UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2002.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from ___________ to
___________.
Commission file number: 33-2128-D
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Nexia Holdings, Inc.
(Name of Small Business Issuer in Its Charter)
Nevada 84-1062062
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
268 West 400 South, Suite 300, Salt Lake City, Utah 84101
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(Address of Principal Executive Offices) (Zip Code)
(801) 575-8073
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange on Which Registered
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Common Stock ($0.001 Par Value) None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 T No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
The issuer's total consolidated revenues for the year ended December 31, 2002
were $1,138,435.
The aggregate market value of the registrant's common stock, $0.001 par value
(the only class of voting stock), held by non-affiliates was approximately
$390,680 based on the average closing bid and asked prices for the Common Stock
on May 28, 2003 of $0.002 per share.
On May 29, 2003, the number of shares outstanding of the registrant's common
stock, $0.001 par value (the only class of voting stock), was 315,352,760.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business... 2
Item 2. Description of Property... 8
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security-Holders............................................15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.......................................15
Item 6. Management's Discussion and Analysis or Plan of Operation......................................17
Item 7. Financial Statements...... 22
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure............................................................23
PART III
Item 9. Directors and Executive Officers...............................................................23
Item 10. Executive Compensation.... 24
Item 11. Security Ownership of Certain Beneficial Owners and Management.................................24
Item 12. Certain Relationships and Related Transactions.................................................26
Item 13. Exhibits, List and Reports on Form 8-K.........................................................27
Item 14. Controls and Procedures... 28
Signatures........ 28
Index to Exhibits. 31
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General.
As used herein the terms "Company" and "Nexia" refer to Nexia Holdings, Inc.
(formerly known as Kelly's Coffee Group, Inc.), a Nevada corporation and its
subsidiaries and predecessors. Nexia was incorporated under the laws of the
State of Colorado on April 20, 1987. Nexia has undergone several name changes
since its organization. The Company moved its domicile to the State of Nevada on
October 5, 2000, by merging with a Nevada corporation established for the
purpose of facilitating the change of domicile. Nexia has been involved in
several previous business activities, all of which were discontinued in February
of 1998. On August 29, 2000, the Company became a holding company by purchasing
a majority interest in Wichita Development Corporation ("Wichita"), whose
primary business function became real estate operations. The shares held in
Wichita were subsequently spun-off to Company shareholders in January of 2001.
On February 15, 2002 the Company entered into a Stock Purchase Agreement
("Agreement") with Axia Group, Inc., a related party ("Axia"), pursuant to which
the Company issued to Axia 255,100,000 restricted shares of the Company's common
stock in exchange for essentially all of the assets and liabilities of Axia
including a portfolio of securities, real estate holdings and publicly reporting
shell-companies. The shares issued to Axia equaled approximately 82% of the
issued and outstanding shares of the Company after the close of the transaction.
Axia on December 10, 2002 spun-off those 255,100,000 shares of the Company's
common stock to Axia's shareholders on a pro rata basis. Nexia intends to manage
the Axia interests acquired as a result of this transaction in a manner similar
to that previously followed by Axia. For more information on this transaction,
see the Company's Form 8-K filed February 27, 2002 and as amended on May 1,
2002.
Forward Looking Business Plan
The Company successfully acquired essentially all of the assets and liabilities
of Axia including a portfolio of securities, real estate holdings and publicly
reporting shell-companies on February 15, 2002. The following discussion
represents the Company's plans to operate the business acquired from Axia in the
purchase agreement previously discussed. Property descriptions, legal
discussions and similar areas are a reflection of those acquisitions from Axia
which constitute the majority of the Company's assets and operations at the
present.
Business of Issuer
Financial Consulting
The Company, through its subsidiary, Hudson Consulting Group, Inc., provides a
variety of financial consulting services to a wide range of clients.
Our business model is to provide an expanded scope of financial, business, and
investment oriented consulting services to select start-up companies and
existing public companies. Specifically, the Company helps client companies by
creating a series of infrastructure-based partnerships that take advantage of
the Company's expertise in: uncovering private placement funding sources;
strategic business planning; SEC registration documentation; transactional
document preparation; restructuring capital information; identifying merger and
acquisition opportunities.
The Company's clients may choose to be acquired by the Company's reporting
companies and create their own public shareholder base with a self underwritten
offering or may choose to take advantage of the Company's shareholder base in a
registered spin-off, or a dividend. The self-underwritten option requires a
company to raise capital before obtaining a quote, whereas a registered spin-off
or dividend enables clients to obtain a quote prior to raising any new capital.
The Company employs several methods to locate prospective clients. We advertise
directly through print media to attract both private and public corporations to
engage our services, obtain referrals from previous clients and do our own
research of various databases that profile public companies.
The Company charges clients monthly or predetermined fees which vary in both
amount and form. Acceptable payments include cash, securities of the client
corporation, other assets, or some combination of the three. This payment
arrangement allows many organizations, especially start-up ventures and those
experiencing financial difficulties, to obtain the Company's services without
draining necessary cash funds. However, accepting stock as compensation
occasionally impairs the Company's cash flow, and for this reason acceptable
payments and the size of payments the Company charges for its services vary with
the volatility of the clients' securities, the amount and nature of work
involved, and the expenses related to the services being rendered.
Entities from many different industries employ the Company's consulting
services. The decision to accept a prospective client depends on the client's
financial stability, the type of services needed, and the compensation format. A
key to the Company's success is management's ability to improve and maintain its
client base and successfully liquidate its compensation.
Real Estate Investment
The combined statements of operations, stockholders equity and cash flows for
the year ended December 31, 2001 include only the operations of Diversified
Holdings - I, Inc., Wichita Development Corporation, Golden Opportunity
Development Corporation, Downtown Development Corporation, Wasatch Capital
Corporation, and Canton Tire Recycling of West Virginia, Inc. (collectively
referred to as the `entities'). Pursuant to the recapitalization of the Company
on February 15, 2002, these entities have been treated as the acquiring entities
for accounting purposes. The Company is the surviving entity for legal puposes.
Because the recapitalization involved entities under common control,
Interpretation 39 requires that there be no adjustment to the carrying values of
the assets or liabilities at the date of the recapitalization.
Nexia's real estate operations primarily involve the acquisition, management,
lease and sale of real estate holdings. Nexia owns a variety of commercial and
residential properties in Utah and other parts of the United States. The Company
seeks to locate and acquire undervalued real estate (which is primarily
commercial) with little or no cash down. Once acquired, the Company's real
estate holdings are leased. Though the Company seeks to generate and maximize
rental income through the management and lease of the property, our primary goal
is to acquire real estate which will substantially appreciate in value and for
which we can realize a substantial gain upon disposition.
Organization
The following chart shows the companies currently owned by Nexia Holdings, Inc.
-----------------------------------------
Nexia Holdings, Inc.
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Diversified Holdings I,
Inc.
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----------------------------
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Canton Industrial Canton Wild Horse
Corporation of Salt Ranch II, Inc
Lake City
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Hudson Consulting Salt Lake Development,
Group, Inc. Inc.
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West Jordan Real Wasatch Capital
Estate Holdings, Inc. Corporation
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Canton Tire Recycling Golden Opportunity
of West Virginia, Inc Development Corporation
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------------------------ ------------------------
Oasis International Downtown Development
Hotel and Casino, Inc Corporation
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Wichita Development
Corporation
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-------------------------------
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Kearns Development Wichita Properties Corporation
Corporation
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The Company also has a substantial interest in approximately 14 shell companies.
The Company intends to provide assistance in finding operations for these
companies through reverse mergers with operating companies. The value of these
companies cannot be determined at this time in light of the fact that: 1) no
substantial assets are currently in the companies; 2) The Company has identified
no business opportunities for these companies; and 3) The Company's shareholding
in these entities are illiquid in light of recent rule changes on the resale of
securities in blank check companies. The Company and its president have assisted
in filing Form 10-SB's to enable these companies to become fully reporting under
the Securities Exchange Act of 1934. The Company's president now also holds a
substantial interest in these entities.
Governmental Regulation
The Company and its facilities are subject to normal government regulation at
the federal, state and local level. The Company must comply with government
regulations regarding employment, wages, access for handicapped and disabled
persons and other laws, rules, regulations and ordinances. Although the Company
does not foresee any change in existing local, state, or federal regulations, if
changes should occur, the Company believes that it can adapt to such new
regulations and that those changes would not have any significant effect on
revenues or current operations of the Company. However, no assurance can be made
that compliance or failure to comply with future regulation will not have a
materially adverse effect on the business, operating results or financial
condition of the Company.
Competition
The Company expects to be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by virtue
of their stronger financial resources and prior experience in business. There is
no assurance that the Company will be successful in operating any business which
it may acquire.
Employees
The Company's subsidiaries have a total of 6 full time employees as of December
31, 2002. Management of the Company expects to use consultants, attorneys, and
accountants as necessary, and does not anticipate a need to engage any
additional employees.
Risk Factors
You should carefully consider the following risks before making an investment in
our Company. In addition, you should keep in mind that the risks described below
are not the only risks that Nexia faces. The risks described below are all the
risks that Nexia currently believes are material to our business. However,
additional risks not presently know to us, or risks that we currently believe
are not material, may also impair our business operations. You should also refer
to the other information set forth in this Annual Report on Form 10-KSB,
including the discussions set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
financial statements and the related notes.
Nexia's business, financial condition, or results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by such risks, then the trading of our common stock could decline, and you could
lose all or part of your investment.
Nexia's auditor's report on our financial statements includes an explanatory
paragraph with respect to substantial doubt existing about its ability to
continue as a going concern
As of December 31, 2002, Nexia had incurred a loss from operations and had an
accumulated deficit. As a result, its financial statements include a note
stating that these conditions raise substantial doubt about its ability to
continue as a going concern, but the financial statements do not include any
adjustments that might result from this uncertainty.
Nexia is subject to compliance with securities law, which expose it to potential
liabilities, including potential rescission rights.
Nexia has periodically offered and sold our common stock to investors pursuant
to certain exemptions from the registration requirements of the Securities Act
of 1933, as well as those of various state securities laws. The basis for
relying on such exemptions is factual; that is, the applicability of such
exemptions depends upon Nexia's conduct and that of those persons contacting
prospective investors and making the offering. Nexia has not received a legal
opinion to the effect that any of our prior offerings were exempt from
registration under any federal or state law. Instead, it has relied upon the
operative facts as the basis for such exemptions, including information provided
by investors themselves.
If any prior offering did not qualify for such exemption, an investor would have
the right to rescind its purchase of the securities if it so desired. It is
possible that if an investor should seek rescission, such investor would
succeed. A similar situation prevails under state law in those states where the
securities may be offered without registration in reliance on the partial
preemption from the registration or qualification provisions of such state
statutes under the National Securities Markets Improvement Act of 1996. If
investors were successful in seeking rescission, we would face severe financial
demands that could adversely affect our business and operations. Additionally,
if we did not in fact qualify for the exemptions upon which we have relied, we
may become subject to significant fines and penalties imposed by the SEC and
state securities agencies.
Additional Capital is Necessary to Implement Nexia's Business Plan
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Nexia does not believes that it has sufficient cash, cash equivalents and
operating income to maintain its business at its existing level in 2003. Nexia
will require significant new capital in order to execute its strategic plan and
believes that this capital will only be available through an offering of shares
of its common stock. Nexia's success in raising this capital will depend upon
its ability to access equity capital markets and we may not be able to do so or
to do so on acceptable terms. If it fails to obtain funds on acceptable terms,
it will not be able to execute its strategic plan and would have to delay or
abandon some or all of its plans for growth. If it is able to obtain funds, it
believes that the terms of such arrangement will result in an offering that is
highly dilutive to existing holders of shares of our common stock because of the
price at which it would have to issue those shares and the large number of
shares it would have to issue at those prices.
There is no established, stable market for Nexia's common stock.
Nexia's common stock is quoted on the Over-the-Counter Electronic Bulletin Board
("OTCBB") and traded sporadically. A large number of shares of outstanding
common stock are restricted and are not freely-tradeable. An established public
trading market for our common stock may never develop or, if developed, it may
not be able to be sustained. The OTCBB is an unorganized, inter-dealer,
over-the-counter market that provides significantly less liquidity than other
markets. Purchasers of Nexia's common stock may therefore have difficulty
selling their shares should they desire to do so.
Volatility of Stock Price
The trading price of Nexia's Common Stock has in the past and may in the future
be subject to significant fluctuations. In addition, the stock market in general
has experienced extreme price and volume fluctuations that have affected the
market price for many companies in industries similar to or related to that of
Nexia and which have been unrelated to the operating performance of these
companies. These market fluctuations may adversely affect the market price of
Nexia's Common Stock.
Penny stock regulations may impair Nexia's shareholders' ability to sell their
stock.
Nexia's shares of common stock is deemed a "penny stock." Penny stocks generally
are equity securities with a price of less than $5.00 per share, other than
securities registered on certain national securities exchanges. Penny stocks are
subject to rules and regulations that impose additional sales practice
requirements on broker-dealers who sell the securities to persons other than
established customers and accredited investors, and these additional
requirements may restrict the ability of broker-dealers to sell a penny stock.
Any acquisitions that Nexia undertakes could be difficult to integrate, disrupt
its business, dilute shareholder value and significantly harm its operating
results.
Nexia expects to review opportunities to buy other business or technologies that
would complement its current business, expand the breadth of its markets, or
that may otherwise offer growth opportunities. If we make any future
acquisitions, we could issue stock that would dilute existing stockholders'
percentage ownership, incur substantial debt or assume contingent liabilities.
Potential acquisitions also involve numerous risks, including:
o problems assimilating the purchased operations, technologies or products;
o unanticipated costs associated with the acquisition;
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with suppliers and customers;
o risks associated with entering markets in which we have no or limited prior experience; and
o potential loss of the purchased organization's or our own key employees.
Nexia cannot assure that it would be successful in overcoming problems
encountered in connection with such acquisitions and its inability to do so
could significantly harm its business.
Nexia is subject to various risks connected to the ownership of real property.
Nexia's investments are subject to varying degrees of risk generally incident to
the ownership of real property. Real estate values and income from Nexia's
current properties may be adversely affected by changes in national or local
economic conditions and neighborhood characteristics, changes in interest rates
and in the availability, cost and terms of mortgage funds, occupancy rates in
Nexia's properties, the impact of present or future environmental legislation
and compliance with environmental laws, the ongoing need for capital
improvements, changes in governmental rules and fiscal policies, civil unrest,
acts of God, including earthquakes and other natural disasters which may result
in uninsured losses, acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of Nexia.
