Nexia 10-QSB/A 09/30/2005
 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 
 FORM 10-QSB/A 
 
 
 (Mark One)
 
[X]  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2005
[  ]  Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from        to       . 
 
 Commission file number: 33-22128-D
 
 
 
 NEXIA HOLDINGS, INC. 
 (Exact name of small business issuer as specified in its charter)
 
 
 
Nevada
 (State or other jurisdiction of
 incorporation or organization)
84-1062062
 (I.R.S. Employer Identification No.)
 
 
  59 West 100 South, Salt Lake City, Utah 84101
 (Address of principal executive office) (Zip Code)
 
 (801) 575-8073
 (Issuer's telephone number)
 
 


    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 X  No     

The number of outstanding shares of the issuer's common stock, $0.001 par value, as of December 13, 2005 was 3,489,945,834.
 
 
 

TABLE OF CONTENTS
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
3  
   
12  
   
16  
   
PART II - OTHER INFORMATION
   
   
16  
   
17  
   
17  
   
19  
   
20  
   
21  


2

ITEM 1.  FINANCIAL STATEMENTS
 
As used herein, the term "Nexia" refers to Nexia Holdings, Inc., a Nevada corporation, its subsidiary corporations and predecessors unless otherwise indicated. The accompanying unaudited, consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-QSB pursuant to the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a complete presentation of our financial position, results of operations, cash flows and stockholders' equity in conformity with generally accepted accounting principles in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
 
 Our consolidated financial statements are attached hereto as pages 4 through 11 and are incorporated herein by this reference.
 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
PAGE
 
 
Consolidated Balance Sheets
4-5
 
 
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
6-7
 
 
Consolidated Statements of Cash Flows
8-9
 
 
Notes to Consolidated Financial Statements
10-11
 
 
 
3
 
NEXIA HOLDINGS, INC. AND SUBSIDIAR 
Consolidated Balance Sheets  
           
   
September 30
  
 December 31
  
   
2005
  
2004
  
   
 (Unaudited)
      
CURRENT ASSETS
          
           
Cash and cash equivalents
  
$
343,487
  
$
152,413
  
Restricted cash
    
-
   
80,078
 
Accounts and notes receivable, trade, net
    
22,796
   
108,404
 
Accounts receivable - related party (Note 3)
    
-
   
23,808
 
Notes receivable - net of allowance of $390,170 and
         
$315,950 respectively
    
66,132
   
137,799
 
Prepaid expenses
    
11,883
   
18,783
 
Marketable securities
   
207,362
   
44,549
 
 
          
TOTAL OF CURRENT ASSETS
    
651,660
    
565,834
 
 
          
PROPERTY AND EQUIPMENT
         
 
          
Property and equipment, net
    
2,733,831
   
2,935,052
 
Land
    
689,295
   
489,295
 
 
          
TOTAL NET PROPERTY AND EQUIPMENT
    
3,423,126
   
3,424,347
 
 
          
OTHER ASSETS
          
 
          
Loan costs, net
    
13,199
   
15,879
 
 
          
TOTAL OTHER ASSETS
    
13,199
   
15,879
 
 
          
TOTAL ASSETS 
  
$
4,087,985
  
$
4,006,060
  
 
The accompanying notes are an integral part of these consolidated financial statements.
 

4
 
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, (Continued)  
               
   
September 30
 
 
December 31 
  
LIABILITIES AND STOCKHOLDERS' EQUITY
    
2005
 
 
2004
  
   
(Unaudited) 
      
CURRENT LIABILITIES
              
               
Accounts payable
  
$
78,844
  
$
243,441
  
Accrued liabilities
    
223,860
   
209,480
 
Unearned rent
   
-
   
23,094
 
Deferred revenue
   
508
   
356
 
Refundable deposits
    
17,892
   
15,041
 
Convertible debentures
   
-
   
5,000
 
Current maturities of long-term debt
   
928,901
   
120,757
 
 
          
TOTAL CURRENT LIABILITIES
    
1,250,005
   
617,169
 
 
          
LONG-TERM LIABILTIES
          
 
          
Convertible debenture
   
200,000
   
200,000
 
Long-term debt
   
1,492,127
   
2,732,161
 
 
          
TOTAL LONG-TERM LIABILITIES
   
1,692,127
   
2,932,161
 
 
          
TOTAL LIABILITIES
    
2,942,132
   
3,549,330
 
 
          
MINORITY INTEREST
    
92,499
   
15,315
 
 
          
 
          
STOCKHOLDERS' EQUITY (DEFICIT) (Note 5)
          
Preferred Series B stock, $0.001 par value, 50,000,000 shares
          
authorized, 8,000,000 shares issued and outstanding
    
8,000
   
8,000
 
 
          
Preferred Series C stock, $0.001 par value, 5,000,000 shares
         
authorized, 100,000 shares issued and outstanding
   
100
   
100
 
 
          
Common stock $0.001 par value, 10,000,000,000 shares authorized,
          
3,489,945,834 and 1,747,945,834 shares issued (post reverse split)
          
and outstanding, respectively
    
3,489,946
   
1,747,946
 
Additional paid-in capital
    
10,933,287
   
12,396,385
 
Treasury stock -29,138 and 29,138 shares
         
at cost, respectively
   
(100,618
)
  
(100,618
)
Stock subscriptions receivable
   
(20,993
)
  
(375,009
)
Other comprehensive Loss
    
(23,944
)
  
(6,767
)
Accumulated deficit
    
(13,232,424
)
  
(13,228,622
)
 
          
Total Stockholders’ Equity
    
1,053,354
   
441,415
 
 
          
TOTAL LIABILITIES AND STOCKHOLDERS'
          
EQUITY
 
$
4,087,985
  
$
4,006,060
  
 
          
 
          
The accompanying notes are an integral integral part of these consolidated financial statements.
 
