, was sold for a cash
price
of $850,000 by Salt Lake Development Corporation, a subsidiary of Nexia
Holdings, Inc. The Company received $238,647 after paying off the mortgage
and
settlement costs. The building was the primary asset of Salt Lake Development
Corporation, and the Corporation was dissolved May 5, 2006.
On
April
28, 2006, a condominium in Brian Head, Utah, a mountain resort about 260
miles
south of Salt Lake City, Utah, was sold for a cash sale price of $77,500
by
Diversified Holdings 1, Inc., a subsidiary of Nexia Holdings, Inc. The
Company
received $40,006 after paying off the mortgage and settlement
costs.
|
NOTE
30 - REAL PROPERTY LEASES
|
|||||||
|
The
Company owns three commercial buildings which it leases out.
Leases
generally are written for five years,
|
|||||||
|
although
there are presently one lease for one year, one lease for two
years with
three two year extentions
|
|||||||
|
and
two leases on month to month. Annual lease amounts generally
increase each
year. Tenant leases
|
|||||||
|
generally
include reimbursement to the Company for allocated property taxes,
insurance on the building and
|
|||||||
|
common
area expenses.
|
|||||||
|
In
accordance with SFAS No. 13, para. 23, and SFAS No. 91, para.
25, the
following minimum rentals
|
|||||||
|
for
noncancelable leases is presented:
|
|||||||
|
Miniumum
|
|||||||
|
Year
|
Rent
|
||||||
|
2007
|
$
|
142,212
|
|||||
|
2008
|
114,180
|
||||||
|
2009
|
59,520
|
||||||
|
2010
|
37,368
|
||||||
|
2011
|
38,484
|
||||||
|
$
|
391,764
|
||||||
|
Monthly
rentals for the two month-to-month leases total
$2,949.
|
|||||||
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
31 - OPERATING LEASES
The
Company operates four retail stores in the state of Utah and has made
commitments on five year leases for all four stores with the leases ending
in
2011. Nexia has made a ten year lease agreement for its salon location
until
September 30, 2015. The Company also has commitments on operating leases
for
equipment used in product production or office use. Lease payments that
depend
on factors that are not measurable at the inception of the lease, such
as future
sales volume is excluded from minimum lease payments. Future payments for
maintenance, insurance and taxes to which the Company is obligated are
also
excluded from minimum lease payments. Below is a schedule of the non-cancelable
future minimum lease payments for the next five years and thereafter for
all
leases in effect as of March 31, 2007:
|
Year
Ending December 31:
|
||||
|
2007
|
$
|
248,893
|
||
|
2008
|
238,142
|
|||
|
2009
|
244,530
|
|||
|
2010
|
250,531
|
|||
|
2011
|
223,990
|
|||
|
Thereafter
|
703,167
|
|||
|
$
|
1,909,253
|
|||
NOTE
32 - CONVERTIBLE NOTE PAYABLE
The
Company borrowed $250,000 from an individual on October 5, 2006, due and
payable
February 15, 2007 with an extension to May 15, 2007. The note is convertible
into Series C Preferred Stock or common stock. Under either conversion
choice,
the number of common shares to ultimately be issued would be the same for
preferred or common shares. The note is secured by up to 100,000 shares
of the
Company’s Series C Preferred Stock which can be converted into $5 of common
stock for each preferred share, or up to $500,000 of common stock. The
Company
would be required to issue to the note holder 100,000 shares of preferred
stock
in the event of any default in payment and guarantee the stock until full
payment of the note has been received by the Holder.
The
choice by the Holder to convert the note into preferred or common stock
would
trigger a calculation, under EITF 00-19, to determine if the note is a
derivative instrument, requiring the derivative to be reflected within
the 2006
consolidated financial statements. The calculations were made as of the
date of
the note, October 5, 2006, and at year end, December 31, 2006. Based upon
the
fair value calculations it was determined that the calculated value of
the
derivative was considered not material due to the short duration of the
remaining life of the debt.
Under
EITF 00-27, having collateral larger than the face of the note to satisfy
a
default condition would be considered a “contingent” conversion option requiring
a “triggering event” before recognition is required. The triggering event would
be a default. At December 31, 2006, and as of April 6, 2007, the Company
was not
in default on the note.
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
NOTE
33 - RESTATEMENT OF DECEMBER 31, 2005 PAID-IN CAPITAL AND ACCUMULATED
DEFICIT
The
Company sold four inactive subsidiaries at December 31, 2004. In connection
with
the sale, all intercompany balances among the remaining Nexia companies and
the
four companies sold were forgiven and written off the books. There was a
resulting balance for the remaining Nexia companies of $325,839 that was
reported in the 2004 10-KSB as a gain. It has since been determined that
the
forgiven intercompany debt should be reported as additional paid-in capital.
The
following schedule shows the result of restating the effected
accounts:
|
|
Additional
|
||||||
|
|
Paid-In
|
Accumulated
|
|||||
|
|
Capital
|
Deficit
|
|||||
|
Balance
at December 31, 2005 before
|
|||||||
|
adjustment
of December 31, 2004
|
|||||||
|
inter-company
debt forgiven reported as
|
|||||||
|
a
gain (post reverse stock split effective
|
|||||||
|
February
20, 2007)
|
$
|
13,994,353
|
$
|
(13,275,599
|
)
|
||
|
Reclassification
of December 31, 2004
|
|||||||
|
inter-company
debt forgiven from a gain
|
|||||||
|
to
an increase in paid-in capital
|
325,839
|
(
325,839
|
)
|
||||
|
Balances
at December 31. 2005 per
|
|||||||
|
consolidated
balance sheets
|
$
|
14,320,192
|
$
|
(13,601,438
|
)
|
||
The
adjustment of the intercompany debt forgiven from a gain to
increase paid-in-capital increased the 2004 net loss per share from $(0.032)
to
$(0.036).