In addition, real estate investments are relatively illiquid. The ability of
Nexia to vary its ownership of real estate property in response to changes in
economic and other conditions is limited. If Nexia must sell an investment,
there can be no assurance that Nexia will be able to dispose of it in the time
period it desires or that the sales price of any investment will recoup the
amount of Nexia's investment.
Nexia's real property is also subject to real property taxes. The real property
taxes on the real property may increase or decrease as property tax rates change
and as the property is assessed or reassessed by taxing authorities. If property
taxes increase, Nexia's operations could be adversely affected.
Reports to Security Holders
The Company is not required to deliver an annual report to security holders and
will not voluntarily deliver a copy of the annual report to the security
holders. Should the Company choose to create an annual report, it will contain
audited financial statements. The Company will file all of its required
information with the Securities and Exchange Commission ("SEC").
The public may read and copy any materials that are filed by the Company with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The statements
and forms filed by the Company with the SEC have been filed electronically and
are available for viewing or copy on the SEC maintained Internet site that
contains reports, proxy, and information statements, and other information
regarding issuers that file electronically with the SEC. The Internet address
for this site can be found at: Information is also available on the Nexia
website located at: .
ITEM 2. DESCRIPTION OF PROPERTY
Location and Description
Nexia acquired through its purchase of the former Axia subsidiaries the
ownership or leasehold rights to industrial, commercial, warehouse, office, and
undeveloped commercial and residential real estate. This acquisition of
properties was not limited to any specific geographic area. Regardless of the
type of property, future acquisitions will not be limited to any specific
geographic area. At the end of 2002, Nexia owned, leased, or had interests in
properties in Utah, Kansas, and West Virginia.
Investment Policies
Nexia's policy is to actively pursue the acquisition of real estate for
investment income and appreciation in property value. During the past year,
Nexia has placed an emphasis on acquiring property which management feels is
undervalued. Rather than limiting itself to specific types of real estate,
Nexia's policy has been to focus primarily on terms of financing and potential
return on capital. Nexia generally looks for properties that can be purchased by
assuming the existing financing or by paying the balance of the purchase price
with a nominal cash expenditure and/or the issuance of shares of Nexia's common
stock.
Nexia has no present intention to invest in first or second mortgages, interests
in Real Estate Investment Trusts, or Real Estate Limited Partnerships. However,
Nexia's board of directors is not precluded in the future from considering or
participating in such investments.
Nexia currently has no limitations on the percentage of assets which may be
invested in any one investment or the type of securities and investments in
which it may invest. However, the board of directors in its discretion may set
policies without a vote of Nexia's securities holders regarding the percentage
of assets which may be invested in any one investment or type of investment.
Nexia's current policy is to evaluate each investment based upon its potential
capital return to Nexia on a relatively short term basis. Furthermore, Nexia
does not plan to enter into the business of originating, servicing, or
warehousing mortgages or deeds of trust except as may be incidental to its
primary purpose of acquiring real estate.
There is a risk that Nexia may lose control of its properties through
foreclosure if enough funds are not derived from the rental income for both the
financing and operation of its properties. Currently, due to expanded
acquisition activity and deficiencies in rental income from the properties
acquired, Nexia does not have sufficient rental revenues to cover the debt
service and operating costs of all properties. Nexia currently has to use
capital from other sources to fund this deficit. Although management hopes to
increase the occupancy rates, and thus increase the rental income so that such
income will cover both operations and debt service, no such assurances can be
made.
Description of Real Estate and Operating Data
Below is a list of the properties owned by Nexia and/or its consolidated
subsidiaries as of December 31, 2002. Also included are any changes in the
ownership status of such properties which have occurred between the end of 2002
and the filing of this Form 10-KSB. All reference to current principal balances
of encumbrances against the properties are as of December 31, 2002, only.
Commercial Properties
Nexia's subsidiaries own interests in the five commercial properties described
below.
Salt Lake Development, Inc. ("SLD")
SLD, formerly Canton Commercial Carpet Corporation, a 78.67% owned subsidiary of
Nexia, owns a building located at 268 West 400 South in Salt Lake City, Utah,
which is currently used as Nexia's headquarters and principal offices. The
building is two stories with 14,347 net rentable square feet of office space.
SLD purchased the property on March 6, 1998, by exercising its option to
purchase the property through the payment of $418,762. SLD financed the purchase
price and borrowed an additional sum of $222,489, which is secured by the
property. At December 31, 2002, the outstanding debt on the property was
$569,410 with monthly payments of $5,934. SLD is of the opinion that this
property is adequately covered by insurance.
Nexia's subsidiary Hudson Consulting Group, Inc. currently occupies
approximately 36% of the building. As of April 10, 2003 there are no other
tenants currently occupying the building. There is approximately 9,200 square
feet of office space currently available for lease as office space. The office
space in the building competes for tenants with other available office space in
the downtown area of Salt Lake City.
Wasatch Capital Corporation ("Wasatch")
Wasatch, a 76.21% 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. Currently, only
the ground level is suitable for rent as retail space. The ground level
comprises 7,816 square feet or 21% of the building. During 2001, 1640 square
feet of ground floor space having the address of 61-63 West 100 South was
renovated for use as an art gallery. Total cost of the renovation was
$45,193.86. In January 2002, 3,545 square feet of ground floor space having the
address 65 West 100 South was renovated for use as an 2002 Winter Olympic
demonstration space for the Greek Ministry of Culture. Total cost of these
renovations was $94,473.56. A portion of that space is currently leased to
Wasatch CD Exchange a retail outlet for used music compact disks for a monthly
rental of $1400.72 for the 1,585 square feet occupied by this tenant. An art
studio occupies 840 square feet on the second floor for a monthly rental of
$600.
On May 9, 2003, Wasatch refinanced the underlying loan package on the Wallace &
Bennett buildings. The terms of the new loan package provide for a loan in the
total amount of $850,000, an interest rate on the loan of 7.5%, with monthly
payments of $6,848. The loan has a term of three years, resulting in a due date
of May 10, 2006. Of the loan proceeds $202,920 has been set aside for
construction or capital improvements to the buildings securing the loan. In the
event that direct benefits from improvements to the building cannot be realized
from refurbishing the building this amount will be returned to the lender to pay
down the existing loan. Wasatch intends to seek a tenant for the one remaining
vacant retail space on street level in the buildings, to improve the upper floor
space as office space, and increasing the available tenant parking on the site.
The balance due on the prior note on December 31, 2002 was $591,920.
Currently, the ground level is 84% occupied. There are 2,200 square feet
available for lease. The additional stories above the ground floor cannot be
used until they have been remodeled and rehabilitated. Wasatch has tentative
plans to remodel the second level of the east half of the building for use as
office space. The cost for the project is estimated to be around $75,000. The
rented ground level space is leased to a restaurant (1,719 square feet ground
floor, 864 square feet of basement space), a retail store (912 square feet), a
CD exchange retail outlet (1585 square feet) and an art gallery (1,640 square
feet). The tenants are responsible for all of their own utilities except water
and sewer. Tenants also pay their pro-rata share of all other operating expenses
as well as maintenance, janitorial services, insurance, and property taxes. The
average annual effective rental for the rentable ground level space is $13.55
per square foot.
Downtown Development, Corp. ("DDC") (f.k.a. A-Z South State, Corp.)
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. An all-inclusive trust deed in the amount of
$400,000 was placed on the property requiring monthly payments of $4,231.38 with
interest at 9.725% per annum. The balance owing at December 31, 2002 was
$390,000. In December of 2002 DDC obtained permanent financing with Community
First National Bank, the loan bears interest at the rate of 7.16% per annum,
with monthly payments of $3,061. The building is 7,000 square feet, one story
tall, and constructed in the late 1960's. A furniture store currently has a
lease for 4,500 square feet leased at $3,800 per month until 2004. There is
currently 2,500 square feet of retail space available for lease. DDC has no
immediate plans to improve the non-leased space. Total improvements needed in
the vacant space are estimated at $25,000. Once the property is improved, the
space will be available for rent at a rate of 10.50 per square foot. 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.
Kearns Development Corporation. ("Kearns")
Kearns, a 90.7% owned subsidiary of Nexia, owns one office building located on
West Sams Boulevard in Kearns, Utah (a suburb of the Greater Salt Lake area).
The building contains approximately 11,709 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, with a balance owing at December 31, 2002 of $615,012. The loan was
personally guaranteed by Richard D. Surber, Nexia's President and C.E.O. This
property was refinanced subsequent to the end of the year on January 10, 2003, a
new mortgage in the sum of $660,000 was obtained from Community First Bank, an
interest rate of 7.16% applies to the loan, monthly payments are $5,223 based
upon a 20 year amortization with a balloon payment of the remaining balance due
on January 10, 2013.
The building is leased to three major tenants occupying 100% of the office
space, and generating monthly rentals of $11,173 at an average rate of $11.45
per square foot. Kearns has no present plans to renovate or improve the
building. Management believes that the building is adequately insured. The
building competes for tenants with other office space in the Kearns area.
West Jordan Real Estate Holdings, Inc. ("West Jordan")
West Jordan, a 88.28% owned subsidiary of Nexia, operates the Glendale Plaza, a
retail shopping plaza located at 1199 South Glendale Drive, Salt Lake City,
Utah. West Jordan exercised an option to purchase the shopping plaza on June 22,
2001. The loan on the property was refinanced on June 30, 2002 for a total loan
amount of $1,072,500 at the current interest rate of 8%, the loan is due on
demand or monthly payments of $12,417 are due each month, as of December 31,
2002 the outstanding balance owed was $950,161. The sum of $69,000 has been set
aside by Imperial Bank until such time as certain tenant occupancy goals are
met.
The property contains 72,256 square feet of retail space and approximately 77%
is subleased to tenants. A national chain retail store occupies 10,080 square
feet of the building. They are the only tenant of the Glendale Plaza which
occupy more than ten percent of the premises. The Glendale Plaza generates
approximately $261,410 in annual rental income as of December, 2002, or
approximately $3.63 per square foot. Present plans are to continue to operate
the building as a retail shopping plaza and to increase the rental rate.
Property taxes and assessments have been paid in full on the property. West
Jordan is of the opinion that this property is adequately insured.
Nexia and or its subsidiaries anticipates posting shares of common stock to
provide additional security or compensation to Mr. Surber for serving as a
personal guarantor of real estate loans. The amounts have not been determined at
the time of this filing.
Residential Properties
Two of Nexia's subsidiaries own interests in the residential properties
described below.
Salt Lake Development, Inc. ("SLD")
SLD, a 78.67% owned subsidiary of Nexia, purchased a two-story 18 unit apartment
building, located at 2402 Wall Avenue in Ogden, Utah, on July 23, 1998. The
property includes an additional 7,500 square feet of commercial space. The total
purchase price was $850,000. SLD put $5,000 down and financed the balance. The
$670,000 balance is being financed by the seller on a promissory note dated July
23, 1998, with payments that are based upon a 20-year amortization with an
interest rate of 7% for the first two years, which escalated to 9% beginning
with the September 1, 2000 payment with the balance of $577,361 due on March 31,
2004. There is no prepayment penalty. The balance owed at December 31, 2002 was
$590,560. The loan is secured by the entire apartment complex excepting the four
units mentioned above.
SLD is actively searching for a commercial tenant to occupy the 7,500 square
feet of commercial space. SLD is of the opinion that this property is adequately
covered by insurance. This facility competes with other rental units in the
downtown Ogden area. The building is currently in need of the renovation of it's
commercial space; estimated cost for these repairs and renovations are $50,000.
SLD has no current plans for additional renovation of the building. Ongoing
maintenance and repairs are carried out as needed.
Hudson Consulting Group, Inc. (Hudson)
Hudson, a 99.08% owned subsidiary of Nexia, owns three condominium units located
in close proximity to Brian Head Ski Resort and the surrounding resort town in
southern Utah. Hudson has acquired the condominium units for investment purposes
and has contracted with a management firm who rents the units on a short-term
basis. The first unit is subject to a note with a current principal balance on
December 31, 2002 of $26,674 and bearing an interest rate of 9.5% per annum.
Monthly payments on the first unit are $309 with the principal and interest
amortized over a period of 17 years. The second unit is subject to a note with a
current principal balance at December 31, 2002 of $29,792 and bearing an
interest rate of 8.25% per annum. Monthly payments on the second unit are $301.
The third unit is subject to a note with a current principal balance at December
31, 2002 of $35,711 and bearing an interest rate of 8.75% per annum.. Hudson as
of the date of this filing was in the process of selling all three of these
units.
Hudson also had an option to purchase a fourth condominium in the Brian Head
area pursuant to a lease option agreement it executed with Richard Surber,
Hudson's president, director and chief executive officer, in August, 1997. Mr.
Surber owns the condominium subject to a note on the property secured by a deed
of trust. Hudson leased the condominium for $900 per month, $671 of which is
applied to the monthly obligations on the first note. Hudson had an option to
purchase the condominium through a payment of $82,100, which was reduced monthly
by the extent to which Hudson monthly rental payments decrease the principal
balance due on the note. The lease option contained an alternative option price
in the event the unit appreciates dramatically during the term of the lease.
Hudson was also required to pay all taxes, condominium fees, maintenance and
repair expenses and other charges on the property. Hudson had the right to
manage, control and sell the condominium unit during the term of lease, which by
agreement of the parties came to an end on March 31, 2003.
Hudson spent $28,000 to renovate these units in summer of 2000 in an effort to
increase rental income and Hudson has listed each of the units for sale with a
local real estate agent.
Industrial Property
One of Nexia's subsidiaries owns an interest in the industrial property
described below.
Canton Tire Recycling West Virginia, Inc. ("CTR")
CTR, a 99.08% owned subsidiary of Nexia, owns the Parkersburg Terminal, located
at 516 Camden Street, Parkersburg, West Virginia. The terminal is a former fuel
transfer station. The property consists of 4.5 acres on a tributary of the Ohio
River and includes a former oil storage facility and a warehouse with office
space. There are no encumbrances on the property. The property has been vacant
and unused since its acquisition. CTR is subject to competition in finding
tenants or buyers for the property, and there is a substantial likelihood that
the property will remain vacant for some time. CTR is of the opinion that this
property is adequately covered by insurance. CTR has no present plans to
renovate or improve the property and recognized impairment expense of $258,788
during the year ended December 31, 2002.