 
5
 
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
(Unaudited)
                 
Three Months Ended
 
Nine Months Ended
  
September 30
 
September 30
  
 
2005
 
2004
 
2005
 
2004
  
 
 
  
 
  
 
  
 
  
REVENUE
 
  
 
  
 
  
 
  
Consulting Revenue
$
-
  
$
52,700
  
$
-
  
$
109,133
  
Rental Revenue
  
46,880
   
132,947
   
254,702
   
379,958
 
 
                
TOTAL REVENUE
  
46,880
   
185,647
   
254,702
   
489,091
 
 
                
COSTS OF REVENUE
                
Costs associated with consulting revenue
  
-
   
96,506
   
-
   
349,329
 
Costs associated with rental revenue
  
47,625
   
223,521
   
235,764
   
520,170
 
Interest associated with rental revenue
  
41,889
   
55,771
   
140,930
   
171,085
 
 
                
TOTAL COST OF REVENUE
  
89,514
   
375,798
   
376,694
    
1,040,584
 
 
                
GROSS DEFICIT
                
Gross deficit from consulting operations
  
-
   
(43,806
)
  
-
   
(240,196
)
Gross deficit from real estate operations
  
(42,634
)
  
(146,345
)
  
(121,992
)
  
(311,297
)
 
                
GROSS DEFICIT
  
(42,634
)
  
(190,151
)
  
(121,992
)
  
(551,493
)
 
                
EXPENSES
                
Impairment of marketable securities
  
-
   
6,935
   
-
   
194,827
 
General and administrative expense
  
165,860
   
192,955
   
717,314
   
1,052,374
 
 
                
TOTAL EXPENSES
  
165,860
   
199,890
   
717,314
   
1,247,201
 
 
                
OPERATING LOSS
  
(208,494
)
  
(390,041
)
  
(839,306
)
  
(1,798,694
)
 
                
OTHER INCOME (EXPENSE)
                
 
                
Interest expense
  
(13,289
)
  
(2,562
)
  
(39,327
)
  
(8,456
)
Interest income
  
18,529
       
51,692
   
-
 
Income from litigation settlement
  
30,000
   
-
   
211,500
   
-
 
Gain on disposal of assets
  
-
       
756,471
   
-
 
Gain on settlement of debt
  
-
   
-
   
-
   
15,000
 
Gain on sale of subsidiaires
  
-
   
73,849
   
-
   
313,119
 
Gain (loss) on marketable securities
  
145
       
1,836
   
-
 
                         
Other Expense - Forgive Debt
  
(71,342
)
      
(71,342
)
    
Other Income (expense)
 
24
   
14,828
   
1,858
   
25,194
 
 
                
TOTAL OTHER INCOME (EXPENSE)
  
(35,933
)
  
86,115
   
912,688
   
344,857
 
 
                
NET INCOME (LOSS) BEFORE
               
MINORITY INTEREST
  
(244,427
)
  
(303,926
)
  
73,382
   
(1,453,837
)
 
                
MINORITY INTEREST IN INCOME (LOSS)
  
1,486
   
2,350
   
(77,184
)
  
3,025
 
 
                
NET INCOME( LOSS)
 
(242,941
)
  
(301,576
)
  
(3,802
)
  
(1,450,812
)
 
                
Other Comprehensive Loss
  
(356
)
  
-
   
(23,944
)
  
-
 
 
                
TOTAL COMPREHENSIVE INCOME (LOSS)
$
(243,297
)
$
(301,576
)
$
(27,746
)
$
(1,450,812
)
 
                
 
                
The accompanying notes are an integral of these consolidated financial statements.
 
 
6
 
   
Three Months Ended
September 30 
    
Nine Months Ended
September 30 
  
     
2005
 
 
2004 
 
 
2005 
 
 
2004 
  
                           
Net income (loss) per common share, basic and diluted
                          
                           
Income (loss) before minority loss
  
$
(0.0001
)
$
(0.1533
)
$
-
  
$
(1.5719
)
Minority interest in income (loss)
    
-
   
-
   
-
   
-
 
 
                  
Net income (loss) per weighted average common
                 
shares outstanding
  
$
(0.0001
)
$
(0.1533
)
$
-
  
$
(1.5719
)
 
                  
Weighted average shares outstanding - basic & diluted
    
3,933,316,000
   
1,966,904
   
3,053,249,863
   
922,947
 
 
                  
(Weighted average shares outstanding have been adjusted retroactively to reflect a reverse stock split on November 1, 2004) 
                          

 
7
 
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
           
 
For The Nine Months Ended
  
   
September 30
  
   
2005
 
2004 
  
 
(Unaudited)
 
(Unaudited)
  
           
CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
 
  
 
  
 
  
Net (Loss)
  
$
(3,802
)
$
(1,450,812
)
Adjustments to reconcile net income (loss)
          
to net cash used in operating activities:
          