NOTE
34 - SUBSEQUENT EVENTS
A
Company
1:10 reverse stock split became effective February 20, 2007. The effect
of the
reverse stock split has been applied retroactively to the 2006 and 2005
financial statements included in this 2006 10-KSB. The effect on the financial
statements at December 31, 2006 was to reduce the number of common shares
outstanding from 8,114,768,850 to 811,476,885; common stock was reduced
by
$4,550,622 to $81,148; and common paid in capital was increased by $4,550,622
to
$15,167,030.
During
2007 the Company issued S-8 shares from its 2006 benefit plan. As of April
12,
2007 the Company had issued its remaining 287,517,500 shares under the
2006
benefit plan. Detail of the shares issued for common stock and common stock
for
options exercised from January 1 to April 12, 2007 from the 2006 benefit
plan
are as follows:
NEXIA
HOLDINGS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
December
31, 2006
30,000,000
common shares for options exercised - Issued to a contractor to reduce
accounts
payable
150,000,000
common shares for options exercised - Issued to eight employees, contractors
or
consultants for past services
60,000,000
common shares for options exercised - Issued to a contractor and a consultant
to
reduce accounts payable and for past services
47,517,500
common shares for options exercised - Issued to an employee and consultant
for
past services
On
March
5, 2007 the Company filed an S-8 registration statement for its 2007 benefit
plan. The plan registered 770,000,000 shares of the Company’s common stock. As
of April 6, 2007 the Company has issued 484,000,000 shares under the
registration.
|
The
Company issued common stock and common stock for options exercised
from
January 1 to April 12, 2007
|
|||||
|
as
follows:
|
|||||
|
20,000,000
common shares for options exercised - Issued to an employee
for past
services
|
|||||
|
15,000,000
common shares for options exercised - Issued to a consultant
for past
services
|
|||||
|
50,000,000
common shares - Issued to an employee for past services
|
|||||
|
50,000,000
common shares - Issued to a contractor to reduce accounts payable
|
|||||
|
30,000,000
common shares for options exercised - Issued to two employees
for past
services
|
|||||
|
50,000,000
common shares for options exercised - Issued to a contractor
to reduce
accounts payable
|
|||||
|
40,000,000
common shares for options exercised - Issued to a consultant
for past
services
|
|||||
|
159,000,000
common shares for options exercised - Issued to eight employees
or
consultants for past services
|
|||||
|
70,000,000
common shares for options exercised - Issued to two employees
for past
services
|
|||||
|
The
Company had the following activity in contractual debt from
January 1 to
March 31, 2007 as follows:
|
|||||
|
(This
does not include mortgage notes and other contractual debt
paid
monthly):
|
|||||
|
Balance
at
|
|
New
Loan /
|
|
Balance
at
|
|
|||||
|
|
|
12/31/2006
|
|
(Payments)
|
|
3/31/2007
|
||||
|
Note
payable to Michael Clark
|
$
|
250,000
|
-
|
$
|
250,000
|
|||||
|
(Note
due date was extended from
|
||||||||||
|
February
15 to May 15, 2007)
|
||||||||||
|
Note
payable to DHX, Inc.(related party)
|
297,000
|
-
|
297,000
|
|||||||
|
Note
payable to R. Surber (related party)
|
250,000
|
-
|
250,000
|
|||||||
|
Note
payable to R. Surber (related party)
|
31,025
|
-
|
31,025
|
|||||||
|
Note
payable to R. Surber (related party)
|
20,000
|
-
|
20,000
|
|||||||
|
Note
payable to R. Surber (related party)
|
15,000
|
(15,000
|
)
|
-
|
||||||
|
Note
payable to R. Surber (related party)
|
15,000
|
-
|
||||||||
|
(15,000
|
)
|
|||||||||
|
Note
payable to R. Surber (related party)
|
20,500
|
20,500
|
||||||||
|
Note
payable to R. Surber (related party)
|
20,000
|
20,000
|
||||||||
|
Note
payable to Rich Investments, LLC
|
57,000
|
(57,000
|
)
|
-
|
||||||
|
Note
payable to John Fry
|
50,000
|
(25,000
|
)
|
25,000
|
||||||
|
The
Compan;y had the following activity in accounts payable to
a related party
from January 1 to March 31, 2007
|
||||||||||
|
as
follows:
|
||||||||||
|
|
Balance
at
|
New
A/P
|
Balance
at
|
|||||||
|
|
12/31/2006
|
(Payments)
|
|
3/31/2007
|
||||||
|
Payable
to R. Surber (related party)
|
44,032
|
(10,000
|
)
|
34,032
|
||||||
|
Payable
to R. Surber (related party)
|
50,000
|
40,000
|
||||||||
|
(10,000
|
)
|
|||||||||
|
Payable
to R. Surber (related party)
|
15,500
|
15,500
|
||||||||
ITEM
8A. CONTROLS AND PROCEDURES
Nexia's
president acts both as the Company's chief executive officer and chief financial
officer ("Certifying Officer") and is responsible for establishing and
maintaining disclosure controls and procedures for Nexia. The Certifying
Officer
has concluded (based on his evaluation of these controls and procedures as
of a
date within 90 days of the filing of this report) that the design and operation
of Nexia's disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934) are effective and adequate, except
as
disclosed below.
As
of the
end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the Chief Executive Officer
and Chief Financial Officer, of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act. Based on
this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that there were a number of adjusting entries initiated by the Company after
the
auditors’ field work was completed. This is evidence of material deficiencies in
the Company’s disclosure controls and procedures. The Company also performed
procedures in completing these financial statements for the period ended
December 31, 2006 to ensure that the amounts and disclosures included were
fairly presented in all material respects in accordance with GAAP.