The West Virginia Division of Environmental Protection filed suit against CTR
and Axia Group, Inc. the former parent corporation of CTR, seeking the
completion of environmental clean up procedures at the site. CTR believes it has
completed all cleanup measures which will be required by the State of West
Virginia, however there can be no assurance that the State of West Virginia will
not require additional cleanup on the property. For more information on the suit
filed against CTR and Axia and for more information on Parkersburg properties,
see "Item 3, Legal Proceedings."
CTR invested approximately $150,000 in environmental cleanup of the site over
the course of its ownership of the property. All appropriate reports regarding
the cleanup have been filed with regulatory agencies. CTR, the property owner,
has not received any additional requests or responses for over eighteen months
regarding the property.
Undeveloped Land
Nexia, through its subsidiaries, owns approximately six (6) small parcels of
undeveloped raw land in Utah and Kansas. There are currently no plans to develop
these properties. If valid offers are received on these parcels, they may be
sold. This property has a book value of $195,511.
Insurance
Nexia is of the opinion that each of these properties described above are
adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The following cases may have a material impact on the Company:
Hudson Consulting Group, Inc. v. Technical Ventures, Inc. Suit was filed by
Hudson Consulting Group, Inc. on October 10, 2001 against Technical Ventures,
Inc. in the Third Judicial District Court of Salt Lake County, State of Utah,
and assigned civil cause No. 010908909. Hudson has filed suit seeking recovery
of fees owed to it arising from an Advisory Agreement entered into in July of
1999. The suit alleges that 575,000 shares of Technical Ventures, Inc. common
stock has not been delivered to Hudson as required by the agreement. The
Defendant's have filed an answer and a counter-claim, asserting in their claim
that Hudson has failed to provide valuable services, seeking the return of all
previously paid compensation and denying any liability for the 575,000 shares
sought by Hudson in its claim. Pre-trial discovery is ongoing at the present
time. State of West Virginia vs. Canton Tire Recycling West Virginia, Inc.,
Canton Industrial Corporation and CyberAmerica Corporation - Suit was filed on
August 14, 1998 in the Circuit Court of Wood County, Parkersburg, West Virginia
as file no. 98 C 354 seeking the completion of clean up procedures for property
owned by Canton Tire Recycling West Virginia, located in the city of
Parkersburg. The state requested that certain waste material present on the site
and any remaining material in the on site storage tanks be removed and that an
oil/water separator located on the property be cleaned out. The Company and the
State of West Virginia entered into a Consent Decree by which the Company agreed
to submit and complete a Remediation and Sampling Work Plan and the payment of
$88,000 in fines and penalties ($8,000 has been paid, $20,000 was paid prior to
May 31, 2000, similar payments were made in 2001 and 2002 and the final payment
is due May 31, 2003.) The work required by the Remediation and Sampling Work
Plan has been completed and submitted to the State. This information included
test results indicating that soil contamination testing required by the Plan
reported contamination exceeding state guidelines. The nature and cost of
further testing or clean-up as a result of that report cannot be determined at
this time. No further request for additional work or testing has been received
from the State of West Virginia.
Kelly's Coffee Group, Inc. vs. Rollerball International, Inc. Suit was filed on
behalf of the Company, in it former name of Kelly's Coffee, against Rollerball
International Inc., a Delaware corporation with its place of business in Los
Angeles, California on November 16, 2000 in the Third Judicial District Court
for the County of Salt Lake, State of Utah, civil cause no. 000909340. The case
seeks the recovery of damages for the failure of Rollerball to deliver 312,500
shares of the common stock of Rollerball. The Company is alleging a complete
failure to perform on the part of Rollerball and seeks recission of the
agreement to purchase the shares and the return of the $50,000 purchase price.
The Company further seeks damages under the Utah Uniform Securities Act in the
form of treble damages. A Summons and Complaint was served on Rollerball and a
response to the suit's allegations was due by Rollerball no later than March 20,
2001. The Company has received a default judgement in the amount of $150,000 and
has placed collection of the judgment with a law firm in California, no
operations or property belonging to Rollerball have been identified from which
collection of the judgment could be realized, other options to collect the
judgment are being explored at this time.
Hudson Consulting Group, Inc. v. Chequemate International, Inc., dba C-3D
Digital, Inc.. Suit was filed on November 16, 2000 in the Third Judicial
District Court, for Salt Lake County, State of Utah, Civil No. 000909325. The
Company seeks recovery of its damages as a result of the failure of Chequemate
to deliver 75,000 shares of its common stock as provided for in an Advisory
Agreement between the parties dated July 29, 1999. Damages are sought for the
highest value of these shares during the period that delivery was not made, in
late July of 2000 the shares traded at approximately $2.68 per share. Partial
delivery of shares due under the agreement have been received by Hudson in June
of 2000 leaving 75,000 shares due and owing. The parties have signed a
settlement agreement wherein the defendant agrees to deliver 514,000 shares of
its common stock to Hudson and agrees to include these shares in a registration
statement. The shares have been received by Hudson and the registration
statement, including the shares received by Hudson has been filed with the SEC.
The agreement further provides that in the event the sale of the shares does not
generate $90,000 in proceeds that the defendant will issue additional shares to
Hudson to cover any shortfall. Upon receipt of the share certificate a notice of
dismissal of the lawsuit was filed with the court by Hudson. On January 2, 2003
Hudson filed suit in the Third Judicial District Court, for Salt Lake County,
State of Utah, Civil No. 030900004. This cause of action seeks recovery of the
failure of C-3D to honor the terms of the settlement agreement from the prior
action, recovery of $63,965.50 is sought for the difference in sales proceeds
from the stock delivered under the settlement agreement and the agreed upon
settlement figure of $90,000. Defendant's registered agent has been served but
no answer has been filed and the court has signed a default judgment as to C-3D.
Attempts to contact officers of C-3D have failed and at present it appears that
the company is no longer operating. On May 14, 2003 the court granted a default
judgment in the sum of $74,245.50.
Hudson Consulting Group, Inc. v. Ohana Enterprises, Inc., Isaac P. Simmons,
Kathryn A. Christmann, Gerard Nolan, David Cronshaw, Interactive Ideas, Jonathan
Thomas and Phillip Crawford. Suit was filed on March 17, 2003 in the Third
Judicial District Court in and for Salt Lake County, State of Utah, Case No.
030905949. Suit was filed by Hudson to seek payment under an August 27, 2002
Stock Purchase Agreement, wherein the named defendants purchased a controlling
interest in a Delaware corporation known as Torchmail Communications, Inc. which
changed its name subsequent to the transfer to Ohana Enterprises, Inc. The total
sales price was $300,000 of which only the first $100,000 has been paid. The
defendants have claimed that Hudson misrepresented the status of Ohana prior to
the transfer and are denying any further obligation to make payments. Suit has
been filed and attempts are ongoing to resolve the dispute through either the
return of control of the corporation or through payment of the outstanding
obligation. Six of the defendants have been served and their appearances are due
the first week of June. Hudson denies any misrepresentation with regard to the
corporation and its status and believes that the claims of the defendants are an
attempt to alter the terms of the written agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Electronic Bulletin Board under the
symbol, "NXIA.OB". Trading in the common stock in the over-the-counter market
has been limited and sporadic and the quotations set forth below are not
necessarily indicative of actual market conditions. Further, these prices
reflect inter-dealer prices without retail mark-up, mark-down, or commission,
and may not necessarily reflect actual transactions. The high and low bid prices
for the common stock for each quarter of the years ended December 31, 2001 and
2002 are as follows:
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YEAR QUARTER ENDING HIGH LOW
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2001 March 31, 2001 $0.055 $0.026
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June 30, 2001 $0.045 $0.021
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September 30, 2001 $0.044 $0.015
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December 31, 2001 $0.120 $0.020
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2002 March 31, 2002 $0.310 $0.040
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June 30, 2002 $0.065 $0.020
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September 30, 2002 $0.022 $0.006
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December 31, 2002 $0.020 $0.003
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2003 March 31, 2003 $0.015 $0.004
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As of May 29, 2003, the number of issued and outstanding shares of the Company's
common stock was 315,352,760, and the approximate number of holders of record of
the Company's common stock was 590. No cash dividends were paid during the
fiscal years ending December 31, 2002 and 2001.
Limited Market for Common Stock.
There is currently a limited trading market for our shares of common stock, and
there can be no assurance that a more substantial market will ever develop or be
maintained. Any market price for shares of common stock of Nexia is likely to be
very volatile, and numerous factors beyond our control may have a significant
adverse effect. In addition, the stock markets generally have experienced, and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small capital companies and which have often
been unrelated to the operating performance of these companies. These broad
market fluctuations, as well as general economic and political conditions, may
also adversely affect the market price of our common stock. Further, there is no
correlation between the present limited market price of our common stock and our
revenues, book value, assets or other established criteria of value. The present
limited quotations of our common stock should not be considered indicative of
the actual value of Vector Holdings Corporation or our common stock.
Risks of "Penny Stock".
Nexia Holdings Inc.'s common stock (OTC BB: NXIA) is deemed to be "penny stock"
as that term is defined in Rule 3a51-1 of the Securities and Exchange
Commission. Penny stocks are stocks (i) with a price of less than $5.00 per
share; (ii) that are not traded on a "recognized" national exchange; (iii) whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed
stocks must still meet requirement (i) above); or (iv) in issuers with net
tangible assets less than $2,000,000 (if the issuer has been in continuous
operation for at least three years) or $5,000,000 (if in continuous operation
for less than three years), or with average sales of less than $6,000,000 for
the last three years. Until recently, there had been no "established public
market" for our common stock during the last five years. While our stock has
traded between $0.31 and $0.004 per share over the past two years, there is no
assurance that this price level will continue, as there has thus far been low
volume, and our stock may be deemed to be penny stock at any time. Section 15(g)
of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 of the
Securities and Exchange Commission require broker/dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. Potential investors in our common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be a
"penny stock."
Moreover, Rule 15g-9 of the Securities and Exchange Commission requires
broker/dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any penny stocks to that investor.
This procedure requires the broker/dealer to (i) obtain from the investor
information concerning his or her financial situation, investment experience and
investment objectives; (ii) reasonably determine, based on that information,
that transactions in penny stocks are suitable for the investor and that the
investor has sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions; (iii) provide the investor
with a written statement setting forth the basis on which the broker/dealer made
the determination in (ii) above; and (iv) receive a signed and dated copy of
such statement from the investor, confirming that it accurately reflects the
investor's financial situation, investment experience and investment objectives.
Compliance with these requirements may make it more difficult for investors in
our common stock to resell their shares to third parties or to otherwise dispose
of them.
RECENT SALES OF UNREGISTERED SECURITIES
The Company issued no unregistered securities within the period covered by this
report which have not been previously reported on Form 10-QSB.
In March of 2003, subsequent to the end of period covered by this report a Stock
Purchase Agreement was entered into between Nexia Holdings, Inc. and Chen Li, an
individual resident of San Diego, California, where by Nexia sold to Ms. Li Five
Million (5,000,000) shares of restricted common stock of Nexia as consideration
for Ms. Li making a loan in the sum of $30,000 to Nexia's subsidiary
corporation, West Jordan Real Estate Holdings, Inc. The Company issued the
shares pursuant to section 4(2) of the Securities Act of 1933 in an isolated
private transaction by the Company which did not involve a public offering. The
Company made this offering based on the following factors: (1) The issuance was
an isolated private transaction by the Company which did not involve a public
offering, being made to a single entity; (2) there was only one offeree who was
issued stock; (3) the offeree acquired the stock with investment intent; (4)
there were no subsequent or contemporaneous public offerings of the stock; (5)
the stock was not broken down into smaller denominations; and (6) the
negotiations for the issuance of the stock took place directly between the
offeree and the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's plan of operation for the coming year, as discussed above, is to
identify and acquire favorable business opportunities as well as manage the
acquired subsidiaries and operations in a manner similar to that previously used
by Axia Group, Inc.
The Company does not plan to limit its options to any particular industry, but
will evaluate each opportunity on its merits. The Company believes it can meet
its cash needs for the foreseeable future from its current assets.
Consulting
Our business model is to provide an expanded scope of financial, business, and
investment oriented consulting services to select start-up companies and
existing public companies. Specifically, the Company helps client companies by
creating a series of infrastructure-based partnerships that take advantage of
the Company's expertise in: uncovering private placement funding sources,
strategic business planning, SEC registration documentation, transactional
document preparation, restructuring capital information, and identifying merger
and acquisition opportunities.
The Company's clients may choose to be acquired by the Company's reporting
companies and create their own public shareholder base with a self underwritten
offering or may choose to take advantage of the Company's shareholder base in a
Securities and Exchange Commission ("SEC") registered spin-off or a dividend.
The self-underwritten option requires a company to raise capital before
obtaining a quote, whereas an SEC registered spin-off or dividend enables
clients to obtain a quote prior to raising any new capital.
The Company employs several methods to locate prospective clients. We advertise
directly through print media to attract both private and public corporations to
engage our services, obtain referrals from previous clients and do our own
research of various databases that profile public companies.
The Company charges clients monthly or predetermined fees which vary in both
amount and form. Acceptable payments include cash, securities of the client
corporation, other assets, or some combination of the three. This payment
arrangement allows many organizations, especially start-up ventures and those
experiencing financial difficulties, to obtain the Company's services without
draining necessary cash funds. However, accepting stock as compensation
occasionally impairs the Company's cash flow, and for this reason acceptable
payments and the size of payments the Company charges for its services vary with
the volatility of the clients' securities, the amount and nature of work
involved, and the expenses related to the services being rendered.
Revenues from Hudson's financial consulting operations decreased for the year
ended December 31, 2002. Nexia recorded $223,387 in revenues for the year ended
December 31, 2002, from its financial consulting operations as compared to
$531,145 (94,038 from related parties) for the same period of 2001. This
decrease was due to a general slowdown in consulting due to adverse market
conditions experienced in the latter part of the year coupled with reductions
due to issues relating to company reorganization and restructuring. As the
market turns around, Nexia anticipates an increase in consulting activity.