Impairment of marketable securities 
    
-
   
194,827
 
Change in minority interest 
    
77,184
   
(3,025
)
Depreciation 
    
93,145
   
99,574
 
Intrinsic and fair value of stock options issued 
    
56,750
   
396,985
 
Issued common stock for services 
    
81,519
   
752,207
 
Issued preferred stock for services 
    
-
   
8,000
 
Amortization of expense prepaid with common stock 
    
-
   
13,333
 
Revaluation of variable deferred consulting 
    
-
   
45,600
 
Bad debts expense 
    
74,220
   
-
 
Changes in operating assets and liabilities:
          
Increase in restricted cash 
    
-
   
(79,674
)
Accounts receivable 
    
85,608
   
(87,502
)
Accounts receivable, related party 
    
23,808
   
(27,030
)
Prepaid Expenses 
    
6,900
   
(2,926
)
Marketable securities 
    
(1,988
)
  
-
 
Other Assets 
    
2,680
   
10,179
 
Accounts payable 
    
(119,257
)
  
71,814
 
Accrued liabilities 
    
14,380
   
30,521
 
Unearned rent 
    
(23,094
)
  
-
 
Deferred revenue 
    
152
   
6,184
 
Refundable deposits 
    
2,851
   
(150
)
Convertible debentures 
    
(5,000
)
  
-
 
Deferred gain on sale of subsidiary 
        
(21,770
)
Current portion of WVDEP liability 
        
(20,000
)
Net cash provided by (used) in operating activities
    
366,056
   
(63,665
)
 
          
CASH FLOWS FROM INVESTING ACTIVITIES
          
 
          
Cash loaned on notes receivable
    
-
   
(20,431
)
Cash received on notes receivable
    
-
   
6,790
 
Note receivable from litigation settlement
    
(20,000
)
  
-
 
Adjustment between notes receivable and
          
accounts receivable balances
    
(2,184
)
  
-
 
Correction of duplicate entry, previous period
    
539
   
-
 
Investment in a limited liability company
    
(20,000
)
    
Purchase of marketable securities
       
(34,757
)
Purchase of marketable securities - restricted
   
(4,002
)
  
-
 
Restricted stock received in litigation settlement
    
(154,000
)
  
-
 
Purchase of property, plant and equipment
    
(154,584
)
  
(255,553
)
Sale of retail shopping plaza
    
987,659
   
-
 
Real estate from corp. acquisition
    
(903,603
)
  
-
 
Net cash (used) in investing activities
    
(269,284
)
  
(303,951
)
 
          
 
          
The accompanying notes are an integtal part of these consolidated financial statements
   
 
8
 
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, (Continued)
           
   
For The Nine Months Ended
September 30 
  
   
2005 
 
2004 
  
CASH FLOWS FROM FINANCING ACTIVITIES
  
(Unaudited)
 
(Unaudited)
  
 
  
 
  
 
  
Principal payments on long-term debt
    
(91,474
)
  
(97,351
)
Proceeds from long-term debt
    
65,224
   
104,090
 
Proceeds from issuing stock
    
-
   
-
 
Receipt of stock subscriptions receivable
   
388,516
   
21,000
 
Issuance of common stock for stock option exercise
    
38,506
   
339,319
 
Pay off note payable, sale of retail shopping plaza
    
(938,255
)
  
-
 
Acquisition of another corporation
    
551,707
     
Net cash provided by financing activities
   
14,224
   
367,058
 
 
          
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
110,996
   
(558
)
 
          
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
232,491
   
94,073
 
 
          
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  
$
343,487
    
93,515
  
 
          
SUPPLEMENTAL DISCLOSURE OF INFORMATION
          
 
          
CASH PAID FOR:
          
 
          
Interest
  
$
176,792
    
166,115
  
 
          
Income taxes
  
$
-
    
-
  
 
          
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
          
FINANCING ACTIVITIES:
          
 
          
Preferred stock issued for services
  
$
-
  
$
8,000
  
Common stock issued for services
  
$
81,519
  
$
752,207
  
Intrinsic and fair value of options issued
  
$
56,750
  
$
341,036
  
Common stock issued for subscription receivable
  
$
34,500
  
$
22,281
  
Common stock issued for variable deferred consulting
  
$
-
  
$
43,988
  
Common stock issued for building improvements
  
$
22,287
  
$
98,733
  
 
          
 
          
The accompanying notes are an integral part of these consolidated financial statements
 

9
 
 NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2005
 
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited consolidated financial statements for Nexia Holdings, Inc. and Subsidiaries (the Company) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with the Company’s most recent audited consolidated financial statements and notes thereto included in its December 31, 2004 Annual report on Form 10-KSB. Operating results for the nine months ended September 30, 2005 are not indicative of the results that may be expected for the year ending December 31, 2005.

NOTE 2 - GOING CONCERN

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The company has incurred cumulative operating losses through September 30, 2005 of $13,232,424 which raises substantial doubt about the Company’s ability to continue as a going concern. This represents an increase in the cumulative operating losses of $242,941 for the quarter ended September 30, 2005. The Company had a negative working capital balance at September 30, 2005 of $598,345.

Revenue has not been sufficient to cover the Company’s operating costs. Management’s plans to enable the company to continue as a going concern include the following:

·  
Increase revenue from rental properties by implementing new marketing programs.
 
·  
Make improvements to certain rental properties in order to make them more marketable.
 
·  
Reduce expenses through consolidating or disposing of certain subsidiary companies.
 
·  
Purchase revenue producing real estate.
 
·  
Decrease payroll expenses.
 
·  
Raise additional capital through equity line of credit of the Company’s common stock.
 
·  
Use stock and option-based compensation to cover payroll and other permissible labor costs.