Subsequent
to the identification of the deficiency in the Company’s disclosure controls and
procedures as reported during the second quarter of 2006, relating to reporting
of receipt of stock, the Company performed and implemented a variety of
additional procedures in order to remediate that deficiency. The new procedure
is that we are more often consulting with outside accounting experts to help
us
resolve complex accounting issues. As a result of the implementation of these
additional procedures, the Company believes that its disclosure controls
and
procedures are effective to ensure that information required to be disclosed
by
the Company in reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
The
Company has a new senior accountant who joined the Company in late November
2006, and the audit of the 2006 financial statements is his first experience
with the Company’s accounting records, procedures and controls in an audit or
review mode. The new accountant will be more efficient during future reviews
and
audits because he is now familiar with our accounting, procedures and controls.
The Company is in the process of hiring a new accounting clerk, which will
free
time of one senior accountant to be more involved in the preparation of
financial statements for future reviews and audits. The Company believes
that
these changes will enable it to have disclosure controls and procedures that
are
effective and financial reports that are timely prepared for the auditors’
future reviews and audit field work. It should also ensure that information
required to be disclosed by the Company in reports that it files or submits
under the 1934 Act is recorded, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
Other
than as described above, there was no change in the Company’s internal control
over financial reporting during the Company’s most recently completed fiscal
year that has materially affected, or is reasonably likely to materially
affect,
the Company’s internal control over financial reporting.
ITEM
8B. OTHER INFORMATION
NONE
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
34
President
and Director
Gerald
Einhorn
67
Vice
President, Secretary and Director
Adrienne
Bernstein
62
Director
Richard
D. Surber, 34,
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.
Gerald
Einhorn, 67,
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, 62,
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.
There
is
no disclosure of delinquent filers in response to Item 405 of Regulation
S-B
required to be disclosed in this form, and no disclosure will be contained,
to
the best of the Company's knowledge, in any definitive proxy or information
statements prepared by the Company or any amendment to this Form
10-KSB.
ITEM
10. EXECUTIVE COMPENSATION
|
EXECUTIVE
COMPENSATION TABLE
|
|||||||||||||
|
Annual Compensation
|
Change
in
Pension
Value
and
Non-Qualified
Deferred
Compensation
Earning
|
All
Other
Compen-
sation
($)
|
|||||||||||
|
Non-Equity
Incentive
Plan
Compen-sation
|
|||||||||||||
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
($)
|
Stock
Awards
|
Option
Award(s)
($)
|
||||||||
|
Total
|
|||||||||||||
|
Richard
Surber
|
2006
|
$150,000(1)
|
0
|
2,000(3)
|
0
|
0
|
0
|
0
|
$152,000
|
||||
|
President
and PFO
|
|
||||||||||||
|
|
|||||||||||||
|
Richard
Surber
|
2005
|
$150,000(2)
|
0
|
0
|
0
|
0
|
0
|
0
|
$150,000
|
||||
|
President
and PFO
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
||||||
|
Richard
Surber
|
2004
|
$150,000(4)
|
0
|
8,000(3)
|
0
|
0
|
0
|
0
|
$158,000
|
||||
|
President
and PFO
|
|||||||||||||
| (1) |
Of
this amount $19,479 represents salary paid during 2006 and $130,521
is
accrued but unpaid salary due to Mr. Surber as of December 31,
2006.
|
| (2) |
Of
this amount $121,154 represents salary paid during 2005 and $28,846
represents 2005 accrued salary paid to Mr. Surber during
2006.
|
| (3) |
The
board of directors awarded Mr. Surber 8,000,000 shares of Class B
Preferred Stock with a value of $8,000 during 2004 and 2,000,000
shares
with a value of $2,000 during 2006 as part of the compensation for
the
acquisition of the Black Chandelier operations from
DHX.
|
| (4) |
During
the year ended December 31, 2004, Mr. Surber was paid a salary by
Hudson
Consulting Group, Inc. which was acquired as a subsidiary of the
Company
in February 2002.
|
There
were no grants of plan-based awards, equity awards or option awards granted
or
held by any executive officer of the Company during the years ended December
31,
2004, 2005 and 2006.
|
DIRECTOR
COMPENSATION TABLE
|
|||||||||
|
Change
in
Pension
Value
and
Non-Qualified
Deferred
Compensation
Earning
|
All
Other
Compen-
sation
($)
|
||||||||
|
Non-Equity
Incentive
Plan
Compen-sation
|
|||||||||
|
Name
and
Principal
Position
|
Year
|
Fees
Earned of Paid in Cash ($)
|
Stock
Awards
|
Option
Award(s)
($)
|
|||||
|
Total
|
|||||||||
|
Gerald
Einhorn
|
2006
|
$
0
|
0
|
0
|
0
|
0
|
0
|
$
0
|
|
|
Adrienne
Bernstein
|
2006
|
$
0
|
0
|
0
|
0
|
0
|
0
|
$
0
|
|
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 April 12, 2007, 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 April 12, 2007, there were 1,582,995,086 shares of
common
stock issued and outstanding. All numbers reflect a 1 for 10 reverse split
of
the common stock that was effective as of February 20, 2007.
|
TITLE
OF
CLASS
|
NAME
AND ADDRESS OF
BENEFICIAL
OWNER
|
AMOUNT
&
NATURE
OF
BENEFICIAL
OWNERSHIP
|
PERCENT
OF CLASS
|
|
Preferred
Series
"B"
Stock
($0.001par
value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
10,000,000
(3)
|
100%
|
|
Preferred
Series “A” Stock ($0.001 par value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
145,000(4)
|
96.67%
|
|
Common
Stock
($0.0001
par
value)
|
Richard
Surber, President & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
9,931,194
Direct
200,001,256
Indirect(1)
|
13.26%
|
|
Common
Stock
($0.0001
par
value)
|
Gerald
Einhorn, VP & Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
1,000
|
>0.001%
|
|
Common
Stock
($0.0001
par
value)
|
Adrienne
Bernstein, Director
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
1,296
|
>0.001%
|
|
Common
Stock
($0.0001
par
value)
|
Oasis
International Hotel & Casino, Inc.
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
266(2)
|
>0.001%
|
|
Common
Stock
($0.0001
par
value)
|
Diversified
Holdings I, Inc..