Real Estate Operations
Nexia's objective with respect to its real estate operations is to acquire,
through its subsidiaries, properties throughout the country which Nexia's
management believes to be undervalued and which a subsidiary is able to acquire
through the expenditure of limited amounts of cash. The subsidiaries attempt to
acquire such properties by assuming existing favorable financing and paying the
balance of the price with nominal cash payments or through the issuance of
shares of either Nexia's or the subsidiary's common stock, or some combination
of the two. Once such properties are acquired, the subsidiary leases them to
primarily commercial tenants. Nexia's real-estate subsidiaries also make limited
investments in improvements to the properties with the objective of increasing
occupancy and improving cash flows. Nexia believes that with minor improvements
and effective management by the subsidiaries, properties can be liquidated at a
profit within a relatively short period of time. The Company has incurred losses
during the past year from impairment write-downs of property.
Nexia recorded consolidated rental revenues of $915,048 for 2002 as compared to
$939,447 for 2001. This decrease was largely attributable to decreases in
occupancy rates. During 2002, Nexia continued to take steps to decrease the
overall vacancy rate of its consolidated real estate holdings including
marketing its holdings to potential tenants through commissioned real estate
agents and making cost-effective improvements to the holdings to increase
occupancy.
Nexia continues its real estate operations despite the negative cash flow for
two reasons. First, Nexia is attempting to eliminate the losses by increasing
occupancy and rental income from those properties of the subsidiaries which have
a high current vacancy rate. Second, Nexia's subsidiaries purchase real estate
primarily for appreciation purposes. Thus, while Nexia seeks to minimize and
reverse its real estate cash flow deficit, its goal is to offset such deficit
with sufficient cash that will be generated upon property disposition.
Company Operations as a Whole
Revenues
Gross revenues for December 31, 2002 and 2001 were $1,138,435 and $1,470,592
respectively. The decrease in revenues is due to less demand for the Company's
consulting services due primarily to the prolonged downturn in the equity
markets, as well as a dip in the demand for commercial and office space in the
markets where the Company owns property.
Losses
Nexia recorded an operating loss of $3,692,296 at December 31, 2002, as compared
to an operating loss of $1,724,624 at December 31, 2001. Nexia recorded a net
loss of $3,520,570 for December 31, 2002, compared to a net loss of $1,717,583
for December 31, 2001. Nexia's increased losses are attributable to losses on
the sale of securities, substantial permanent markdowns of securities received
in payment of services, and operating losses from the real estate properties
acquired from Axia.
Nexia feels that it is positioned to take advantage of changing market
conditions as a result of changes made in the last year. Nexia anticipates
operating at a profit through fiscal 2003. However, there can be no assurance
that Nexia will attain profitability or that its can obtain any revenue growth
in the future.
Expenses
General and administrative expenses for December 31, 2002 and 2001 were
$1,632,381 and $543,486 respectively. The increase in expenses is a direct
result of the increases in consulting fees, accounting and audit expenses, bad
debt expense, and other general expenses.
Depreciation and amortization expenses for the years ended December 31, 2002 and
December 31, 2001 were $187,424 and $176,000, respectively.
Nexia expects expenses as a percent of revenues to remain constant or decrease
through 2003 as Nexia steps up its effort to streamline operations and eliminate
non-performing assets as well as acquire additional properties and grow its
consulting businesses.
Capital Resources and Liquidity
At December 31, 2002, Nexia had current assets of $567,973 and total assets of
$5,980,97. Nexia had a net working capital deficit of $1,831,572 at December 31,
2002. The main reason for the working capital deficit is that the mortgages on
two of the buildings acquired from Axia become due within the coming year. An
additional contributing factor is a substantial decrease in securities available
for sale due to write downs and downturns in the market.
Net stockholders' equity in Nexia was $420,316 as of December 31, 2002, compared
to $2,422,502 as of December 31, 2001.
Cash flow used in operations was $849,030 for the year ended December 31, 2002,
compared to cash flow used in operations of $298,772 for the year ended December
31, 2001. The increase in cash flows used in operating activities for the year
ended December 31, 2002, is primarily attributable to the large loss combined
with various markdown and impairment items.
Cash flow provided by investing activities was $2,305,049 for the year ended
December 31, 2002, compared to net cash provided by investing activities of
$320,537 for the year ended December 31, 2001. Nexia had increased investing
cash flow for the year ended December 31, 2002 primarily as a result of the sale
of the General Lafayette Inn.
Cash flow used in financing activities was $1,642,541for the year ended December
31, 2002, compared to net cash provided of $139,124 for the year ended December
31, 2001. Nexia had negative financing cash flow for the year ended December 31,
2002, primarily as a result of paying off the mortgage of the General Lafayette
Inn.
Due to Nexia's acquisition of debt service on real estate holdings, willingness
to acquire properties with negative cash flow shortages, and acceptance of
non-cash assets for consulting services, Nexia experiences occasional cash flow
shortages. To satisfy its cash requirements, including the debt service on its
real estate holdings, Nexia must periodically raise funds from external sources.
This often involves Nexia conducting exempt offerings of its equity securities.
During the year ended December 31, 2002, Nexia issued a total of 383,333 shares
for services.
Ability to Continue as a Going Concern
Nexia's ability to continue as a going concern is in doubt as a result of Nexia
having incurred a loss from its operations during the calendar year 2002 and has
had losses in prior years as well. Nexia will need to substantially decrease its
operating expenses, increase its operating income, and raise significant
additional capital, as to which there is no assurance that the objective will be
accomplished. In the event that these events do not take place Nexia will in all
probability not be able to continue as a going concern in calendar year 2003.
Capital Expenditures
Nexia had capital expenditures of $309,246 during the year ended 2002.
Income Tax Expense (Benefit)
Nexia has an income tax benefit resulting from net operating losses to offset
future operating profit of approximately $6,800,000. This is not shown on the
balance sheet as a deferred tax asset due to past history of loss years in
conjunction with profit years during the previous 10 year period as well as
specifics in the GAAP regulations regarding surety of future earnings.
Impact of Inflation
Nexia believes that inflation has had a negligible effect on operations over the
past three years. Nexia believes that it can offset inflationary increases in
the cost of labor by increasing sales and improving operating efficiencies.
Known Trends, Events, or Uncertainties
General Real Estate Investment Risks
Nexia's investments are subject to varying degrees of risk generally incident to
the ownership of real property. Real estate values and income from Nexia's
current properties may be adversely affected by changes in national or local
economic conditions and neighborhood characteristics, changes in interest rates
and in the availability, cost and terms of mortgage funds, occupancy rates of
Nexia's properties, the impact of present or future environmental legislation
and compliance with environmental laws, the ongoing need for capital
improvements, changes in governmental rules and fiscal policies, civil unrest,
acts of God, including earthquakes and other natural disasters which may result
in uninsured losses, acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of Nexia.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of Nexia to vary
its ownership of real estate property in response to changes in economic and
other conditions is limited. If Nexia must sell an investment, there can be no
assurance that Nexia will be able to dispose of it in the time period it desires
or that the sales price of any investment will recoup the amount of Nexia's
investment.
Property Taxes
Nexia's real property is subject to real property taxes. The real property taxes
on this property may increase or decrease as property tax rates change and as
the property is assessed or reassessed by taxing authorities. If property taxes
increase, Nexia's operations could be adversely affected.
Events Subsequent to End of Fiscal Year
In March of 2003, a Stock Purchase Agreement was entered into between Nexia
Holdings, Inc. and Chen Li, an individual resident of San Diego, California,
where by Nexia sold to Ms. Li Five Million (5,000,000) shares of restricted
common stock of Nexia in exchange for Mr. Li making a loan in the sum of $30,000
to Nexia's subsidiary corporation, West Jordan Real Estate Holdings, Inc.
On May 9, 2003, Wasatch Capital Corporation ("Wasatch") refinancing the
underlying debt on the real estate located in Salt Lake City, Utah. The terms of
the new loan package provide for a loan in the total amount of $850,000, an
interest rate of 7.5%, with monthly payments of $6,848. The loan has a term of
three years, resulting in a due date of May 10, 2006. Of the loan proceeds
$202,920 has been set aside for construction or capital improvements to the
buildings securing the loan. In the event that direct benefits from improvements
to the building cannot be realized from refurbishing the building, this amount
will be returned to the lender to pay down the existing loan.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the fiscal year ended December
31, 2002 are attached hereto as pages F-1 through F-13.
[THIS SPACE INTENTIONALLY LEFT BLANK]
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
C O N T E N T S
Independent Auditors' Reports................................................ 3
Consolidated Balance Sheet................................................... 5
Consolidated Statements of Operations and Other Comprehensive Income......... 7
Consolidated Statements of Stockholders' Equity.............................. 9
Consolidated Statements of Cash Flows........................................10
Notes to the Consolidated Financial Statements...............................12
INDEPENDENT AUDITORS' REPORT
Board of Directors
Nexia Holdings, Inc. and Subsidiaries
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of Nexia Holdings,
Inc. and Subsidiaries as of December 31, 2002 and the related consolidated
statements of operations and other comprehensive income, stockholders' equity
and cash flows for the year ended December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Nexia
Holdings, Inc. and Subsidiaries as of December 31, 2002 and the consolidated
results of their operations and other comprehensive income, and their cash flows
for the year ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has generated significant losses
from operations, has an accumulated deficit of $9,322,642 and has a working
capital deficit of $1,831,572 at December 31, 2002, which together raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
May 27, 2003
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Diversified Holdings I, Inc.,
Wichita Development Corporation, Golden Opportunity Development Corporation,
Downtown Development Corporation, Wasatch Capital Corporation, and Canton Tire
Recycling of West Virginia, Inc. (together "the Company")
We have audited the accompanying combined statement of operations, stockholders'
equity, and cash flows of Diversified Holdings I, Inc., Wichita Development
Corporation, Golden Opportunity Development Corporation, Downtown Development
Corporation, Wasatch Capital Corporation, and Canton Tire Recycling of West
Virginia, Inc. (together "the Company") for the year ended December 31, 2001.
These financial combined statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Diversified Holdings I, Inc., Wichita Development Corporation, Golden
Opportunity Development Corporation, Downtown Development Corporation, Wasatch
Capital Corporation, and Canton Tire Recycling of West Virginia, Inc. for the
year ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying combined financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
combined financial statements, the Company has incurred significant losses, has
a significant accumulated deficit, and has a working capital deficiency. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
2. The combined financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
TANNER + CO.
Salt Lake City, Utah
March 26, 2002
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
December 31, 2002
CURRENT ASSETS
Cash $ 108,821
Accounts receivable - trade, net of allowance of $40,031 8,681
Related party accounts receivable 2,930
Notes receivable, net (Note 4) 279,056
Prepaid expenses 23,500
Marketable securities (Note 6) 144,985
-------
Total Current Assets 567,973
-----------------
FIXED ASSETS (Note 5)
Property and equipment, net 4,283,266
Land 1,084,529
-----------------
Total Fixed Assets 5,367,795
-----------------
OTHER ASSETS
Loan costs, net 45,203
-----------------
Total Other Assets 45,203
-----------------
TOTAL ASSETS $ 5,980,971
==============
The accompanying notes are an integral part of these
consolidated financial statements.
5
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILTIES AND STOCKHOLDERS' EQUITY
December 31,
2002
CURRENT LIABILITIES
Accounts payable $ 203,136
Accrued liabilities 139,752
Current portion of WVDEP liability (Note 11) 20,000
Unearned rent (Note 1) 49,033
Deferred revenue (Note 1) 26,451
Deferred gain on sale of subsidiary (Note 12) 121,770
Refundable deposit 17,650
Related party payable - Axia (Note 3) 408,333
Current portion long-term debt (Note 9) 1,413,420
----------
Total Current Liabilities 2,399,545
-----------------
LONG-TERM LIABILITIES
Long-term debt (Note 9) 2,700,553
----------
Total Long-Term Liabilities 2,700,553
-----------------
Total Liabilities 5,100,098
-----------------
MINORITY INTEREST 460,557
-----------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 50,000,000 shares authorized,
no shares issued or outstanding -
Common stock, $.001 par value, 1,000,000,000 shares authorized,
310,352,760 shares issued and outstanding 310,353
Additional paid-in capital 9,647,273
Treasury stock, 7,685,340 shares at cost (107,741)
Stock subscription receivable (Note 14) (107,800)
Other comprehensive income 873
Accumulated deficit (9,322,642)
-----------------
Total Stockholders'Equity 420,316
-----------------
TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY $ 5,980,971
=================
The accompanying notes are an integral part of these
consolidated financial statements.
6
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Income
For the Years Ended
December 31,
--------------------------------------
2002 2001
--------------- -------------------
REVENUE
Consulting revenue $ 223,387 $ 437,107
Consulting revenue - related parties - 94,038
Rental revenue 915,048 939,447
------- ------------
Total Revenue 1,138,435 1,470,592
------------ -------------
COST OF REVENUE
Cost associated with consulting revenue 631,004 325,431
Cost associated with rental revenue 1,242,351 820,632
Interest expense associated with rental revenue 398,814 490,372
---------- ------------
Total Cost of Revenue 2,272,169 1,636,435
----------- -------------
GROSS MARGIN (DEFICIT) (1,133,734) (165,843)
------------------ ----------
EXPENSES
Impairment of long-lived assets 258,788 117,946
Impairment of marketable securities 707,437 745,105
(Gain) loss on sale of marketable securities (40,044) 152,244
Selling, general and administrative expense 1,632,381 543,486
------------------ -----------------
Total Expenses 2,558,562 1,558,781
------------------ -----------------
LOSS FROM OPERATIONS (3,692,296) (1,724,624)
------------------ ---------------
OTHER INCOME (EXPENSE)
Interest income 10,987 104,151
Interest expense - (76,849)
Other (expense) income 56,531 (12,918)
Gain (loss) on disposal of assets 4,159 (6,000)
------------------ -----------------
Total Other Income (Expense) 71,677 8,384
------------------ -----------------
LOSS BEFORE MINORITY INTEREST AND INCOME TAXES $ (3,620,619) $ (1,716,240)
------------------ ----------------
The accompanying notes are an integral part of these
consolidated financial statements.