There can be no assurance that the Company can or will be successful in implementing any of its plans or that they will be successful in enabling the company to continue as a going concern. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

10
 
NOTE 3 - OUTSTANDING STOCK OPTIONS

A summary of the status of the Company’s stock option plans as of September 30, 2005 and 2004 and changes during those periods is presented below. The numbers of options reflect the effect of the November 1, 2004 reverse stock split:
 
 
  
Average Exercise
  
Average Exercise
  
 
  
Shares
  
Price
 
Shares
  
Price
  
Outstanding,
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Beginning of period
    
822,500
 
$
-
    
-
  
$
-
  
 
                  
Granted
    
1,000,000
   
0.00016
    
2,897,524
    
0.003
  
 
                  
Exercised
    
(1,000,000
)
  
0.00016
   
(2,075,024
)
  
0.003
  
 
                  
Outstanding, end
                  
of period
    
822,500
    
0.00016
   
822,500
   
0.003
  
 
                  
Exercisable
   
669,250
   
0.00016
   
822,500
   
0.003
  


The Company determined the fair value of the stock options issued during the periods at the grant dates by using the Fair Market Value on the date of option grant less the 75% share of cash received by the Company.

The outstanding end of period price of $0.00016 is an average price per share.

NOTE 4 - COMMON STOCK

During the nine months ended September 30, 2005, the Company issued 1,650,000,000 shares of common stock pursuant to the Company’s S-8 Registration Statement.

During the period January 1, 2005 to September 30, 2005, the Company issued 100,000,000 shares of common restricted stock. During the same period, 8,000,000 shares of common restricted stock issued during the quarter ended December 31, 2004 were returned and cancelled.

NOTE 5 - ACQUISITION OF SALT LAKE DEVELOPMENT CORPORATION

A stock purchase and release agreement dated August 8, 2005 was signed under which Nexia’s subsidiary, Diversified Holdings 1, Inc., acquired 99% of the stock in Salt Lake Development Corporation for the payment of $20,000 and settlement of $308,000 of notes payable owed by Diversified Financial Resources Corporation to Nexia and two of its subsidiaries.

The primary asset of Salt Lake Development Corporation is an office building at 268 West 400 South, Salt Lake City, UT encumbered by a mortgage of approximately $557,000. All of the assets, liabilities and equity of Salt Lake Development Corporation are included in the September 30, 2005 financial statements.
 
NOTE 6 - SUBSEQUENT EVENTS

Nexia subsidiary, Diversified Holdings 1, Inc., invested $100,000 in Landis, LLC, for a 20% interest, on November 2, 2005. Landis is a new, upscale hair salon in Salt Lake City, UT which opened for business on November 10, 2005 at the corner of 900 East and 1300 South. Richard Surber, CEO of Nexia, holds a 60% interest in Landis, LLC, and he has made, or will make, a $300,000 investment for his 60% interest. Consequently, the investment in Landis, LLC may be deemed a related party transaction.

11
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Cautionary Statement Regarding Forward-Looking Statements
 
The information herein contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward looking statements involve risks and uncertainty, including, without limitation, the ability of Nexia to continue its business strategy, changes in the real estate markets, labor and employee benefits, as well as general market conditions, competition, and pricing. Although Nexia believes that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward looking statements included in the Form 10QSB will prove to be accurate. In view of the significant uncertainties inherent in the forward looking statements included herein, the inclusion of such information should not be regarded as a representation by Nexia or any other person that the objectives and plans of Nexia will be achieved.
 
 General
 
Nexia's current operations consist of the acquisition, leasing and selling of real estate. The following discussion examines Nexia's financial condition as a result of operations for the three and nine month periods ended September 30, 2005, and compares those results with the comparable periods in 2004.
 
 Real Estate Operations
 
Nexia's objective, with respect to real estate operations, is to acquire, through subsidiaries, properties which management believes to be undervalued and which Nexia is able to acquire with limited cash outlays. Nexia will consider properties anywhere within the continental United States. Nexia attempts to acquire such properties by assuming existing favorable financing and paying the balance of the purchase price with nominal cash payments or through the issuance of shares of common stock. Once such properties are acquired, Nexia leases them to primarily commercial tenants. Nexia also makes limited investments to improve the properties with the objective of increasing occupancy and cash flows. Management believes that, with limited improvements and effective management, properties can be sold at a profit within a relatively short period of time.
 
On April 20, 2005, West Jordan Real Estate Holdings, Inc. a majority owned subsidiary of Nexia Holdings, Inc. ("Company") closed on the sale of real property known as the Glendale Plaza Shopping Center, located at 1199 South Glendale Drive, Salt Lake City, Utah to Paul R. Hatch and Dorothy Hatch, Trustees of the Hatch Family Trust wherein the Company agreed to transfer the property in exchange for a cash purchase price of $1,860,000. All distributions related to the closing were completed prior to the 30th of April, 2005. Nexia realized a profit of $756,471 from the sale of the property. A loan secured by the real property in the amount of $952,665.92 has been paid off in full as a result of the closing. The secured lender has released the sum of $59,911.58 presently held in an escrow account retained for maintenance projects on the real property. 

At the time of the transaction, the property held by West Jordan Real Holdings, Inc. had a depreciated cost basis of approximately $987,758, including purchase price paid and improvements that were made to the property and buildings during the period of ownership by West Jordan and while it was a subsidiary of Nexia.
 