59
West 100 South, Second Floor
Salt
Lake City, Utah 84101
|
991(2)
|
>0.001%
|
|
Common
Stock
($0.0001
par
value)
|
Joseph
Corso, Jr.
167
Zock Road
Cuddlebackville,
NY 12719
|
75,000,000
|
4.74%
|
|
Common
Stock
($0.0001)
par
Value
|
Directors
and Executive Officers as a
Group
|
209,934,746
|
13.26%
|
|
(1)
|
The
shares owned by Diversified Holdings I, Inc., Diversified Holdings
X, Inc.
and Oasis International Hotel & Casino, Inc., are attributed
beneficially to Richard D. Surber due to his position as an officer
and
director in each of the said corporations.
|
|
(2)
|
Richard
Surber may be deemed a beneficial owner of 200,001,256 shares of
the
Company's common stock by virtue of his position as an officer
and
director of Diversified Holdings I, Inc. (991 shares), Diversified
Holdings X, Inc. (200,000,000 shares) and Oasis International Hotel
&
Casino, Inc. (265 shares). Mr. Surber personally owns 9,931,194
shares of
common stock.
|
|
(3)
|
Series
"B" preferred stock has voting rights of 500 to 1 of the common
stock,
these shares give Mr. Surber 5,000,000,000 votes in any shareholder
vote
and his personal vote of these shares may not always be exercised
in the
best interest of the balance of the common stock
shareholders.
|
|
(4)
|
Series
“A” preferred stock has voting rights of 100 to 1 of the common stock,
these shares give Mr. Surber 14,500,000 votes in any shareholder
votes and
his personal vote of these shares may not always be exercised in
the best
interest of the balance of the common stock
shareholders.
|
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company has entered into the following related party transactions:
Richard
Surber has at various times been appointed to serve as an officer or director
for former clients of Nexia. These appointments have been disclosed to the
disinterested members of the board, and the approval of the board of directors
has been granted in each of these cases. As payment for services provided
to
these corporations, Surber has received securities of those corporations,
and
these transactions have been disclosed to the board of directors in each
case.
Mr.
Surber is licensed to practice law in the State of California and occasionally
represents corporate clients on various corporate matters. Mr. Surber has
disclosed the fact that he, on occasion, does act as counsel to several
companies for which he receives fees for the legal services
provided.
On
January 29, 2004, the Company, and/or its subsidiaries entered the following
agreements to settle debts and obligations with Axia Group, Inc., a related
party of which Richard Surber, President of the Company, also served as an
officer and director:
| · |
Diversified
Holdings I, Inc. accepted the assignment of certain rights to securities
with a stated value of $50,000 due in the settlement of Axia's
litigation
claim against America West Securities and Robert
Kay.
|
| · |
Diversified
Holdings, I, Inc. also accepted an assignment of Axia's rights
against
Kevin Sheff for the recovery of 10,000 post-split shares of Axia
Group,
Inc.'s common stock.
|
| · |
As
settlement of compensation due under a May 2, 2003 Consultant Agreement
with Hudson Consulting Group, Inc., Axia Group Inc. transferred
9,100,012
shares of Nexia common stock to
Hudson.
|
| · |
Signed
a full release and settlement of all claims against Axia Group,
Inc. held
by, Nexia Holdings, Inc., Wasatch Capital, Inc., Hudson Consulting
Group,
Inc. and West Jordan Real Estate Holdings,
Inc.
|
The
end
result of the agreements was to resolve and settle all claims against Axia
Group, Inc. held by the named entities, all subsidiaries of Nexia Holdings,
Inc.
Richard Surber, President of the Company, was formerly an officer and director
of Axia Group, Inc. The purpose of the above described transaction was to
settle
the various claims and resolve the debts and obligations that existed between
Axia and the Company and its subsidiaries.
On
November 2, 2005, the Company’s subsidiary, Diversified Holdings I, Inc.
invested $100,000 in Landis, LLC in exchange for a 20% interest in the LLC.
Landis has opened an upscale hair salon located at the corner of 900 East
and
1300 South in Salt Lake City, Utah. Richard Surber, president and director
of
the company held a 60% ownership interest in Landis, LLC at that
time.
On
July
13, 2006, the Company approved, and its subsidiary Diversified Holdings I,
Inc.
(“DHI”) executed an agreement with Richard Surber to acquire Mr. Surber’s 60%
ownership interest in Landis, LLC, a Utah limited liability company. Richard
Surber is the president of the Company and was the proposing party for the
transaction. The independent directors of the Company both approved of the
deal
and an independent valuation of Landis, LLC has been received by the Company
that supports the value paid to Mr. Surber for his interest. In exchange
for his
60% ownership interest in Landis, LLC Mr. Surber will receive the following
compensation, (1) a promissory note in the amount of $250,000, bearing interest
at the rate of 24% per annum, payments are due in five annual payments of
principal and interest, (2) 75,000 shares of Nexia’s Class A Preferred stock and
(3) 2,000,000 shares of Nexia’s Class B Preferred stock.
Landis,
LLC is the operator of the Landis Lifestyle Salon located at the corner of
900
East and 1300 South in Salt Lake City, Utah. This salon features the Aveda™ line
of products. Due to the Company’s prior existing ownership interest in Landis,
LLC and Mr. Surber’s position as the managing member of the LLC, the Company had
included Landis in the consolidated financial statements for 2005. The Company
will continue to report Landis in the consolidated financial statements for
2006. There was no change created from the purchase of 65% of Landis’s common
stock, since the Company had already been consolidating Landis in the financial
statements. The assets and inventory interests acquired by DHI have been
consolidated into Nexia’s balance sheet as of the date of closing and valued in
accordance with the independent valuation that was performed.