7
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Income (Continued)
For the Years Ended
December 31,
--------------------------------------
2002 2001
--------------- -------------------
LOSS BEFORE MINORITY INTEREST AND INCOME TAXES $ (3,620,619) $ (1,716,240)
MINORITY INTEREST 100,049 (1,343)
---------- ------------
LOSS BEFORE INCOME TAXES (3,520,570) (1,717,583)
PROVISION FOR INCOME TAXES - -
------------------ ------------------
NET LOSS (3,520,570) (1,717,583)
----------------- -----------------
OTHER COMPREHENSIVE INCOME
Change in marketable securities 434,092 33,183
------------------ -----------------
TOTAL COMPREHENSIVE INCOME $ (3,086,478) $ (1,684,400)
================== =============
Net loss per common share, basic and diluted $ (0.01) $ (0.02)
================== =================
Weighted average common shares outstanding, basic and
diluted 278,022,545 97,644,147
============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
8
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Additional Stock Other Total
Common Stock Paid-in Treasury Subscription Comprehensive Accumulated Stockholders
Shares Amount Capital Stock Receivable Income (Loss) Deficit Equity
----------- ------------ ------------ ---------- ------------ ------------- ----------- ---------
Balance, December 31, 2000 97,355,647 $ 97,356 $ 8,334,683 $ - $ - $ (466,402)$(4,084,489) $3,881,148
Common stock issued for
services 392,384 392 3,608 - - - - 4,000
Common stock issued for
investments 3,266,534 3,267 101,495 - - - - 104,762
Common stock issued for
conversion of related party
debt 5,665,815 5,666 141,925 - - - - 147,591
Common stock issued for
purchase of subsidiary 148,419,620 148,420 (245,034) - - - - (96,614)
Adjustment for marketable
securities - - - - - 33,183 - 33,183
Change in receivable from
former parent - - 66,015 - - - - 66,015
Net loss for the year ended
December 31, 2001 - - - - - - (1,717,583) (1,717,583)
------------- ---------- ------------- - - - ---------- ---------
Balance, December 31, 2001 255,100,000 255,101 8,402,692 - (433,219) (5,802,072) 2,422,502
Recapitalization 54,869,427 54,869 1,116,664 (91,792) - - - 1,079,741
Purchase of treasury stock - - - (15,949) - - - (15,949)
Common stock issued for
services 383,333 383 20,117 - - - - 20,500
Sale of common stock by
Subsidiary - - 107,800 - (107,800) - - -
Adjustment for marketable
securities - - - - - 434,092 - 434,092
Net loss for the year ended
December 31, 2002 - - - - - -(3,520,570) (3,520,570)
------------- ---------- ------------- -------- ------------ ------------ ---------- -----------
Balance, December 31, 2002 310,352,760 $ 310,353 $ 9,647,273 $ (107,741) $ (107,800) $ 873 (9,322,642)$ 430,316
============= ========== ====== ======= ============ ============ ========= =======
The accompanying notes are an integral part of these
consolidated financial statements.
9
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
-------------------------------------
2002 2001
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,520,570) $ (1,717,583)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss (gain) from sale of investments (40,044) 152,244
Loss (gain) from sale of land and real
property for sale (4,159) 6,000
Loss on disposition of property, plant and equipment - 24,519
Impairment of marketable securities 707,437 745,105
Impairment of long-lived assets 258,788 117,946
Change in minority interest (100,049) (113,897)
Depreciation and amortization 187,424 176,000
Issued common stock for services 20,500 -
Bad debt expense 200,895 -
Changes in operating assets and liabilities:
Accounts and notes receivable 106,794 339,875
Prepaid expenses (22,530) 3,289
Investment in securities at cost - 120,000
Other assets 371,616 (44,082)
Accounts payable 173,113 7,207
Accrued liabilities (83,213) (15,883)
Deferred revenue (357,806) (99,512)
Refundable deposit 17,650 -
Related party payable - Axia 1,235,124 -
------------------ ---------------
Net Cash Used In Operating Activities (849,030) (298,772)
-------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in acquisition of Wichita Development - 188,280
Proceeds from notes receivable 98,526 404,663
Proceeds from sale of marketable securities 88,772 -
Purchase of marketable securities (5,003) (126,250)
Proceeds on sale of real property 2,332,000 1,500
Proceeds on sale of subsidiaries 100,000 -
Purchase of property, plant and equipment (309,246) (147,656)
------------------ ---------------
Net Cash Provided By Investing Activities 2,305,049 320,537
------------------ ---------------
The accompanying notes are an integral part of these
consolidated financial statements.
10
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
-------------------------------------
2002 2001
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt $ (2,012,430) $(180,645)
Proceeds from issuance of long-term debt 385,838 209,672
Purchase of treasury stock (15,949) -
Advances from related parties - 110,097
------------
Net Cash Provided By (Used In) Financing Activities (1,642,541) 139,124
------------------ --------------
Net Increase (Decrease) In Cash (186,522) 160,889
CASH, BEGINNING OF YEAR 295,343 134,454
--------- ----------------
CASH, END OF YEAR $ 108,821 $ 295,343
================ ================
SUPPLEMENTAL DISCLOSURE OF INFORMATION
Cash paid during the year for interest $ 395,435 $ 567,221
Cash paid during the year for income taxes $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services $ 20,500 $ 4,000
Vehicle acquired through capital lease $ 46,880 $ -
Common stock sold by subsidiary $ 107,800 $ -
Common stock issued for investments $ - $ 104,762
Common stock issued for conversion of related party debt $ - $ 147,591
Common stock issued for purchase of subsidiary $ - $ (96,614)
The accompanying notes are an integral part of these
consolidated financial statements.
11
31
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES
a. Organization
Nexia Holdings, Inc. (Nexia or The Company) was incorporated under
the laws of the State of Colorado on April 20, 1987 as Metropolitan
Acquisition Corporation. The name of the Company has changed
several times, most recently, to Kelly's Coffee Group, Inc.
(Kelly's) on April 22, 1994, and finally to Nexia Holdings, Inc. on
March 15, 2002. Nexia became a development stage company on March
1, 1998.
On October 5, 2000, Nexia merged with a Nevada corporation with the
same name, effectively changing its state of domicile from Colorado
to Nevada and its authorized common stock from 100,000,000 shares
with $.001 par value to 1,000,000,000 shares with $.001 par value.
On February 15, 2002, the Company entered into a Stock Purchase
Agreement (Agreement) with Axia Group, Inc. (Axia) a related party,
pursuant to which the Company issued to Axia 255,100,000 restricted
shares of the Company's common stock in exchange for essentially
all of the assets and liabilities of Axia. Axia's assets included a
portfolio of securities, real estate holdings and publicly
reporting shell-companies. The shares issued to Axia equaled
approximately 82% of the issued and outstanding shares of the
Company after the close of the transaction. Immediately prior to
the Agreement, the Company had 55,252,760 shares of common stock
issued and outstanding. The acquisition was accounted for as a
recapitalization. Such subsidiaries consist of Diversified Holdings
I, Inc., Wichita Development Corporation, Golden Opportunity
Development Corporation, Downtown Development Corporation, Wasatch
Capital Corporation, and Canton Tire Recycling of West Virginia,
Inc. (together "The Accounting Acquirer"). The subsidiaries of Axia
which were transferred to the Company have been treated as the
acquiring entities for accounting purposes and the Company is the
surviving entity for legal purposes. The transaction is deemed to
be an exchange of assets between entities under common control. The
President of the Company is also the President of Axia and is also
a significant shareholder in many of the subsidiaries which were
transferred to the Company. As noted by Interpretation 39, the
transfer of net assets or an exchange of shares between entities
under common control is excluded from Opinion 16 and should be
accounted for at historical cost. There was no adjustment to the
carrying value of the assets or liabilities of the transferred
subsidiaries, nor was there any adjustment to the carrying value of
the net assets or liabilities of the Company. The combined
statements of operations and other comprehensive income and cash
flows for the year ended December 31, 2001 include only the
activity of the accounting acquirer and through February 5, 2002
(date of agreement) after which the statement of operations reflect
the operations of the accounting acquirer and Nexia. The statement
of stockholders equity for the year ended December 31, 2001 has
been presented to give proportionate effect to the number of shares
issued by the Company as applied to the equity transactions of the
accounting acquirer.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
b. Basis of Consolidation
Diversified Holdings I, Inc. (DHI), a Nevada corporation and 99%
owned subsidiary of the Company, was formed on March 22, 1996. DHI
is a holding company which has majority ownership of the following
subsidiaries:
Hudson Consulting Group, Inc. (Hudson) was incorporated in Nevada on April 16,
1996, as Diversified Holdings XIII, Inc. for the purpose of providing business
consulting services. On March 5, 1997, its name was changed to Hudson Consulting
Group, Inc. Hudson is 100% owned by DHI.
Oasis International Hotel & Casino, Inc. (OIHC), a Nevada
corporation, was formed on November 20, 1995 for the purpose of
acquiring, owning and managing specific property in Elko County,
Nevada. OIHC is 91% owned by DHI and currently has no real estate
holdings.
Canton Industrial Corporation of Salt Lake City (CICSLC), a Utah
corporation, was incorporated on September 29, 1993 for the purpose
of acquiring, owning and managing a specific property. CICSLC sold
the property in December 1998, and currently holds a promissory
note from the purchaser, secured by a deed of trust on the
property, in the amount of $255,000, bearing interest at 8%,
principal and interest due August 10, 2002. CICSLC is 80% owned by
DHI and 10% owned by Nexia.
Golden Opportunity Development Corporation (GODC), was incorporated
in Louisiana on May 7, 1997 and redomiciled to Nevada during 2000.
GODC owned and operated The General Lafayette Inn located in the
downtown area of Baton Rouge, Louisiana, and is owned 83% by DHI.
The General Lafayette Hotel was sold in January 2002.
Canton's Wild Horse Ranch II, Inc. (CWHRII), was incorporated in
Arizona on February 3, 1994, for the purpose of acquiring, owning
and managing certain unimproved raw land. The land was sold in 1999
and currently CWHRII has minimal assets and is owned 91% by DHI.
West Jordan Real Estate Holdings, Inc. (WJREH), was formed on June
7, 1994 in Utah for the purpose of acquiring, owning and managing a
specific property. WJREH currently owns a commercially rented
retail shopping plaza in Salt Lake City, Utah.
WJREH is owned 89% by DHI.
Salt Lake Development, Inc. (SLD), is a Utah corporation formed on
January 21, 1994 as Canton's Commercial Carpet Corporation. On May
31, 2001, its name was changed to Salt Lake Development, Inc. SLD
owns the building where the Company's office is located, in
addition to the New Brigham apartments in Ogden, Utah. SLD is owned
79% by DHI.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
b. Basis for Consolidation (Continued)
Wasatch Capital Corporation (WCC), a Utah corporation, was
incorporated on June 10, 1991. WCC owns a commercially rented
building in downtown Salt Lake City and is owned 77% by DH1.
Canton Tire Recycling of West Virginia, Inc. (CTRWV), was
incorporated by the Company on February 25, 1993, in West Virginia,
for the purpose of acquiring, owning and managing a specific
property. CTRWV holds certain real property in West Virginia valued
at $31,380, and is 100% owned by DH1.
Downtown Development Corporation (Downtown), was incorporated by
the Company on November 30, 1999 in Utah as A-Z South State
Corporation. On August 22, 2001, its name was changed to Downtown
Development Corporation. Downtown owns a commercially rented
building in Salt Lake City, Utah, and is 100% owned DH1.
In addition to DHI, the Company has majority ownership in the
following subsidiaries:
Wichita Development Corporation (WD) was organized under the laws
of the State of Nevada on February 15, 1996 as Cyberbotanical, Inc.
WD was in development stage until August 30, 2000 at which time it
issued 18,400,000 shares of common stock to Kelly's Coffee Group,
Inc. for $540,554 and purchased a building in Wichita, Kansas,
known as the Board of Trade Center. On October 12, 2000, WD changed
its name to Wichita Development Corporation. On October 17, 2001,
the Company purchased 18,100,000 shares of restricted stock of
Kearns Development Corporation, a majority owned subsidiary of Axia
Group, Inc. in exchange for issuing 80,000,000 shares of its common
stock to Axia Group, Inc. As a result of the transaction, Kearns is
an 91% owned subsidiary of WD and WD became a greater than 80
percent owned subsidiary of Axia Group, Inc. when the newly issued
shares are combined with the shares already owned by Axia and its
subsidiaries. As a result of the transaction, the operations of WD
from the October 17, 2001 date of acquisition, to December 31, 2002
and the operations of Kearns for the years ended December 31, 2002
and 2001 are included in the Company's consolidated financial
statements.
Kearns Development Corporation (Kearns), a Nevada corporation, was
incorporated February 16, 1996 as Cyber Studio, Inc. On April 4,
2001, its name was changed to Kearns Development Corporation.
During 2000, Kearns purchased a commercially rented building in
Kearns, Utah. Pursuant to the Wichita Development transaction
mentioned above, Kearns is more than 80% owned by Wichita
Development Corporation. Prior to October 17, 2001, Kearns was
owned 86% by DHI.
Wichita Properties, Inc. (WPI) was organized under the laws of the
State of Nevada on October 18, 2001 for the purpose of acquiring,
owning and managing certain real property no yet identified and
purchased. Currently, WPI has minimal assets and is owned 100% by
WD.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
b. Basis for Consolidation (Continued)
At December 31, 2002, the Company had full or majority ownership in 14 other
companies including CyberCosmetics, Inc., CyberBoy, Inc., CyberEye, Inc.,
CyberFishing, Inc., CyberLead, Inc., CyberLife, Inc., CyberOil, Inc.,
CyberSkiing, Inc., CyberSoccer, Inc., CyberTennis, Inc.,CyberTyme, Inc.,
CyberWholesale, Inc., CSI Holdings, Inc. (formerly CyberWrestling, Inc.),
CyberWrite, Inc. Each of these companies is inactive with little or no assets,
liabilities or operating activities.
c. Accounting Method
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business.
d. Compensating Cash Balances
The Company's subsidiary, Wichita Development Corporation, has
entered into a two-year property management agreement for its
property located in Wichita, Kansas. Among other items, the
agreement requires that there be a $5,000 cash balance at the
beginning of each month. The cash account is in the name of the
property manager.
The Company's subsidiary, Kearns Development, has a note payable to
a financial institution. The note requires that a $20,000 deposit
account be maintained. Subsequent to year-end, the note was
refinanced and the deposit was released to the Company.