12
 
Nexia recorded rental revenues of $46,880 and $254,702 for the three and nine months ended September 30, 2005, as compared to $132,947 and $379,958 for the comparable periods in 2004. The decreases in the three and nine month rental revenue of $86,087, or 64.8%, and $125,256, or 33.0%, respectively was due to the sale of the Glendale shopping center.

Nexia had a loss from real estate operations of $42,634 and $121,992 for the three and nine months ended September 30, 2005, compared to a loss of $146,345 and $311,297 for the comparable periods in 2004. The decreases in the three and nine month losses of $103,711, or 70.9%, and $189,305, or 60.8%, respectively are attributable primarily to the reduced costs of operation of the real estate holdings of the Company as a result of the sale of the Glendale shopping center.
 
Nexia will continue efforts to improve profitability and cash flow by working to increase occupancy and rental income from those properties currently held and to seek new investment opportunities as they can be located and evaluated. Accordingly, Nexia hopes to not only minimize any real estate cash flow deficit, but also generate sufficient cash to record a substantial profit upon property disposition.
 
Company Operations as a Whole:

Revenue 

Gross revenues for the three and nine month periods ended September 30, 2005, were $46,880 and $254,702 as compared to $185,647 and $489,091 for the same periods in 2004. The decreases in the three and nine month revenues of $138,767, or 74.7%, and $234,389, or 47.9%, respectively are due to decreased rents resulting from the sale of a shopping center and no consulting revenue in 2005. 
 
Operating Losses
 
Nexia recorded operating losses of $208,494 and $839,306 for the three and nine month periods ended September 30, 2005, compared to losses of $390,041 and $1,798,694 for the comparable periods in the year 2004. The decreases in three and nine month operating losses of $181,547, or 46.5%, and $959,388, or 53.3%, respectively were the result of the reduction of general and administrative costs, reduction of costs from discontinued consulting activities and a decrease in expenses related to real estate operations.

Net Income
 
Nexia recorded net losses of $242,941 and $3,802 for the three and nine month periods ended September 30, 2005, as compared to net losses of $301,576 and $1,450,812 for the comparable periods in 2004. The decreases in the three and nine month net losses of $58,635, or 19.4%, and $1,447,010, or 99.7%, respectively, compared to the same periods in 2004, reported above, are attributable primarily to the gain recognized on the sale of the Glendale shopping center in the amount of $756,471 and income from settlement of litigation totaling $181,500. The Company also recorded a decrease in expenses as a result of issuing fewer shares of common stock for services rendered by employees and contractors during the first nine months of 2005.
 
Nexia may not operate at a profit through fiscal 2005. Since Nexia's activities are tied to its ability to operate its real estate properties at a profit, future profitability or its revenue growth tends to follow changes in the real estate market place. There can be no guarantee that profitability or revenue growth can be realized in the future.

Expenses
 
General and administrative expenses for the three and nine month periods ended September 30, 2005, were $165,860 and $717,314 compared to $192,955 and $1,052,374 for the same periods in 2004. The decrease in three month expenses of $27,095, or 14.0%, was due primarily to adjustment of the recorded value of options issued to employees and vendors in the first three quarters of 2005 less the increased issuing of stock to employees for services. The decrease in expenses over the nine month period of $335,060, or 31.8%, was due primarily to the overall reductions in 2005 of staff and operating expenses for the Company compared to the comparable period in 2004.
 
Depreciation and amortization expenses for the nine months ended September 30, 2005, were $93,145 compared to $99,574 for same period in 2004. The decrease in the nine month expense of $6,429, or 6.5%, was attributable to the sale of a shopping center in the second quarter of 2005.
 
13
 
 Capital Resources and Liquidity
 
On September 30, 2005, Nexia had current assets of $651,660 and $4,087,985 in total assets compared to current assets of $565,834 and total assets of $4,006,060 as of December 31, 2004. Nexia had net working capital deficit of $598,345 at September 30, 2005, as compared to a net working capital deficit of $51,335 at December 31, 2004. The increase in working capital deficit of $547,010 is due primarily to the increase in current maturities of long-term debt in the amount of $808,144, which Nexia intends to reclassify as long-term debt by no later than May 2006 by refinancing the Wallace Bennett property.

Cash provided by operating activities was $366,056 for the nine months ended September 30, 2005, compared to cash used by operating activities of $63,665 for the comparable nine month period in 2004. The increase of $429,721 was attributable to the sale of the Glendale Plaza sale and reductions in operating costs and expenses, including salaries, during the nine month period ended September 30, 2005.

Net cash used by investing activities was $269,284 for the nine months ended September 30, 2005, compared to net cash used by investing activities of $303,951 for the nine months ended September 30, 2004. The decrease of cash used in the sum of $34,667 resulted from reduced investing activities.
 
Cash provided by financing activities was $14,224 for the nine months ended September 30, 2005, compared to cash provided of $367,058 for the nine months ended September 30, 2004. The decrease of $352,834 was due primarily to the pay off of the mortgage note payable on the Glendale Plaza and the reduced reliance on stock options issued as payment to employees during the nine months ended September 30, 2005.
 
Nexia may experience occasional cash flow shortages due to Nexia’s debt service on real estate holdings and willingness to acquire properties with negative cash flow. To cover these shortages, Nexia may need to issue shares of its common stock in payment for services rendered. The Company is currently experiencing challenges with regard to cash flows. We are looking at several options to improve this situation, including having signed for an equity line of credit.
 