On
August
15, 2006, Gold Fusion Laboratories, Inc., a wholly owned subsidiary of the
Company, signed an Asset Purchase Agreement with Richard Surber to acquire
ownership of the assets, inventory and receivables of the fashion operations
of
Diversified Holdings X, Inc., a corporation owned by Mr. Surber that owned
and
operated the Black Chandelier and related clothing operations. The consideration
for this transaction was a promissory note in the amount of $300,000, bearing
interest at the rate of 24% per annum, payments are due in five annual
installment and 70,000 shares of Nexia’s Class A Preferred stock. On September
18, 2006 an addendum to this agreement was approved by the parties that provided
for the issuance of 200,000,000 (post reverse split 2-20-2007) shares of
the
Company’s restricted common stock be issued to Diversified Holdings X, Inc. as
compensation for the transfers made to Gold Fusion Laboratories.
On
October 5, 2006, the Company gave a promissory note to Michael Clark in the
amount of $250,000 in exchange for a loan to the company in that same amount,
the note carries a due date of February 15, 2007 and an interest rate of
20% per
annum until paid in full. Before the due date an agreement to extend the
due
date for a period of 90 days (May 17, 2007) was reached in exchange for the
payment of the then due interest on the note. The note is secured by $500,000
of
the Series C Preferred Stock of Nexia. The note also carries a right of
conversion into either the common or Series C Preferred stock at the option
of
the Holder of the note.
Between
the dates of October 5, 2006 and November 22, 2006, the Company entered into
three promissory notes with its president Richard Surber with the following
terms: October 5, 2006, $20,000, due on January 5, 2007, interest rate of
20%
per annum; November 7, 2006, $31,025, due on January 25, 2007, interest rate
of
20% per annum; and November 22, 2006, $20,000, due on March 22, 2007, interest
rate of 20% per annum. Each of the notes was given in exchange for a loan
to the
Company in the amount of the stated principal. Each of the notes was approved
by
the full board of directors. The due dates of each of the notes were extended
to
September 30, 2007 in an extension agreement executed February 23, 2007.
As
of
December 31, 2006, Diversified Holdings X, Inc. (DHX) a corporation of which
Richard Surber is the president and owner owed the sum of $12,070 to Gold
Fusion
Laboratories, Inc. This arose from the transfer of the operations acquired
by
Gold Fusion Laboratories, Inc. in September 2006 from DHX.
Subsequent
Events
Subsequent
to the end of the year three additional notes were given to Mr. Surber, January
17, 2007 in the amount of $20,500, due on May 22, 2007, interest rate of
20% per
annum, another on January 17, 2007 in the amount of $15,000, due on March
31,
2007, interest rate of 20% per annum and January 25, 2007, $20,000, and due
on
January 28, 2008, interest rate of 20% per annum. Each of the notes was approved
by the full board of directors. Before March 31, 2007, the $15,000 note to
Mr.
Surber had been repaid in full.
On
February 23, 2007, an agreement was signed to extend the due dates of four
notes
held by Mr. Surber, the October 5, November 7, and November 22 of 2006 and
the
January 17, 2007 note. Each of the four notes had its due date extended to
September 30, 2007 by mutual agreement of the Company and Mr.
Surber.
During
the first quarter of 2007, Mr. Surber advanced the Company $65,500 to help
cover
operating expenses. This was carried as a payable to Mr. Surber. As of March
31,
2007, the Company had repaid Mr. Surber $20,000 of the total amount mentioned
above.
ITEM
13. EXHIBITS
|
EXHIBITS
|
|||||
|
Exhibit
No.
|
Exhibit
Page
No.
|
Description
|
|||
|
3(i)(a)
|
*
|
Articles
of Incorporation of the Company in Colorado, 1987. (Incorporated
by
reference to the Company's Form SB-2 as filed with the Securities
and
Exchange Commission on January 12, 2006).
|
|||
|
3(i)(b)
|
*
|
Articles
of Amendment to change the name of the Company. (Incorporated by
reference
to the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
|||
|
3(i)(c)
|
*
|
Articles
of Incorporation of Kelly’s Coffee Group, Inc. filed with the Secretary of
State of Nevada on August 3, 2000. (Incorporated by reference to
the
Company's Form SB-2 as filed with the Securities and Exchange Commission
on January 12, 2006).
|
|||
|
3(i)(d)
|
*
|
Articles
of Merger merging Kelly’s Coffee Group, Inc., a Colorado Corporation into
Kelly’s Coffee Group, Inc., a Nevada Corporation, filed with the Secretary
of State of Colorado on September 22, 2000, and with the Secretary
of
State of Nevada on October 5, 2000. (Incorporated by reference
to the
Company's Form SB-2 as filed with the Securities and Exchange Commission
on January 12, 2006).
|
|
|
|
|
3(i)(e)
|
*
|
Restated
Articles of Incorporation of the Company. (Incorporated by reference
to
the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
|||
|
3(i)(f)
|
*
|
Amendment
to the Articles of Incorporation changing the Company’s name from Kelly’s
Coffee Group, Inc. to Nexia Holdings, Inc. (Incorporated by reference
to
the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
|||
|
3(ii)
|
*
|
Bylaws
of Nexia Holdings, Inc. (Incorporated by reference to the Company’s Form
SB-2 as filed with the Securities and Exchange Commission on January
12,
2006).
|
|||
|
4
|
*
|
Form
of certificate evidencing shares of "Common Stock” in the Company.
(Incorporated by reference to the Company's Form SB-2 as filed
with the
Securities and Exchange Commission on January 12,
2006).
|
|||
|
10(i)
|
*
|
Investment
Agreement between Nexia Holdings, Inc. and Dutchess Private Equities
Fund,
L.P. (Incorporated by reference to the Company's Form SB-2 as filed
with
the Securities and Exchange Commission 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)
|
*
|
Placement
Agent Agreement between Nexia Holdings, Inc., GunnAllen Financial
and
Dutchess Private Equities Fund II, LP, dated August 15, 2005. Incorporated
by reference from the Company’s form SB-2 as filed on October 23,
2006.
|
|||
|
10(iv)
|
*
|
October
5, 2006 Michael Clark promissory note in the face amount of $250,000.