The Company's subsidiary, West Jordan Real Estate Holdings, Inc.
has signed a note payable. As part of the note, WJREH has agreed to
deposit $3,750 monthly into a bank account to be used for capital
improvements, tenant improvements and leasing commissions. The
account balance was $17,540 at December 31, 2002.
e. Provision for Taxes
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
e. Provision for Taxes (Continued)
Net deferred tax assets consist of the following components as of December 31,
2002 and 2001:
2002
Deferred tax assets
NOL Carryover $ 2,648,445
Capital loss 661,050
Other 2,000
Deferred tax liabilities: -
Valuation allowance (3,311,495)
------------------
Net deferred tax asset $ -
==================
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal and state income tax rates
of 39% to pretax income from continuing operations for the years
ended December 31, 2002 and 2001 due to the following:
2002 2001
---------------------------------------------------------------------------------------------- ------------------
Book loss $ (1,394,472) $ (670,000)
Bad debt 120,370 -
Asset impairments 100,927 -
Other (2,371) -
Stock for services/option expense 8,000 -
Valuation allowance 1,167,546 670,000
------------------ ------------------
$ - $ -
================== ==================
At December 31, 2002, the Company had net operating loss
carryforwards of approximately $6,800,000 that may be offset
against future taxable income from the year 2002 through 2022. No
tax benefit has been reported in the December 31, 2002 consolidated
financial statements since the potential tax benefit is offset by a
valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of
1986, net operating loss carryforwards for Federal income tax
reporting purposes are subject to annual limitations. Should a
change in ownership occur, net operating loss carryforwards may be
limited as to use in the future.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
f. Depreciation
The Company's property and equipment is depreciated using the
straight-line Accounting method over the useful lives shown below
for financial reporting purposes.
Asset Useful Life
----------------- -----------------
Computers 3 years
Equipment and fixtures 5 to 10 years
Buildings and improvements 20 to 39 years
g. Revenue Recognition
The Company recognizes revenue from its two main sources of revenue
as follows:
Rental Revenue
Rental revenues are recorded in the period in which they are earned
in accordance with rental agreements and lease contracts. Rent
payments are typically due by the 1st of each month. Occasionally,
the Company will receive rent payments at the end of preceding
months for the following months rent. The Company will record these
as deferred revenue until such time as the rent has been earned.
Deferred rental revenue at the December 31, 2002 was $49,033.
Consulting Revenue
The Company, through its subsidiaries performs consulting services
which consist of financial reporting, business acquisitions, and
other public company reporting and support functions. The Company
can receive payment for these services in a variety of ways. (1)
the Company can be paid in cash; (2) the Company can be paid in
restricted securities of the client; (3) the Company can be paid in
a combination of cash and restricted securities of the client. The
Company follows the revenue recognition provisions of SAB 101
`Revenue Recognition in Financial Statements' and 5 `Recognition
and Measurement in Financial Statements of Business Enterprises'.
These statements require that revenue not be recognized unless
collectibilility is reasonably assured with recognition of revenue
acceptable only when realizable or when assets received or held are
readily convertible into known amounts of cash or claims to cash.
Accordingly, when the Company is to be paid in cash, the Company
will record the revenue on an accrual basis when the services have
been performed, the amounts are readily determinable and collection
is reasonable assured. In the cases where the Company receives
restricted securities from the client as payment, revenue is
deferred until such time as the securities are sold, thereby
meeting the requirements that the assets received are readily
convertible into known amounts of cash. In the cases where the
Company receives a combination of cash and restricted securities,
the Company will record that cash as revenue as noted previously
and will defer the recognition of the revenue from the securities
until the securities are sold.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
g. Revenue Recognition (Continued)
The Company records the securities received from consulting
services in accordance with SFAS 115 `Accounting for Certain
Investments in Debt and Equity Securities'. This standard requires
that the Company classify its investments as either trading,
available for sale, or held to maturity securities. The Company
typically classifies the securities received as payment for the
consulting services as available for sale. Any unrealized gains and
losses on these securities for which the revenue has been deferred
are recorded as adjustments to the deferred revenue account until
such time as the security is sold and the Company is able to
recognize the revenue from the consulting services. The amount of
deferred revenue related to consulting services performed for which
the Company received restricted securities at December 31, 2002 was
$26,541. This represents the fair value of the portion of the
available for sale securities for which revenue had been deferred
at December 31, 2002.
h. Marketable Securities
The Company follows the provisions of SFAS 115 regarding marketable
securities. The Company`s securities investments that are bought
and held principally for the purpose of selling them in the near
term are classified as trading securities. Trading securities are
recorded at fair value on the balance sheet in current assets, with
the change in fair value during the period included in earnings.
Securities investments that the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and recorded at amortized cost in investments and other
assets. Securities investments not classified as either
held-to-maturity or trading securities are classifies as
available-for-sale securities. Available-for-sale securities are
recorded at fair value in investments and other assets on the
balance sheet, with the change in fair value during the period
excluded from earnings and recorded net of tax as a separate
component of equity. All marketable securities held by the Company
have been classified as available-for-sale securities.
i. Issuance of Common Stock
The Company frequently issues shares of its common stock to acquire
assets, retire debt and pay for services. When stock is issued for
assets, debt or services, the value of the stock, related assets,
debt or services is determined by the most readily determinable
value, i.e. the value of the common stock issued or the value of
the assets, debt or services.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
j. Environmental Compliance and Remediation
The Company determines potential liability on a site by site basis
and records a liability when its existence is probable and
reasonably estimable. Expenditures that do not have a future
economic benefit are expensed as incurred. Expenditures that extend
the life of the related property or mitigate or prevent future
environmental contamination are capitalized.
k. Impairment of Long-Lived Assets
The Company recognizes impairment losses as the difference between
historical cost and fair value of the asset, less costs to sell,
when management determines that events and circumstances indicate a
need to assess impairment, and when that assessment indicates that
historical cost materially exceeds fair value, less costs to sell.
Impairment expense totaled $258,788 and $117,946 for the years
ended December 31, 2002 and December 31, 2001, respectively.
l. Advertising Expense
The Company expenses advertising costs as incurred. Advertising
expense was $18,311 and $8,532 for the years ended December 31,
2002 and 2001, respectively.
m. Basic Loss Per Common Share
The computation of basic loss per share of common stock is based on
the weighted average number of shares outstanding during the
period.
For the Years Ended
December 31,
-------------------------------------------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------------------- -------------------
Numerator - loss $ (3,520,570) $ (1,717,583)
Denominator -
weighted average shares outstanding 278,022,545 97,644,000
------------------ -------------------
Basic loss per share $ (0.01) $ (0.02)
================== ===================
n. Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United Stated of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
o. Newly Issued Accounting Pronouncements
New accounting pronouncements that have a current or future
potential impact on our financial statements are as follows:
SFAS No. 145 -- On April 30, 2002, the FASB issued FASB Statement
No. 145 (SFAS 145), "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS 145 rescinds both FASB Statement No. 4 (SFAS 4), "Reporting
Gains and Losses from Extinguishment of Debt," and the amendment to
SFAS 4, FASB Statement No. 64 (SFAS 64), "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements." Through this
rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and
SFAS 64) that gains and losses from the extinguishment of debt be
aggregated and, if material, classified as an extraordinary item,
net of the related income tax effect. However, an entity is not
prohibited from classifying such gains and losses as extraordinary
items, so long as it meets the criteria in paragraph 20 of
Accounting Principles Board Opinion No. 30, Reporting the Results
of Operations Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Further, SFAS 145 amends paragraph 14(a)
of FASB Statement No. 13, "Accounting for Leases", to eliminate an
inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The
amendment requires that a lease modification (1) results in
recognition of the gain or loss in the 9 financial statements, (2)
is subject to FASB Statement No. 66, "Accounting for Sales of Real
Estate," if the leased asset is real estate (including integral
equipment), and (3) is subject (in its entirety) to the
sale-leaseback rules of FASB Statement No. 98, "Accounting for
Leases: Sale-Leaseback Transactions Involving Real Estate,
Sales-Type Leases of Real Estate, Definition of the Lease Term, and
Initial Direct Costs of Direct Financing Leases." Generally, FAS
145 is effective for transactions occurring after May 15, 2002. The
Company does not expect that the adoption of SFAS 145 will have a
material effect on its financial performance or results of
operations.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
o. Newly Issued Accounting Pronouncements (Continued)
SFAS No. 146 -- In June 2002, the FASB issued SFAS No. 146,
"Accounting for Exit or Disposal Activities" (SFAS 146). SFAS 146
addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that
are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The scope of SFAS 146 also includes costs related
to terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS 146 will be
effective for exit or disposal activities that are initiated after
December 31, 2002 and early application is encouraged. The
provisions of EITF No. 94-3 shall continue to apply for an exit
activity initiated under an exit plan that met the criteria of EITF
No. 94-3 prior to the adoption of SFAS 146. The effect on adoption
of SFAS 146 will change on a prospective basis the timing of when
the restructuring charges are recorded from a commitment date
approach to when the liability is incurred. The Company does not
expect that the adoption of SFAS 146 will have a material effect on
its financial performance or results of operations.
SFAS No. 148 -- In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and
Disclosure"(SFAS 148"). SFAS 148 amends SFAS No. 123 "Accounting
for Stock-Based Compensation" ("SFAS 123"), to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation.
In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for fiscal years beginning after
December 15, 2002. The interim disclosure provisions are effective
for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The Company is currently
evaluating the effect that the adoption of SFAS 148 will have on
its results of operations and financial condition. The Company does
not expect the adoption of this statement to have a material impact
on their consolidated financial statements.
SFAS No. 149 - In April 2003, the FASB issued Statement of
Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", to
provide clarification on the meaning of an underlying, the
characteristics of a derivative that contains financing components
and the meaning of an initial net investment that is smaller than
would be required for other types of contracts that would be
expected to have a similar response to changes in market factors.
This statement will be applied prospectively and is effective for
contracts entered into or modified after June 30, 2003. The
statement will be applicable to existing contracts and new
contracts relate to forward purchases or sales of when-issued
securities or other securities that do not yet exist. The Company
does not expect that the adoption of SFAS 149 will have a material
effect on the Company's financial statements.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES (Continued)
o. Newly Issued Accounting Pronouncements (Continued)
SFAS No. 150 - In May 2003, the FASB issued Statement of Financial
Accounting Standards No. 150 ("SFAS 150), "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity." This statement establishes standards for how a company
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. This statement is
effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The statement
will be implemented by reporting the cumulative effect of a change
in accounting principle for financial instruments created before
the issuance date of the statement and still existing at the
beginning of the period of adoption. The Company does not expect
that the adoption of SFAS 150 will have a material effect on the
Company's financial statements.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using
accounting principles generally accepted in the United Stated of
America applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred cumulative operating
losses through December 31, 2002 of $9,322,642, and has a working
capital deficit of $1,831,572 at December 31, 2002 all of which
raise substantial doubt about the Company's ability to continue as
a going concern.
Primarily, revenues have not been sufficient to cover the
Company's operating costs. Management's plans to enable the
Company to continue as a going concern include the following:
o Increasing revenues from rental properties by implementing new marketing
programs o Making certain improvements to certain rental properties in order to
make them more marketable o Reducing negative cash flows by selling rental
properties that do not at least break even o Refinancing high interest rate
loans o Increasing consulting revenues by focusing on procuring clients that pay
for services rendered in cash or highly liquid securities o Reducing expenses
through consolidating or disposing of certain subsidiary companies o Raising
additional capital through private placements of the Company's common stock
There can be no assurance that the Company can or will be
successful in implementing any of its plans or that they will be
successful in enabling the company to continue as a going concern.
The Company's consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 3 - RELATED PARTY TRANSACTIONS
In August of 1997, Canton Financial Services Corporation (CFSC), a
formerly consolidated subsidiary subsequently incorporated into
Hudson, executed a lease agreement with the Company's CEO and
president pursuant to which he is leasing an interest in a
condominium to the Company. The condominium is located in Brian
Head, Utah, in close proximity to other condominiums owned by the
Company's subsidiaries. The lease has a term of five years and
expires on August 29, 2003. The lease provides for monthly payments
of $900. CFSC has an option to purchase the condominium for
$84,814, reduced monthly by a portion of the payment attributable
to principal. In the event that the value of the condominium
appreciates and Hudson has arranged a sale of the condominium prior
to exercise of the option, the option price shall be $84,814 plus
10% of the amount by which the total sales price exceeds $84,814.
On December 13, 2000 the Company entered into a Stock Pledge
Agreement with the Company's CEO and president, whereby the Company
obtained his personal guaranty on a new loan in the amount of
$625,000, which loan was used to finance the purchase of a building
by a consolidated subsidiary of the Company. In exchange, the
Company issued 833,333 shares of its common stock. The agreement
calls for him to return the shares to the Company at such time as
he is released from personal liability for the loan. He has agreed
not to sell or transfer the shares, except in the event of a demand
for payment under the personal guaranty given to a bank.
The Company's CEO and president has at various times been appointed
to serve as an officer or director for some clients of the Company.
These appointments have been disclosed to the disinterested members
of the board and the approval of the board of directors has been
granted in each of these cases. As payment for services provided to
these corporations, he has received securities of those
corporations, and these transactions have been disclosed to the
board of directors in each case. He holds a significant interest in
approximately 20 shell companies.
During 2002, the CEO and president of the Company, received
1,570,513 shares of Axia, a related party, as additional collateral
for the loans he personally guaranteed for the Company's
subsidiary. Later in 2002, the Company refinanced the loan and he
kept the shares issued to him. The shares have been expensed as
loan fees and were valued at $0.26 per share which was the trading
price for Axia for a total value of $408,333 and is considered a
payable to Axia.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 4 - NOTES RECEIVABLE
Notes receivable consist of the following at December 31, 2002:
Notes receivable from an individual, with interest
at 8%, due August 10, 2002, secured by the
individual's 50% interest in a building $ 255,000
Note receivable from the son of a former significant
stockholder with interest at 9%, due on demand,
secured by marketable securities 24,056
-----------------
$ 279,056
All amounts are deemed current. At December 31, 2002, one of the two notes is
in default. The Company has not taken any legal action as a result of this
event.