Stock and Options To Employees and Contractors

Nexia’s subsidiary, Hudson Consulting Group, Inc. reduced cash payments to employees for compensation during the quarter ended September 30, 2005. Nexia increased the issuing of stock in place of the reduced cash payments. During the three month period ended September 30, 2005, the Company issued, pursuant to S-8 Registration Statements, 300,000,000 shares as compensation to four persons in exchange for services provided to the Company.
 
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 materials and labor by increasing sales and improving operating efficiencies.

14
 
Off Balance Sheet Arrangements
 
 We do not have any off-balance sheet financing arrangements.
 
The following is a summary schedule of stockholders' equity and changes, for the nine months ended September 30, 2005 and 2004. The numbers show the effect of the November 1, 2004 reverse split
 
 
  
 
  
 
  
Nine Months Ended 
  
 
  
September 30 
  
 
  
2005 
  
2004 
  
 
  
(Unaudited) 
  
(Unaudited) 
  
 
  
 
  
 
  
BALANCE DECEMBER 31, 2004 AND 2003
  
$
441,415
  
$
44,705
  
Common stock issued for services
    
146,160
   
153,267
 
Common stock issued to directors for services
    
-
   
480,000
 
Common stock issued to employees for options exercised
    
27,366
   
40,690
 
Common stock issued to contractors for options exercised
    
11,140
   
36,000
 
Intrinsic value of options issued to employees for past services
    
95,134
   
124,400
 
Fair value of options issued to contractors for past services
    
36,360
   
-
 
Proceeds from contractors' share of proceeds from sale of option
          
shares applied to accounts payable
    
7,985
   
-
 
Receipt of cash on subscriptions receivable
    
373,516
   
21,000
 
Return of common stock from a director who resigned
    
(20,000
)
  
-
 
Amortization of expenses prepaid with common stock
    
-
   
13,333
 
Change in comprehensive loss
    
(15,227
)
  
624
 
Net consolidated loss for three months ended March 31
    
(419,114
)
  
(751,565
)
BALANCE MARCH 31
    
684,735
   
162,454
 
 
          
Common stock issued for services
    
-
   
15,660
 
Common stock issued for building improvements
    
-
   
19,200
 
Common stock issued to employees for options exercised
    
-
   
99,410
 
Common stock issued to contractors for options exercised
    
-
   
73,144
 
Intrinsic value of options issued to employees for past services
    
-
   
128,850
 
Proceeds from contractors' share of proceeds from sale of option
          
shares applied to accounts payable
    
-
   
7,466
 
Amortization of expenses prepaid with common stock
    
-
   
7,600
 
Receipt of cash on subscriptions receivable
    
15,000
   
-
 
Change in comprehensive loss
    
(8,361
)
  
(4,372
)
Net consolidated income for three months ended June 30
    
658,253
   
(397,671
)
BALANCE JUNE 30
    
1,349,627
   
111,741
 
 
          
Preferred stock issued for services
    
-
   
8,000
 
Common stock issued for services
    
15,000
   
187,766
 
Common stock issued to employees for options exercised
    
19,500
   
19,500
 
Common stock issued to contractors for options exercised
    
-
   
40,462
 
 
Intrinsic value of options issued to employees for past services
   
10,500
    
55,949
 
Fair value of options issued to contractors for past services
   
-
   
87,786
 
 
          
Adjust fair and intrinsic value of options issued to June 30, 2005
    
(85,243
)
  
-
 
Increase in stock subscriptions receivable
    
(19,500
)
  
-
 
 
          
Proceeds from contractors' share of proceeds from sale of option
          
shares applied to accounts payable
    
-
   
19,306
 
Amortization of expenses prepaid with common stock
    
-
   
36,388
 
Change in comprehensive loss
    
6,411
   
214
 
               
               
Net consolidated loss for three months ended September 30
    
(242,941
)
  
(301,576
)
 
              
BALANCE SEPTEMBER 30
  
$
1,053,354
  
$
265,536
  
 
 
15
 
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, 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 may increase or decrease as property tax rates change and as the property is assessed or reassessed by taxing authorities. If property taxes increase, Nexia's operations could be adversely affected.
 
 ITEM 3. CONTROLS AND PROCEDURES
 
 Nexia's president acts both as the Company's chief executive officer and chief financial officer ("Certifying Officer") and is responsible for establishing and maintaining disclosure controls and procedures for Nexia. The Certifying Officer has concluded (based on his evaluation of these controls and procedures as of a date within 90 days of the filing of this report) that the design and operation of Nexia's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) are effective and adequate.
 
There were no significant changes made in Nexia's internal controls or in other factors that could significantly affect Nexia's 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, Nexia has no segregation of duties related to internal controls.
 
 PART II-OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 
Since the filing of Nexia's 10-KSB for the period ended December 31, 2004 no material changes have occurred to the legal proceedings reported therein, except as noted below. For more information please see Nexia's Form 10-KSB for the year ended December 31, 2004, filed May 26, 2005.
 
16
 
Diversified Holdings I, Inc., a Nevada Corporation vs. Ronald M. Hickling, Anthony Turgeon, Allen Barry Witz, Individually and TechnoConcepts, Inc. a California Corporation. This action was filed on December 22, 2004, in the Third Judicial District Court of Salt Lake County, State of Utah, Civil Cause No. 040927134. Diversified Holdings I, Inc. as the assignee of Axia Group, Inc. has filed the stated civil action seeking recovery of damages resulting from the fraudulent actions of the named defendants in preventing the acquisition of a controlling interest in TechnoConcepts, Inc. as provided for by contract. Each of the named parties has been served with process in the matter and none of them has yet filed a response to the allegations contained in the complaint. The parties have agreed upon terms of settlement through which Diversified Holdings I, Inc. received a cash payment in the sum of $20,000 and 25,000 restricted shares of the common stock of TechnoConcepts, Inc. in exchange for the dismissal of the suit.
 
