NEXH 10KSB 12/31/2006

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-KSB
 

 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
For the annual period ended
December 31, 2006
Commission File Number
33-22128-D
 

 
NEXIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter.)
 

Nevada
(State of other jurisdiction of
incorporation or organization)
84-1062062
(I.R.S. Employer
Identification No.)
 
59 West 100 South
Salt Lake City, UT
(Address of principal executive offices)
 
84101
(Zip Code)
 
801-575-8073
(Registrant's telephone number)
 

 
 
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.
 
 



 
TABLE OF CONTENTS
 
PART I
Item 1.  
3
Item 2.  
16
Item 3.  
18
Item 4.  
18
     
 
PART II
 
     
Item 5.  
19
Item 6.
20
Item 7.  
F-1
Item 8.  
71
Item 8A.  
72
Item 8B.
73
 
PART III
 
     
Item 9.  
73
Item 10.  
74
Item 11.  
75
Item 12.  
76
Item 13.  
78
Item 14.  
82
 
83
84

2


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:
 
 
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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.
 
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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.
 
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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.
 
6


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:

w  
the general economic climate and local real estate conditions (such as too much supply or too little demand for rental space, as well as changes in market rental rates);

w  
prospective tenants' perceptions of a building's safety, convenience and attractiveness, or the overall appeal of a particular building;

w  
the property owner's ability to provide adequate management, maintenance and insurance;

w  
expenses for periodically renovating, repairing and re-letting spaces;
 
w  
falling operating costs for competing properties, which would allow them to undercut our rental rates;

w  
rising unemployment rates in the area, which may reduce the demand for rental space;

w  
adverse changes in zoning laws, tax laws, or other laws affecting real estate or businesses in the area;

w  
damage from earthquakes or other natural disasters;

w  
mortgage interest rates and the availability of financing.

Some significant expenses associated with real estate investment (such as mortgage payments, real estate taxes, insurance and maintenance costs) are fixed and generally can not be reduced if circumstances cause lower rental incomes from a building. For example, if we can not meet the mortgage payments, we could lose some or all of our investment in a building due to foreclosure by the holder of the lien on the property.
 
7

 
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.
 
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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.
 
9

 
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.
 
10

 
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.
 
11

 
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.
 
12

 
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.
 
13

 
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:

·
Significant dilution
·
Actual or anticipated variation in the results of operations
·
Announcements of acquisitions
·
Changes in the areas of operations of the company
·
Conditions and trends in the real estate market in Salt Lake City, Utah and nationally

The stock markets generally, and the OTC Bulletin Board in particular, have experienced extreme price and volume fluctuations that are often unrelated and disproportionate to the operating performance of a particular company. These market fluctuations, as well as general economic, political and market conditions such as recessions or interest rate or international currency fluctuations, may adversely affect the market for the common stock of the company. In the past, class action litigation has often been brought against companies after periods of volatility in the market price of their securities. If such a class action suit is brought against the Company it could result in substantial costs and a diversion of management’s attention and resources, which would hurt business operations.
 
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.
 
14


Potential investors should be aware that, according to the SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include:

·
control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

·
manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

·
boiler room practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
 
·
excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

·
the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

Investors must contact a broker-dealer to trade over-the-counter bulletin board securities. As a result, you may not be able to buy or sell our securities at the times you may wish.

Even though our securities are quoted on the OTC Bulletin Board, 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.
 
15


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.
 
16


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
 
 
17


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.
 
18


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.
 
19

 
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.
 
20

 
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.
 
21

 
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.
 
22

 
ITEM 7. FINANCIAL STATEMENTS



NEXIA HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2006
 
 
F-1


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
 

F-2

 
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
 
F-3


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
 
F-4


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
 
F-5


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      
 
F-6


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
 
F-7


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      
 
F-8


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
 
 
F-9


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
 
F-10


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
)
 
F-11


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