Full
payment of the note is due February 15, 2007 and provides for interest
at
the rate of 20% per annum until paid in full. Note due extended
to May 17,
2007 by agreement of the parties. (Incorporated by reference from
the
10-QSB for the quarter ended September 30, 2006 filed by the
Company.)
|
|||
|
SUBSEQUENT
EVENTS
|
|||||
|
10(i)
|
51
|
||||
|
10(ii)
|
54
|
||||
|
CERTIFICATIONS
|
|||||
|
31(i)
|
57
|
||||
|
31(ii)
|
58
|
||||
|
32(i)
|
59
|
||||
|
32(ii)
|
60
|
||||
|
OTHER
|
All
share numbers have been modified to reflect the 1 for 10 reverse
split
that was effective as of February 20, 2007.
|
|
|
99(i)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Guy Cook
granting 8,250,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(ii)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Michael
Golightly granting 8,250,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(iii)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Pamela
Kushlan
granting 2,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(iv)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and John
Mortensen
granting 8,250,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(v)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Sean
Pasinsky
granting 8,250,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(vi)
|
*
|
June
1, 2006, a Stock Option Agreement between the Company and Guy Cook
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(vii)
|
*
|
June
1, 2006, the Company granted to Guy Cook 2,000,000 shares of the
Company’s
S-8 common stock. (Incorporated by reference from the 10-QSB for
the
quarter ended June 30, 2006 filed by the Company.)
|
|
99(viii)
|
*
|
June
1, 2006, a Stock Option Agreement between the Company and Pamela
Kushlan
granting 2,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(ix)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Sean
Pasinsky
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(x)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Jared
Gold
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xi)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Matthew
Landis
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xii)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Michael
Golightly granting 5,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xiii)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and John
Mortensen
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the
Company.)
|
|
99(xiv)
|
*
|
July
18, 2006, a Stock Option Agreement between the Company and Rocco
Liebsch
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xv)
|
*
|
July
18, 2006, a Stock Option Agreement between the Company and Ronald
Welborn
Gold granting 5,000,000 options with a floating option price set
at 75% of
the market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xvi)
|
*
|
July
18, 2006, a Stock Option Agreement between the Company and Audra
C.
Roberts granting 1,000,000 options with a floating option price
set at 75%
of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.) Options were cancelled
prior to
exwecise.
|
|
99(xvii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Jared
Gold
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xviii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Sandra
J.
McFadden granting 5,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xix)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Guy
Cook
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xx)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Michael
Golightly granting 15,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxi)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and John
Robert
Mortensen granting 10,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Pamela
Jean
Kushlan granting 10,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxiii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Rocco
Liebsch
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxiv)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Allen
Jordan
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxv)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Andrew
Pitts
granting 4,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxvi)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Matthew
Albert
Stevens granting 4,000,000 options with a floating option price
set at 75%
of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxvii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Rachael
Domingo
granting 4,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxviii)
|
*
|
September
21, 2006, a Stock Option Agreement between the Company and John
E. Fry
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxix)
|
*
|
September
26, 2006 a Stock Option Agreement between the Company and Deena
Ramondetta
granting 4,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the
Company.)
|
|
99(xxx)
|
*
|
October
19, 2006 a Stock Option Agreement between the Company and Lee Baumann
granting 30,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, with a minimum exercise price
of
$0.000375, all of the options vested immediately. (Incorporated
by
reference from the 10-QSB for the quarter ended September 30, 2006
filed
by the Company.)
|
|
99(xxxi)
|
*
|
Promissory
Notes to Richard Surber, a related party, one for $20,000 dated
October 5,
2006 and a second note for $31,025 dated November 7, 2006. (Incorporated
by reference from the 10-QSB for the quarter ended September 30,
2006
filed by the Company.)
|
|
99(xxxii)
|
*
|
Appraisal
of Landis Life Stile Salon, incorporated by reference from the
8-K filed
by the Company on October 13, 2006.
|
|
99(xxxiii)
|
*
|
Appraisal
of Black Chandelier retail operations, incorporated in reference
from the
8-K filed by the Company on October 31, 2006
|
|
99(xxxiv)
|
61
|
|
|
Subsequent
Events
|
||
|
99(i)
|
63
|
|
|
99(ii)
|
65
|
|
|
99(iii)
|
67
|
|
|
99(iv)
|
69
|
|
|
99(v)
|
71
|
|
|
99(vi)
|
73
|
|
|
99(vii)
|
75
|
|
|
99(viii)
|
77
|
|
|
99(ix)
|
79
|
|
|
99(x)
|
81
|
|
|
99(xi)
|
83
|
|
|
99(xii)
|
85
|
|
|
99(xiii)
|
87
|
|
|
99(xiv)
|
89
|
|
|
99(xv)
|
91
|
|
|
99(xvi)
|
93
|
|
|
99(xvii)
|
95
|
|
|
99(xviii)
|
97
|
|
|
99(xix)
|
99
|
|
|
99(xx)
|
101
|
|
|
99(xxi)
|
103
|
|
|
99(xxii)
|
105
|
|
|
99(xxiii)
|
107
|
|
|
99(xxiv)
|
109
|
|
|
99(xxv)
|
111
|
|
|
99(xxvi)
|
113
|
|
|
99(xxvii)
|
115
|
|
|
99(xxviii)
|
117
|
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
Company’s principal independent accountants for the performance of our audit for
the years ended December 31, 2005 and December 31, 2006 was De Joya Griffith
& Company, LLC.
| (i) |
Audit
Fees. For the fiscal years ended December 31, 2005 and 2006, 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 $48,135 for 2005 and $56,140 for
2006.
|
|
(ii)
|
Audit-Related
Fees. For the fiscal years ended December 31, 2005 and 2006, 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, 2005 and 2006, 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, 2005 and 2006, 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 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.