Diversified Holdings I, Inc., a Nevada Corporation vs. West America Securities Corporation, a California Corporation and Robert Kay, an individual resident of California. This action was originally filed on September 14, 2004, in the Third District Court of the State of Utah, Salt Lake County, Civil Case No. 040919392 and refiled on June 23, 2005 as Civil Case No. 050911181. By Assignment from Nexia Group, Inc., dated January 23, 2004, Diversified Holdings I, Inc. acquired all rights to an agreement between Axia Group, Inc. and the named defendants providing for a payment to be made to Axia in the sum of $50,000 on or before December 31, 2003. Defendants have failed to make the provided for payment and Diversified Holdings I, Inc. has filed suit to seek payment of the balance due. Discussions related to resolving the matter have resulted in a partial payment to Diversified in the sum of $27,500 and further discussions leading to complete settlement of the action are ongoing.
 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

Subsequent Events

On November 8, 2005 the Board of Directors had 50,000,000 shares of restricted common stock issued to Barry Burbank as compensation for his time and effort in the benefit of the Company. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.

ITEM 5. OTHER INFORMATION
 
Since the end of the quarter September 30, 2005, the board of directors of the Company has not authorized any additional shares of common stock to be issued pursuant to the S-8 Registration Statement of the Company for the payment of obligations owed to employees and contractors of the Company.
 
On July 6, 2005, the board of directors approved the issuance of shares of common stock pursuant to the Company’s S-8 Registration Statement, 37,500,000 shares to Guy Cook, 37,500,00 shares to Michael Golightly, 37,500,000 shares to Ernest Burch and 37,500,000 shares to Rocco Liebsch for personal services that each of the name individuals had provided to the Company.
 
17
 
On July 13, 2005, Diversified Holdings I, Inc. a subsidiary of Nexia Holdings, Inc. obtained an assignment of a promissory note from Diversified Financial Resources Corporation in exchange for a cash payment of $30,000. The maker of the promissory note is Creative Marketing Group, Inc. and the note has a face amount of $58,690.80, bearing simple interest at the rate of 2% per month from September 4, 2003. The note was due on September 4, 2004 and is currently past due.

Nexia’s subsidiary, Diversified Holdings I, Inc., on August 8 2005 signed a contract to acquire a 15,000 square foot office building at 268 West 400 South, Salt Lake City, Utah for a total purchase price of $885,000. The building was acquired by purchasing 99% of the stock in Salt Lake Development Corporation whose sole asset consists of the building. Nexia intends to make cosmetic improvements to the property and will immediately list the property with Internet Properties, Inc. for sale or lease. Nexia has made a cash settlement with Diversified Financial Resources Corporation in the sum of $308,000 and will in effect assume the existing financing of approximately $557,000. Closing occurred on September 29, 2005.
 
On August 17, 2005, the Company executed an Investment Agreement with Dutchess Private Equities Fund, L.P. providing for up to $10,000,000 in equity funding. The Investment Agreement provides that, following notice to Dutchess, the Company may put to Dutchess up to $10 million in shares of the Company’s common stock for a purchase price equal to 95% of the lowest closing best bid price on the Over-the-Counter (“OTC”) Bulletin Board of the Company’s common stock during the five day period following that notice. The number of shares that the Company will be permitted to put pursuant to the Investment Agreement will be either: (a) 200% of the average daily volume of the common stock for the ten trading days prior to the applicable put notice, multiplied by the average of the three daily closing best bid prices immediately preceding the day the Company issues the put, or (b) $100,000; provided that in no event will the put amount be more than $1,000,000 with respect to any single put. There is no guarantee that the Company will receive any funding from the execution of this agreement.
 
On August 25, 2005, the Company entered into an Acquisition Agreement with the shareholders of Axis Labs, Inc. to acquire 100% of the issued and outstanding shares of Axis Labs in exchange for the issuance of 165,00 shares of Nexia’s Series C Preferred Stock. The parties further agreed to a right by the parties to rescind the Acquisition Agreement in the event that Axis is unable to raise a minimum of $1,500,000 in capital within 2 years of the date of the agreements. Subsequent to the end of the quarter (November 8, 2005) this agreement was terminated, none of the preferred stock has been issued and the Company does not hold any interest in Axia Labs, Inc.
 
On August 25, 2005, Richard Surber, the president of the Company granted an option to the Company to purchase 8,000,000 shares of Series B Preferred Stock in exchange for a $500,000 cash payment and the issuance of common stock equal to 5% of the issued and outstanding shares on the date of exercise. The option may only be exercised subsequent to Axis Labs, LLC raising $1,500,000 and the spin-off or divestiture of Diversified Holdings I, Inc. from Nexia. The term of the option is three years and may only be exercised in whole. Subsequent to the end of the quarter this option was rescinded by the mutual agreement of the parties.


On November 2, 2005, Nexia’s subsidiary Diversified Holdings I, Inc., invested $100,000 in Landis, LLC in exchange for a 20% interest in the LLC. Landis is to open an upscale hair salon located at 9th East and 1300 South in Salt Lake City, Utah in early November, 2005. Richard Surber, president and director of the Company, is a 60% owner of Landis LLC.
 