NOTE 5 - FIXED ASSETS
Fixed assets consist of the following at December 31, 2002:
Buildings and improvements $ 4,811,700
Furniture and equipment 154,909
Vehicles 50,530
Accumulated depreciation (733,873)
-----------------
4,283,266
Land 1,084,529
-----------------
$ 5,367,795
For the years ended December 31, 2002 and 2001, the Company
recorded depreciation expense of $187,424 and $176,000,
respectively.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 6 - INVESTMENT IN MARKETABLE EQUITY SECURITIES
The following is a summary of the Company's investment in
available-for-sale securities as of December 31, 2002:
Available-for-Sale
------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gains Losses Value
------------------ ------------------ ------------------
2002
Equity securities - free trading $ (819) $ 1,064 $ 30,296
Equity securities - restricted (1,125) 7 114,689
------------------ ------------------ ------------------
$ (1,944) $ 1,071 $ 144,985
======== ======= =========
Changes in the unrealized gain (loss) on available-for-sale
securities during the years ended December 31, 2002 and 2001
reported as a separate component of stockholders' equity are as
follows:
For the Years Ended
December 31,
------------------------------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------------------------- ------------------
Beginning balance $ 433,219 $ 466,402
Increase in unrealized holding gains (losses) (434,092) (33,183)
------------------ ------------------
Ending balance $ (873) $ 433,219
================== ==================
NOTE 7 - PREFERRED STOCK
The Company has authorized up to 50,000,000 shares of preferred
stock with a par value of $.001 per share. The preferred stock can
be issued in various series with varying dividend rates and
preferences. At December 31, 2002, there are no issued series or
shares of preferred stock.
NOTE 8 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ("APB") Opinion
25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for all stock option plans. Under
APB Opinion 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 8 - OUTSTANDING STOCK OPTIONS (Continued)
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimated the
fair value of each stock award at the grant date by using the
Black-Scholes option pricing model with the following assumptions
used for grants during 2002: dividend yield of zero percent,
expected volatility of 335 percent, risk-free interest rate of
1.74 percent, and expected life of 0.25 years. As a result of
applying SFAS No. 123, the Company incurred an expense of $13,776
for services rendered by non-employees, which is included in
consulting on the income statement for the year ended December 31,
2002.
On April 2, 2002, the Board of Directors of the Company adopted
"The 2002 Benefit Plan of Nexia Holdings, Inc.", under which the
Company may issue stock, or grant options to employees,
consultants, advisors, or other individuals. The total number of
shares as to which the Company may issue or grant options under
this plan is twenty million (20,000,000). The plan expires on the
earlier of the date that is five years from date the plan was
adopted or the date on which the twenty millionth share is issued.
The Company has granted 500,000 shares under this plan.
In June 2002, the Company granted 500,000 stock options to an
outside consultant for services rendered. These options were
issued with exercise price of $0.025 per share. These options
expired on September 13, 2002 and were unexercised.
A summary of the status of the Company's stock option plans as of
December 31, 2002 and changes during the year is presented below:
Weighted
Average
Shares Exercise Price
Outstanding, December 31, 2001 - $ -
Granted 500,000 0.025
Canceled/Expired (500,000) 0.025
Exercised - -
------------------ ----------------
Outstanding, December 31, 2002 - $ -
== ===
Exercisable, December 31, 2002 - $ -
================== ================
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 9 - LONG-TERM DEBT
The Company's long-term debt consists the following:
Note payable bearing interest at 8%, monthly payments of $12,417,
due on demand or in monthly payments through
July 2012, secured by first trust deed on land and buildings $ 950,161
Note payable bearing interest at 9%, monthly payments of $5,632
due July 2004, secured by first trust deed on land and building,
guaranteed
by the Company's president and CEO 615,012
Mortgage payable bearing interest at 6%, monthly
payments of $6,028, due March 2004, secured
by first trust deed on land and building 590,560
Mortgage payable bearing interest at 12%, monthly payments of
$6,172, due July 2004, secured by first
trust deed on land and building 591,920
Mortgage payable bearing interest at 7.70%, monthly
payments of $5,934, due January 2003, secured by
first trust deed on land and building 569,410
Note payable bearing interest at 7.16%, monthly payments of
$3,061, due on demand or in monthly payments through December
2012, secured by deed
of trust on land and buildings 390,000
Mortgage payable bearing interest at 10.97%, monthly
payments of $2,689, due February 2026, secured by
first deed of trust on land and buildings 270,685
Note payable bearing interest at 6.99%, monthly payments
of $900, due November 2007, secured by vehicle 44,048
Mortgage payable bearing interest at 8.75%, monthly payments of
$362, past due, secured by first
trust deed on land and building 35,711
Mortgage payable bearing interest at 8.25%, monthly
payments of $301, due September 2016, secured by
first trust deed on building 29,792
Mortgage payable bearing interest at 9.50%, monthly payments of
$309, due April 2015, secured by first
trust deed on land and building 26,674
-----------------
Balance Forward $ 4,113,973
-----------------
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 9 - LONG-TERM DEBT (Continued)
$4,113,973
Less current portion (1,413,420)
-----------------
$ 2,700,553
Scheduled principal reductions are as follows:
Year Ending December 31:
2003 $ 1,413,420
2004 830,399
2005 327,341
2006 340,298
2007 333,899
Thereafter 868,616
------------
$ 4,113,973
At December 31, 2002, the Company is in default on one of its
debts. The note holders have not taken any legal action against
the Company and the Company's continues to make monthly payments.
NOTE 10- TREASURY STOCK
The Company accounts for its treasury stock at cost. Treasury
stock includes all shares of the Company owned by the Company and
its subsidiaries. During the year ended December 31, 2002 the
Company purchased 462,000 shares of its common stock. At December
31, 2002, there were 7,685,340 shares of common stock reflected as
treasury stock.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Suit was filed by Hudson Consulting Group, Inc. on October 10,
2001 against Technical Ventures, Inc. in the Third Judicial
District Court of Salt Lake County, State of Utah. Hudson has
filed suit seeking recovery of fees owed to it arising from an
Advisory Agreement entered into in July of 1999. The suit alleges
that 575,000 shares of Technical Ventures, Inc. common stock has
not been delivered to Hudson as required by the agreement. The
Defendant's have filed an answer and a counterclaim, asserting in
their claim that Hudson has failed to provide valuable services,
seeking the return of all previously paid compensation and
denying any liability for the 575,000 shares sought by Hudson in
its claim. Pre-trial discovery is ongoing at the present time.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Suit was filed on August 14, 1998 in the Circuit Court of Wood
County, Parkersburg, West Virginia seeking the completion of
clean up procedures for property owned by Canton Tire Recycling
West Virginia, located in the city of Parkersburg. The state
requested that certain waste material present on the site and any
remaining material in the on site storage tanks be removed and
that an oil/water separator located on the property be cleaned
out. The Company and the State of West Virginia entered into a
Consent Decree by which the Company agreed to submit and complete
a Remediation and Sampling Work Plan and the payments of $88,000
in fines and penalties. As of December 31, 2002, the Company had
paid $68,000 related to this obligation with the remaining
$20,000 included in accrued liabilities in the accompanying
financial statements. The work required by the Remediation and
Sampling Work Plan has been completed and submitted to the State.
This information included test results indicating that soil
contamination testing required by the Plan reported contamination
exceeding state guidelines. The nature and cost of further
testing or clean-up as a result of that report cannot be
determined at this time. No further request for additional work
or testing has been received from the State of West Virginia.
The Company and various subsidiary companies have filed suit
seeking recovery of assets and other redress relating to the sale
of assets, subsidiary companies or the performance of consulting
services. The ultimate outcome of these various actions and their
potential impact, if any, on the Company's consolidated financial
statements is not presently determinable.
NOTE 12 - SIGNIFICANT EVENTS
Disposition of Building
On January 2, 2002, one of the Company's subsidiaries, Golden
Opportunity Development Corporation (GODC), sold the General
Lafayette Hotel in Baton Rouge, Louisiana. This hotel represented
the only asset of GODC. The sales price was $2,332,000, and the
net book value of the hotel and land was $2,327,841. Accordingly,
the Company recognized a gain on sale of the assets of $4,159. At
the time of the sale, there was a note payable on the property of
$1,760,600. The Company paid fees and expenses of $158,762
associated with the sale and received net proceeds of $337,638.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 12 - SIGNIFICANT EVENTS (Continued)
Disposition of Subsidiary
On August 27, 2002, the Company's subsidiary, Hudson Consulting
Group, Inc. (Hudson), entered into a Stock Purchase Agreement
(Agreement) for the sale of its' 79.77% ownership in Torchmail
Communications, Inc. (Torchmail) to seven unrelated parties. The
terms of the sale were that Hudson would transfer its' 79.77%
ownership in Torchmail for $300,000. The purchase price was to be
paid $100,000 at closing, $100,000 120 days following closing and
$100,000 180 days following closing. Payment of the $200,000 due
following closing was to be secured by 1,874,601 shares of common
stock which was two/thirds of the 79.77% owned by Hudson and by
9,384,543 shares of Torchmail to be issued and sold in a separate
transaction. The sale of Torchmail resulted in a gain of
$343,102. However, since execution of the Agreement, the Company
has only received $100,000 which was paid at closing. The
remaining $200,000 has not yet been received and is the subject
of litigation. Since the Company does not know the ultimate
outcome of the sale, the $200,000 receivable has been offset
against the gain on sale for a net gain on sale of $143,102. This
gain is being presented as deferred because $200,000 of the
purchase price for the transfer of ownership has not been
received. At such time as the litigation is resolved, the Company
will recognize the resulting net effect of the sale.
NOTE 13 - SEGMENT INFORMATION
Using the guidelines set forth in SFAS No. 131, Information
"Disclosures about Segments of an Enterprise and Related
Information," Axia Group has identified two reportable segments
in which it operates based on the services it provides. The
reportable segments are as follows: Real estate operations ("Real
Estate"), which primarily purchases, sells and rents commercial
real estate; and Consulting and other operations ("Consulting and
other"), which primarily provides merger and acquisition
structuring services and also capital restructuring, general
corporate problem solving and shareholder relations services.
Common overhead costs are included in the Consulting and other
segment as other expenses.
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 13 - SEGMENT INFORMATION (Continued)
Beginning in 2001, management began evaluating segment
performance based on net income. Prior to 2001, management did
not evaluate segment performance.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Summarized financial information concerning reportable segments is shown in the following table:
For the
Year
Ended Consulting Real
December 31, and Other Estate Total
---------------------------------------------------------------- ----------- --------- ----------
Revenues 2002 $ 223,387 $ 915,048 $ 1,138,435
2001 $ 531,145 $ 939,447 $ 1,470,592
Cost of revenues 2002 $ (631,004) $ (1,242,351) $ (1,873,355)
2001 $ (325,431) $ (820,632) $ (1,146,063)
Expenses 2002 $ (1,842,012) $ (824,350) $ (2,666,362)
2001 $ (1,261,016) $ (145,010) $ (1,406,026)
Interest income 2002 $ 10,987 $ - $ 10,987
2001 $ 104,151 $ - $ 104,151
Interest expense 2002 $ - $ - $ -
2001 $ (76,849) $ - $ (76,849)
Minority share of loss 2002 $ 100,049 $ - $ 100,049
2001 $ (1,343) $ - $ (1,343)
Income tax expense (benefit) 2002 $ - $ - $ -
2001 $ - $ - $ -
Net loss applicable to segment 2002 $ (2,091,186) $ (1,484,384)$ (3,575,570)
2001 $ (1,048,261) $ (669,322) $ (1,717,583)
Total assets
(net of intercompany accounts) 2002 $ 908,152 $ 5,072,819 $ 5,980,971
Property and equipment
acquisitions 2002 $ - $ 309,246 $ 309,246
Depreciation and amortization 2002 $ - $ 187,424 $ 187,424
2001 $ - $ 176,000 $ 176,000
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
NOTE 14 - STOCK SUBSCRIPTION RECEIVEABLE
The Company, through its subsidiary GODC, sold 490,000 shares of
common stock of GODC to unaffiliated third party investors at
$0.22 per share for promissory notes totaling $107,800. This
amount has been recorded as a subscription receivable at December
31, 2002.
NOTE 15 - SUBSEQUENT EVENTS
In March of 2003, a Stock Purchase Agreement was entered into
between Nexia Holdings, Inc. and Chen Li, an individual resident
of San Diego, California, where by Nexia sold to Ms. Li Five
Million (5,000,000) shares of restricted common stock of Nexia in
exchange for Mr. Li making a loan in the sum of $30,000 to Nexia's
subsidiary corporation, West Jordan Real Estate Holdings, Inc.
On May 9, 2003, Wasatch Capital Corporation ("Wasatch")
refinancing the underlying debt on the real estate located in Salt
Lake City, Utah. The terms of the new loan package provide for a
loan in the total amount of $850,000, an interest rate of 7.5%,
with monthly payments of $6,848. The loan has a term of three
years, resulting in a due date of May 10, 2006. Of the loan
proceeds $202,920 has been set aside for construction or capital
improvements to the buildings securing the loan. In the event that
direct benefits from improvements to the building cannot be
realized from refurbishing the building, this amount will be
returned to the lender to pay down the existing loan.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 28, 2003, the Company filed a Form 8K disclosing the dismissal of
Tanner + Co. as the Company's independent auditors. (See Form 8-K filed March
28, 2003, and incorporated herein by reference.) That same filing disclosed that
the Company had retained HJ & Associates, LLC as the new independent auditors
for the Company.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
Name Age Position(s) and Office(s)
---- --- -------------------------
Richard Surber 30 President and Director
Gerald Einhorn 62 Vice President, Secretary and Director
Adrienne Bernstein 56 Director
John E. Fry, Jr. 68 Director
Richard D. Surber, 30, graduated from the University of Utah with a Bachelor of
Science degree in Finance and then with a Juris Doctorate with an emphasis in
corporate law, including securities, taxation, and bankruptcy. He has served as
President and Director of the Company since May of 1999. He also serves as an
officer and director of the Company's former parent corporation, Axia Group,
Inc., (president and director from 1992 to the present). He has been an officer
and director of several public companies, including: Elocity Networks Corp., a
company unrelated to Nexia (president and director form June 1999 to April 10,
2000); Wichita Development Corporation, owner of an office building in Wichita,
Kansas (president and director December 15, 1999 to November, 12, 2001); and
Golden Opportunity Development Corporation ("GODC"), a majority owned subsidiary
of Nexia, (president and director from September 1999 to December 19, 2001).
GODC's operations (until January 4, 2002), consisted of operating a 134 room
motel in Baton Rouge, Louisiana. Mr. Surber is also the president and a director
of several reporting and non-reporting shell companies in which Nexia has
ownership interests.