Dated:
April 17, 2007
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
April
17,
2007
/s/
Richard Surber
Richard
Surber
CEO,
Pres., CFO and Director
/s/
Gerald Einhorn
Gerald
Einhorn
Director
April
17,
2007
/s/
Adrienne Bernstein
Adrienne
Bernstein Director
April
17,
2007
|
INDEX
OF EXHIBITS
|
||||
|
Exhibit
No.
|
Exhibit
Page
No.
|
Description
|
||
|
3(i)(a)
|
*
|
Articles
of Incorporation of the Company in Colorado, 1987. (Incorporated
by
reference to the Company's Form SB-2 as filed with the Securities
and
Exchange Commission on January 12, 2006).
|
||
|
3(i)(b)
|
*
|
Articles
of Amendment to change the name of the Company. (Incorporated by
reference
to the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
||
|
3(i)(c)
|
*
|
Articles
of Incorporation of Kelly’s Coffee Group, Inc. filed with the Secretary of
State of Nevada on August 3, 2000. (Incorporated by reference to
the
Company's Form SB-2 as filed with the Securities and Exchange Commission
on January 12, 2006).
|
|
|
|
3(i)(d)
|
*
|
Articles
of Merger merging Kelly’s Coffee Group, Inc., a Colorado Corporation into
Kelly’s Coffee Group, Inc., a Nevada Corporation, filed with the Secretary
of State of Colorado on September 22, 2000, and with the Secretary
of
State of Nevada on October 5, 2000. (Incorporated by reference
to the
Company's Form SB-2 as filed with the Securities and Exchange Commission
on January 12, 2006).
|
|
|
|
3(i)(e)
|
*
|
Restated
Articles of Incorporation of the Company. (Incorporated by reference
to
the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
||
|
3(i)(f)
|
*
|
Amendment
to the Articles of Incorporation changing the Company’s name from Kelly’s
Coffee Group, Inc. to Nexia Holdings, Inc. (Incorporated by reference
to
the Company's Form SB-2 as filed with the Securities and Exchange
Commission on January 12, 2006).
|
||
|
3(ii)
|
*
|
Bylaws
of Nexia Holdings, Inc. (Incorporated by reference to the Company’s Form
SB-2 as filed with the Securities and Exchange Commission on January
12,
2006).
|
||
|
4
|
*
|
Form
of certificate evidencing shares of "Common Stock” in the Company. .
(Incorporated by reference to the Company's Form SB-2 as filed
with the
Securities and Exchange Commission on January 12,
2006).
|
||
|
10(i)
|
*
|
Investment
Agreement between Nexia Holdings, Inc. and Dutchess Private Equities
Fund,
L.P. (Incorporated by reference to the Company's Form SB-2 as filed
with
the Securities and Exchange Commission 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)
|
*
|
Placement
Agent Agreement between Nexia Holdings, Inc., GunnAllen Financial
and
Dutchess Private Equities Fund II, LP, dated August 15, 2005. Incorporated
by reference from the Company’s form SB-2 as filed on October 23,
2006.
|
||
|
10(iv)
|
*
|
October
5, 2006 Michael Clark promissory note in the face amount of $250,000.
Full
payment of the note is due February 15, 2007 and provides for interest
at
the rate of 20% per annum until paid in full. Note due extended
to May 17,
2007 by agreement of the parties. (Incorporated by reference from
the
10-QSB for the quarter ended September 30, 2006 filed by the
Company.)
|
||
|
SUBSEQUENT
EVENTS
|
||||
|
10(i)
|
51
|
February
1, 2007 Consulting Agreement with Target IR of Bigfork, Montana
to provide
services including marketing, strategic planning and financial
matters for
a period of one month in exchange for a cash payment in the sum
of
$50,000.
|
||
|
10(ii)
|
54
|
April
10, 2007 Consulting Agreement with Target IR of Bigfork, Montana
to
provide services including marketing, strategic planning and financial
matters for a period of two months in exchange for a cash payment
I the
sum of $50,000.
|
||
|
CERTIFICATIONS
|
||||
|
31(i)
|
57
|
Certification
of Chief Executive Officer pursuant to 18 U.S. C. Section 1350,
as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
||
|
31(ii)
|
58
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
||
|
32(i)
|
59
|
Certification
of Chief Executive Officer pursuant to 18 U.S. C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
||
|
32(ii)
|
60
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
||
|
OTHER
|
All
share numbers have been modified to reflect the 1 for 10 reverse
split
that was effective as of February 20, 2007.
|
|
|
99(i)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Guy Cook
granting 8,250,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(ii)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Michael
Golightly granting 8,250,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(iii)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Pamela
Kushlan
granting 2,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(iv)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and John
Mortensen
granting 8,250,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(v)
|
*
|
March
2, 2006, a Stock Option Agreement between the Company and Sean
Pasinsky
granting 8,250,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-KSB for the
year ended
December 31, 2005 filed by the Company.)
|
|
99(vi)
|
*
|
June
1, 2006, a Stock Option Agreement between the Company and Guy Cook
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(vii)
|
*
|
June
1, 2006, the Company granted to Guy Cook 2,000,000 shares of the
Company’s
S-8 common stock. (Incorporated by reference from the 10-QSB for
the
quarter ended June 30, 2006 filed by the Company.)
|
|
99(viii)
|
*
|
June
1, 2006, a Stock Option Agreement between the Company and Pamela
Kushlan
granting 2,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(ix)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Sean
Pasinsky
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(x)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Jared
Gold
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xi)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Matthew
Landis
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xii)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and Michael
Golightly granting 5,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xiii)
|
*
|
June
7, 2006, a Stock Option Agreement between the Company and John
Mortensen
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the
Company.)
|
|
99(xiv)
|
*
|
July
18, 2006, a Stock Option Agreement between the Company and Rocco
Liebsch
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xv)
|
*
|
July
18, 2006, a Stock Option Agreement between the Company and Ronald
Welborn
Gold granting 5,000,000 options with a floating option price set
at 75% of
the market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xvi)
|
*
|
July
18, 2006, a Stock Option Agreement between the Company and Audra
C.