18
 
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
 
 
(a)
 
Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits on page 9 of this Form 10-QSB, and are incorporated herein by this reference.
 
 
 
(b)
 
Reports on Form 8-K During the period covered by this report, Nexia filed two Form 8-K reports.
 
                      (1)  
On August 18, 2005, the Company filed a Form 8-K reporting the execution of agreements with Dutchess Private Equities Fund, L.P. providing for up to $10,000,000 in equity financing.
 
                     (2)  
On August 30, 2005, the Company filed a Form 8-K reporting that the Company had acquired a 100% equity interest in Axis Labs, Inc. in exchange for the issuance of 165,000 shares of Nexia’s Series C Preferred Stock, reported on an agreement for rescession of that agreement and that the Company’s president Richard Surber had granted an option to the Company to acquire 8,000,000 shares of the Series B Preferred Stock of the Company held by Mr. Surber. Both of these agreements have been terminated by the Company subsequent to the end of the quarter.
 

Reports on Form 8-K after the end of the quarter/period.


 
(3)
On November 8, 2005, the Company filed a Form 8-K reporting on the issuance of 50,000,000 shares of restricted common stock to Barry Burbank to satisfy all claim for personal services, time and effort that he has provided to the Company. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.
 
(4)
On December 5, 2005, the Company filed a Form 8-K reporting on the resignation of HJ & Associates, LLC as the auditors for the Company.
 
(5)
On December 13, 2005, the Company filed a Form 8-K reporting on the Company retaining Bongiovanni & Associates, P.A. as the auditor for the Company
 
Subsequent Events

Subsequent to the end of the quarter the Stock Purchase Agreement with Axis Labs, Inc. and its related parties has been rescinded and is no longer of any force or effect. The Stock Purchase Option granted to the Company by Richard Surber has also been rescinded and the Company no longer holds an option to purchase the preferred shares held by Mr. Surber. All actions taken to facilitate these transactions have been reversed and no shares of either common stock or preferred stock were ever issued pursuant to these agreements.

19
 
  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, thereunto duly authorized, this day of November, 2005. 
 
     
 
Nexia Holdings, Inc.
 
 		  
 		  
 
Date: December 13, 2005 By:   /s/ Richard Surber
 
Richard Surber
President and Director 
 
 
   
20
 
INDEX TO EXHIBITS
 
EXHIBIT NO.
 
DESCRIPTION
  
 
 
 
3(i)
 
Articles of Incorporation of Nexia (incorporated herein by reference from Exhibit No. 3(i) to Nexia's Form S-18 as filed with the Securities and Exchange Commission on September 16, 1988). 
  
 
 
 
3(ii)
 
Bylaws of Nexia, as amended (incorporated herein by reference from Exhibit 3(ii) of Nexia's Form S-18 as filed with the Securities and Exchange Commission on September 16, 1988). 
  
 
 
 
3(iii)
 
Articles of Incorporation of Nexia (incorporated herein by reference from Appendix B of Nexia's Form 14-A as filed with the Securities and Exchange Commission on August 17, 2000.) 
  
 
 
 
4(a)
 
Form of certificate evidencing shares of "Common Stock" in Nexia (incorporated from Exhibit 4(a) to Nexia's Form S-18 as filed with the Securities and Exchange Commission on September 16, 1988 ). 
  
 
 
 
Material Contracts
 
 
 
10(i)
 
Stock Purchase and Settlement Agreement dated August 9, 2005 with Diversified Financial Resources Corporation to acquire majority control of Salt Lake Development Corporation, which holds title to real estate located at 268 West 400 South, Salt Lake City, Utah. 
  
 
 
 
10(ii)
 
Investment Agreement, dated August 15, 2005 between Nexia Holdings, Inc. and Dutchess Private Equities Fund, LP. (Incorporated herein by reference from the 8-K Report filed with the Securities and Exchange Commission on August 17, 2005.) 
  
 
 
 
10(iii)
 
Registration Rights Agreement dated August 15, 2005 between Nexia Holdings, Inc. and Dutchess Private Equities Fund, LP. (Incorporated herein by reference from the 8-K Report filed with the Securities and Exchange Commission on August 17, 2005.)
 
  
 
 
 
10(iv)
 
Acquisition Agreement dated August 25, 2005, between Nexia Holdings, Inc. and Axis Labs, Inc., The Axis Group, LLC, F. Briton McConkie, Peter Kristensen, Kent Johnson and Glen Southard to acquire a 100% equity interest in Axis Labs, Inc. in exchange for the issuance of 165,000 shares of Nexia’s Series C Preferred Stock. (Incorporated by reference from the 8-K filed with the Securities and Exchange Commission on August 30, 2005.) 
  
 
 
 
10(v)
 
August 25, 2005 an agreement for rescession of the Acquisition Agreement for Axis Labs, Inc. (Incorporated by reference from the 8-K filed with the Securities and Exchange Commission on August 30, 2005.) 
  
 
 
 
10(vi)
 
An Option Agreement dated August 25, 2005 between the Company and its president Richard Surber granting an option to the Company to acquire 8,000,000 shares of the Series B Preferred Stock of the Company held by Mr. Surber. (Incorporated by reference from the 8-K filed with the Securities and Exchange Commission on August 30, 2005.) 
  
 
 
 
Certifications
 
 
 
 
 
31.1
 
  
 
 
  
31.2
  
 
 
 
32
 
  
 
 
 
Other
 
 
 
 
 
None
Previously filed as indicated and incorporated herein by reference from the referenced filings previously made by Nexia. 
  


 
21