Gerald Einhorn was appointed to the board in June of 2002 as a Director,
Vice-President and Secretary of Nexia. He has been employed by Hudson Consulting
Group, Inc. (currently a subsidiary of Nexia) in its legal department since
February 1996 as an attorney working in the areas of real estate, corporate, and
securities matters. Prior to that time Mr. Einhorn was self employed for more
than 20 years in Long Island, New York as a wholesale distributor of fresh
produce and frozen foods to retail and institutional end users. He is a member
of the New York Bar and practiced law in New York State for a period of 10 years
before entering the food distribution business.
Adrienne Bernstein was appointed to the Board of Directors in June 2002. Ms.
Bernstein had previously been a director of Axia Group, Inc. from 1999 through
2001. From 1988 to 1994, Ms. Bernstein was the Assistant Director of Human
Resources for the Love Stores, a chain of retail health and beauty stores. In
this capacity, Ms. Bernstein was responsible for hiring and training all
employees and for preparing management and employee seminars. Prior to her
position with the Love Stores, Ms. Bernstein served as a Vice President for
Leucadia National Corporation, a publicly traded company specializing in
finance, insurance, and manufacturing. In this capacity, Ms. Bernstein's primary
emphasis involved real estate management and sales activities.
John E. Fry, Jr. was appointed to the Board of Directors in June 2002. He had
served as a director for Axia Group, Inc. for a period of four years ending in
June of 2002. He worked for Firestone Tire Company for over 35 years, retiring
from a position as a Vice President. He currently works as a business consultant
and as a director for various other corporations.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is aware of no person who during the period ended December 31, 2002 was
a director, officer, or beneficial owner of more than ten percent of the Common
Stock of the Company, and who failed to file, on a timely basis, reports
required by Section 16(a) of the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
Except as set forth below, no compensation in excess of $100,000 was awarded
to, earned by, or paid to any executive officer of the Company during the years
2002, 2001, and 2000. The following table and the accompanying
notes provide summary information for each of the last three fiscal years
concerning cash and non-cash compensation paid or accrued by Richard Surber,
the Company's chief executive officer for the past three years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) Options payouts Compensation
($) ($) ($) ($) SARs(#) ($) ($)
------------------- -------- -------- ---------- ---------------- ----------- ------------- ---------- --------------
Richard Surber, 2002 - $32,248 $48,833(2) - - - -
President 2001 - - - - - - -
2000 - - $100,000(1) - - - -
(1) 250,000 shares of common stock, registered pursuant to an S-8 Registration Statement filed with the SEC. On
the date Mr. Surber received these shares, they were valued at $100,000; however, Mr. Surber liquidated these
shares for only $42,595 in May of 2000.
(2) During the year 2002, Mr. Surber was paid a salary by Hudson Consulting Group, Inc. acquired as a subsidiary
by the Company in February 2002.
Compensation of Directors
The Company's directors are not currently
compensated.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the ownership of
the Company's common stock as of May 29, 2003, with respect to: (I) each person
known to the Company to be the beneficial owner of more than five
percent of the Company's common stock; (ii) all directors; and (iii) directors and executive officers of the
Company as a group. The notes accompanying the information in the table below are necessary for a complete
understanding of the figures provided below. As
of May 29, 2003, there were
315,352,760 shares of common stock
issued and outstanding.
AMOUNT & NATURE OF
TITLE OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF
CLASS CLASS
------------------------- ---------------------------------------------- -------------------------- ----------------
Common Stock Richard Surber, President & Director 105,824,605 33.5%
($0.001 par value) 268 West 400 South, Suite 306
Salt Lake City, Utah 84101
Common Stock Axia Group, Inc. 4,013,450 0.013%
($0.001 par value) 268 West 400 South ,Suite 300
Salt Lake City, Utah 84101(3)
Common Stock John E. Fry, Jr., Director 11,289,200 0.036%
($0.001 par value) 3619 Lakeview Road
Carson City, Nevada 89703
Common Stock Gerald Einhorn, VP & Director 2,600,000 0.008%
($0.001 par value) 268 West 400 South, #300
Salt Lake City, Utah 84101
Common Stock Adrienne Bernstein, Director 2,956,304 0.009%
($0.001 par value) 268 West 400 South, #300
Salt Lake City, Utah 84101
Common Stock Wichita Development Corporation 14,331,044 0.045%
($0.001 par value) 268 West 400 South
Salt Lake City, Utah 84101(2)
Common Stock Oasis International Hotel & Casino, Inc. 2,654,271 0.008%
($0.001 par value) 268 West 400 South, #300
Salt Lake City, Utah 84101
Common Stock Hudson Consulting Group, Inc. 802,693 0.002%
($0.001 par value) 268 West 400 South, #300
Salt Lake City, Utah 84101
Common Stock Directors and Executive Officers as a Group 122,670,109 38.8%
($0.001) par value
(1) The shares owned by Hudson Consulting Group, Inc., Oasis International Hotel & Casino, Inc., Wichita
Development Corporation and Axia Group, Inc. are attributed beneficially to Richard D. Surber due to his position
as an officer and director in each of the said corporations.
(2) Richard Surber may be deemed a beneficial owner of 105,824,605 shares of the Company's common stock by
virtue of his position as an officer and director of Hudson Consulting Group, Inc. (802,693 shares), Axia Group,
Inc. (4,013,450 shares), Wichita Development Corporation (14,331,044 shares) and Oasis International Hotel &
Casino, Inc. (2,654,271 shares). Of the 105,627,531 common shares beneficially owned, Mr. Surber personally owns
84,023,147 shares.
(3) Axia Group, Inc. holds 4,013,438 shares of the Company's common stock as a trustee for Axia shareholders
entitled to these shares in the December 2002 distribution by Axia but for which shareholders a valid and current
address could not be located.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The related party payable at December 31, 2002 of $408,333 to Axia (See Note 3).
The Company has entered into the following related party transactions:
In August of 1997, Canton Financial Services Corporation (CFSC), a formerly
consolidated subsidiary subsequently incorporated into Hudson, executed a lease
agreement with the Company's CEO and president pursuant to which he is leasing
an interest in a condominium to the Company. The condominium is located in Brian
Head, Utah, in close proximity to other condominiums owned by the Company's
subsidiaries. The lease has a term of five years and expires on August 29, 2003.
The lease provides for monthly payments of $900. CFSC has an option to purchase
the condominium for $84,814, reduced monthly by a portion of the payment
attributable to principal. In the event that the value of the condominium
appreciates and Hudson has arranged a sale of the condominium prior to exercise
of the option, the option price shall be $84,814 plus 10% of the amount by which
the total sales price exceeds $84,814.
The Company has an ongoing consulting agreement with Hudson Consulting Services,
Inc., a subsidiary of Nexia, a company with common directors and officers,
whereby Nexia reimburses administrative costs on a time and billing basis.
During the year ended December 31, 2001 and the period ended December 31, 2000,
the Company paid $15,000 and $1,960 pursuant to the agreement, respectively.
On December 13, 2000 the Company entered into a Stock Pledge Agreement with the
Company's CEO and president, whereby the Company obtained his personal guaranty
on a new loan in the amount of $625,000, which loan was used to finance the
purchase of a building by a consolidated subsidiary of the Company. In exchange,
the Company issued 833,333 shares of its common stock. The agreement calls for
him to return the shares to the Company at such time as he is released from
personal liability for the loan. He has agreed not to sell or transfer the
shares, except in the event of a demand for payment under the personal guaranty
given to a bank.
During 2002, the CEO and president of the Company, received 1,570,513 shares of
Axia, a related party, as additional collateral for the loans he personally
guaranteed for the Company's subsidiary. Later in 2002, the Company refinanced
the loan and he kept the shares issued to him. The shares have been expensed as
loan fees and were valued at $0.26 per share which was the trading price for
Axia for a total value of $408,333 and is considered a payable to Axia.
The Company's CEO and president has at various times been appointed to serve as
an officer or director for some clients of the Company. These appointments have
been disclosed to the disinterested members of the board and the approval of the
board of directors has been granted in each of these cases. As payment for
services provided to these corporations, he has received securities of those
corporations, and these transactions have been disclosed to the board of
directors in each case. He holds a significant interest in approximately 20
shell companies.
In the first quarter of this year, the Company entered into a Stock Purchase
Agreement ("Agreement") with Axia Group, Inc. ("Axia"), pursuant to which the
Company issued to Axia 255,100,000 restricted shares of the Company's common
stock in exchange for essentially all of the assets and liabilities of Axia
including a portfolio of securities, real estate holdings and publicly reporting
shell-companies. The shares issued to Axia equaled approximately 82% of the
issued and outstanding shares of the Company after the close of the transaction.
Axia on December 10, 2002 spun-off those 255,100,000 shares of the Company's
common stock to Axia's shareholders on a pro rata basis. This transaction was
first reported in the Company's Form 8-K filed on February 26, 2002.
The Company has entered into discussions with Richard Surber, the President of
the Company, with regard to providing compensation and security to Mr. Surber
for acting as a personal guarantor for loans to several of the Company's
subsidiaries. The package will most likely consist of common stock issued by the
Company and/or other investment securities and cash compensation.
Surber has at various times been appointed to serve as an officer or director
for some clients of Nexia. These appointments have been disclosed to the
disinterested members of the board and the approval of the board of directors
has been granted in each of these cases. As payment for services provided to
these corporations, Surber has received securities of those corporations, and
these transactions have been disclosed to the board of directors in each case.
Surber holds a significant interest in approximately 14 shell companies. Mr
Surber is licenced to practice law in the State of California and occasionally
represents corporate clients on various corporate matters. Mr Surber has
disclosed the fact that he on occasion does act as counsel to several companies.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B
are listed in the Index to Exhibits beginning on page 12 of this Form
10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K.
-------------------
(1) On March 28, 2003, the Company filed a Form 8-K disclosing the dismissal of Tanner+Co. and disclosing
the retention of HJ & Associations, LLC. as the new independent auditors for the Company
(2) On April 4, 2003, the Company filed a Form 8-K announcing that
it had abandoned its efforts to acquire Industrial Maintenance
and Machine Inc. the subject of a March 5, 2003 press release.
ITEM 14. CONTROLS AND PROCEDURES
The Company's president acts both as the Company's chief executive officer and
chief financial officer ("Certifying Officer") and is responsible for
establishing and maintaining disclosure controls and procedures for the Company.
The Certifying Officer has concluded (based on his evaluation of these controls
and procedures as of a date within 90 days of the filing of this report) that
the design and operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) are
effective. No significant changes were made in the Company's internal controls
or in other factors that could significantly affect those controls subsequent to
the date of the evaluation, including any corrective actions with regard to
slight deficiencies and material weaknesses. Due to the Certifying Officer's
dual role as chief executive officer and chief financial officer, the Company
has no segregation of duties related to internal controls.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there unto
duly authorized, this 29 day of May, 2003.
Nexia Holdings, Inc.
/s/ Richard Surber
Richard Surber, President, Financial Officer and
Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Richard Surber /s/ Gerald Einhorn
Richard D. Surber May 30, 2003 Gerald Einhorn May 30,2003
President Chief Executive Officer, Chief Financial Director
Officer, and Director
/s/ Adrienne Bernstein /s/ John Fry
Adrienne Bernstein May 30, 2003 John Fry, Jr. May 30, 2003
Director Director
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard Surber., certify that:
1. I have reviewed this annual Report on Form 10-KSB of Nexia Holdings, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 29, 2003 /s/ Richard surber
----------------------------------------
Richard Surber, Chief Executive and Financial Officer (principal financial and accounting officer)
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Nexia Holdings, Inc. on Form 10-KSB for
the period ending December 31, 2002, as filed with the Securities and Exchange
Commission on the date hereof, I Richard Surber, Chief Executive and Financial
Officer of Nexia Holdings, Inc. Certify, pursuant to 18 U.S.C. ss.1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge and belief:
(1)the Form 10-KSB fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Form 10-KSB fairly presents,
in all material respects, the financial condition and result of
operations of the Company.
/s/ Richard Surber
Richard Surber
Chief Executive and Financial Officer
May 29, 2003
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
3(i) * Articles of Incorporation of the Company (incorporated herein by reference from
Exhibit No. 3(i) to the Company's Form S-18 as filed with the Securities and Exchange
Commission on September 16, 1988 ).
3(ii) * Articles of Incorporation of Kelly's Coffee Group, Inc. filed with the Secretary of
State of Nevada on August 3, 2000 (incorporated herein by reference from Exhibit No.
3(i) to the Company's Form 10KSB as filed with the Securities and Exchange Commission
on March 26, 2001 ).
3(iii) * Articles of Merger merging Kelly's Coffee Group, Inc., a Colorado Corporation into
Kelly's Coffee Group, Inc., a Nevada Corporation, filed with the Secretary of State
of Colorado on September 22, 2000, and with the Secretary of State of Nevada on
October 5, 2000 (incorporated herein by reference from Exhibit No. 3(i) to the
Company's Form 10KSB as filed with the Securities and Exchange Commission on March
26, 2001).
3(iv) * Bylaws of the Company, as amended (incorporated
herein by reference from Exhibit 3(ii) of the
Company's Form S-18 as filed with the Securities and
Exchange Commission on September 16, 1988).
3(v) * Amendment to the Articles of Incorporation changing the Company's name from Kelly's
Coffee Group, Inc. to Nexia Holdings, Inc. (incorporated herein by reference as
filed in the Company's Definitive 14(c) as filed with the Securities Exchange
Commission on February 27, 2002)
4(a) * Form of certificate evidencing shares of "Common
Stock" in the Company (incorporated from Exhibit
4(a) to the Company's Form S-18 as filed with the
Securities and Exchange Commission on September 16,
1988 ).
10(iii) * Asset purchase agreement with Axia Group, Inc., and Kelly's Coffee Group, Inc., dated
February 14, 2002, for purchase of essentially all of Axia's assets and subsidiaries
in exchange for issuance of 255,100,000 restricted shares of the Company's common
stock. (Incorporated by reference as filed with the Company's Form 8-K on February
26, 2002).
16(i) * Letter from Tanner + Co. stating that it has reviewed the disclosures in the Form 8-K
and has no objection to the statement made within it (incorporated herein by
reference from Form 8-K filed March 28, 2003).
99.1 30 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
* Incorporated by reference from previous filings of the Company.