Roberts granting 1,000,000 options with a floating option price
set at 75%
of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.) Options were cancelled
prior to
exercise.
|
|
99(xvii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Jared
Gold
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xviii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Sandra
J.
McFadden granting 5,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xix)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Guy
Cook
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xx)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Michael
Golightly granting 15,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxi)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and John
Robert
Mortensen granting 10,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Pamela
Jean
Kushlan granting 10,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxiii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Rocco
Liebsch
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxiv)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Allen
Jordan
granting 5,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxv)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Andrew
Pitts
granting 4,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxvi)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Matthew
Albert
Stevens granting 4,000,000 options with a floating option price
set at 75%
of the market price at the time of exercise, all of the options
vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxvii)
|
*
|
August
30, 2006, a Stock Option Agreement between the Company and Rachael
Domingo
granting 4,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxviii)
|
*
|
September
21, 2006, a Stock Option Agreement between the Company and John
E. Fry
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the Company.)
|
|
99(xxix)
|
*
|
September
26, 2006 a Stock Option Agreement between the Company and Deena
Ramondetta
granting 4,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately. (Incorporated by reference from the 10-QSB for the
quarter
ended June 30, 2006 filed by the
Company.)
|
|
99(xxx)
|
*
|
October
19, 2006 a Stock Option Agreement between the Company and Lee Baumann
granting 30,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, with a minimum exercise price
of
$0.000375, all of the options vested immediately. (Incorporated
by
reference from the 10-QSB for the quarter ended September 30, 2006
filed
by the Company.)
|
|
99(xxxi)
|
*
|
Promissory
Notes to Richard Surber, a related party, one for $20,000 dated
October 5,
2006 and a second note for $31,025 dated November 7, 2006. (Incorporated
by reference from the 10-QSB for the quarter ended September 30,
2006
filed by the Company.)
|
|
99(xxxii)
|
*
|
Appraisal
of Landis Life Stile Salon, incorporated by reference from the
8-K filed
by the Company on October 13, 2006.
|
|
99(xxxiii)
|
*
|
Appraisal
of Black Chandelier retail operations, incorporated in reference
from the
8-K filed by the Company on October 31, 2006
|
|
99(xxxiv)
|
61
|
December
6, 2006 a Stock Option Agreement between the Company and Lee Baumann
granting 30,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
Subsequent
Events
|
||
|
99(i)
|
63
|
January
10, 2007 a Stock Option Agreement between the Company and Guy Cook
granting 40,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(ii)
|
65
|
January
10, 2007 a Stock Option Agreement between the Company and Cassandra
Dean
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(iii)
|
67
|
January
16, 2007 a Stock Option Agreement between the Company and Matthew
Landis
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(iv)
|
69
|
January
16, 2007 a Stock Option Agreement between the Company and Fredrick
Hunzeker granting 15,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately.
|
|
99(v)
|
71
|
January
16, 2007 a Stock Option Agreement between the Company and Sean
Pasinsky
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(vi)
|
73
|
January
16, 2007 a Stock Option Agreement between the Company and Richard
Smith
granting 30,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(vii)
|
75
|
January
17, 2007 a Stock Option Agreement between the Company and Ralph
Nagasawa
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(viii)
|
77
|
January
18, 2007 a Stock Option Agreement between the Company and Taylor
Gourley
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(ix)
|
79
|
January
24, 2007 a Stock Option Agreement between the Company and Mark
Baumann
granting 30,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(x)
|
81
|
January
25, 2007 a Stock Option Agreement between the Company and Paul
Cramman
granting 30,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xi)
|
83
|
February
1, 2007 a Stock Option Agreement between the Company and Jared
Gold
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xii)
|
85
|
February
1, 2007 a Stock Option Agreement between the Company and Andrew
Dunham
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xiii)
|
87
|
February
22, 2007 a Stock Option Agreement between the Company and Andrew
Dunham
granting 37,517,500 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xiv)
|
89
|
February
22, 2007 a Stock Option Agreement between the Company and Logan
Fast
granting 10,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xv)
|
91
|
March
20, 2007 a Stock Option Agreement between the Company and Lee Baumann
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 options vested
immediately.
|
|
99(xvi)
|
93
|
March
20, 2007 a Stock Option Agreement between the Company and Andrew
Dunham
granting 40,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xvii)
|
95
|
March
20, 2007 a Stock Option Agreement between the Company and Pamela
Kushlan
granting 15,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xviii)
|
97
|
March
20, 2007 a Stock Option Agreement between the Company and Michael
Golightly granting 15,000,000 options with a floating option price
set at
75% of the market price at the time of exercise, all of the options
vested
immediately.
|
|
99(xix)
|
99
|
April
2, 2007 a Stock Option Agreement between the Company and Robert
Stevens
granting 19,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xx)
|
101
|
April
2, 2007 a Stock Option Agreement between the Company and Cassandra
Dean
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxi)
|
103
|
April
2, 2007 a Stock Option Agreement between the Company and Richard
Smith
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxii)
|
105
|
April
2, 2007 a Stock Option Agreement between the Company and Jared
Gold
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxiii)
|
107
|
April
2, 2007 a Stock Option Agreement between the Company and Ralph
Nagasawa
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxiv)
|
109
|
April
2, 2007 a Stock Option Agreement between the Company and Sean Pasinsky
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxv)
|
111
|
April
2, 2007 a Stock Option Agreement between the Company and John Mortensen
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxvi)
|
113
|
April
2, 2007 a Stock Option Agreement between the Company and Fredrick
Hunzeker
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
|
99(xxvii)
|
115
|
April
4, 2007 a Stock Option Agreement between the Company and Matthew
Landis
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 options vested
immediately.
|
|
99(xxviii)
|
117
|
April
4, 2007 a Stock Option Agreement between the Company and John Mortensen
granting 20,000,000 options with a floating option price set at
75% of the
market price at the time of exercise, all of the options vested
immediately.
|
86