SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the
transition period from to .
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Commission file number: 33-2128-D
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NEXIA HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 84-1062062
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
268 West 400 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 XX No
-- ----
The number of outstanding shares of the issuer's common stock, $0.001
par value (the only class of voting stock), as of September 19, 2003 was
328,552,760.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.................................................2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.................................3
ITEM 3. CONTROLS AND PROCEDURES..............................................7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................9
SIGNATURES....................................................................9
INDEX TO EXHIBITS............................................................10
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INTENTIONALLY LEFT BLANK
1
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 unaudited consolidated balance sheet as of June 30, 2003 and the related
unaudited consolidated statements of operations and cash flows for the three and
six months ended June 30, 2003 are attached hereto as Pages F-1 through F-6 and
are incorporated herein by this reference.
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2
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Consolidated Balance Sheet.................................................F-2
Consolidated Statements of Operations and Other Comprehensive Income.......F-4
Consolidated Statements of Cash Flows......................................F-5
Notes to Consolidated Financial Statements.................................F-6
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F-1
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
June 30, 2003
-------------------------
ASSETS
Current Assets
Cash $ 31,869
Restricted cash 202,921
Accounts receivable - trade, net of allowance of $34,121 41,783
Accounts and notes receivable - related parties 208,128
Prepaid expenses 17,462
Notes receivable - current 255,000
Securities available for sale 271,974
Total Current Assets 1,029,137
--------------------
Fixed Assets
Property and equipment, net 2,652,586
Land 699,241
--------------------
Total Fixed Assets 3,351,827
--------------------
Other Assets
Loan Costs, net 101,673
Total Other Assets 101,673
--------------------
TOTAL ASSETS $ 4,482,637
====================
The accompanying notes are an integral part of these consolidated financial statements
F-2
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (continued)
(Unaudited)
June 30, 2003
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 154,285
Accrued liabilities 100,776
Unearned rent 18,865
WVDEP liability 20,000
Deferred revenue 35,550
Refundable deposit 16,583
Deferred gain on sale of subsidiary 121,770
Current portion long-term debt 810,328
Total Current Liabilities 1,278,157
-----------------------
Long-Term Liabilities
Notes and mortgages payable 2,231,234
Total Long-Term Liabilities 2,231,234
-----------------------
TOTAL LIABILITIES 3,509,391
-----------------------
MINORITY INTEREST 255,651
STOCKHOLDERS' EQUITY
Preferred stock - 20,000,000 shares authorized at $0.001 par, no -
shares issued
Common stock - 1,000,000,000 shares authorized at $0.001 par; 315,353
315,352,760 shares issued and outstanding
Paid-in capital 9,692,273
Treasury stock - 22,198,540 shares at cost, (100,598)
Unrealized gain on securities available for sale 14,358
Accumulated deficit (9,203,791)
TOTAL STOCKHOLDERS' EQUITY 717,595
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,482,637
=======================
The accompanying notes are an integral part of these consolidated financial statements
F-3
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------ ------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Revenue (Restated) (Restated)
Consulting revenue $ 52,630 $ 20,996$ 110,833$ 100,721
Rental revenue 122,306 119,224 239,224 341,916
---------------- ---------------- ---------------- ----------------
Total Revenue 174,936 140,220 350,057 442,637
Costs of Revenue
Costs associated with consulting revenue 47,279 6,266 104,370 174,246
Costs associated with rental revenue 60,707 76,965 170,506 204,941
Interest associated with rental revenue 75,636 51,849 150,987 128,749
---------------- ---------------- ---------------- ----------------
Total Costs of Revenue 183,622 135,080 425,863 507,936
Gross Profit (Deficit)
Gross profit (deficit) from consulting operations 5,351 14,730 6,463 (73,525)
Gross profit (deficit) from real estate operations (14,037) (9,590) (82,269) 8,226
---------------- ---------------- ---------------- ----------------
Gross Profit (Deficit) (8,686) 5,140 (75,806) (65,299)
Expenses
General & administrative expense 20,436 83,578 24,360 171,793
Impairment of marketable securities - - 5,022 -
---------------- ---------------- ---------------- ----------------
Total Expenses 20,436 83,578 29,382 171,793
---------------- ---------------- ---------------- ----------------
Operating Loss (29,122) (78,438) (105,188) (237,092)
Other Income (Expense)
Interest income (expense) (11) 525 2,085 (3,877)
Gain (loss) on sale of property and equipment (9,959) - (9,959) (100,701)
Gain on sale of subsidiaries 279,268 - 279,268 -
Gain (loss) on sale of marketable securities (27,613) (78,225) (27,613) (161,453)
Other income 42,854 (60,946) 42,854 (65,607)
---------------- ---------------- ---------------- ----------------
Total Other Income (Expense) 284,539 (138,646) 286,635 (331,638)
---------------- ---------------- ---------------- ----------------
Income (Loss) Before Minority Interest 255,417 (217,084) 181,447 (568,730)
Minority Interest in Gain 16,054 21,492 21,015 81,529
---------------- ---------------- ---------------- ----------------
Net Income (Loss) Before Discontinued 271,471 (195,592) 202,462 (487,201)
Operations
Gain (loss) from discontinued operations (61,557) (43,191) (83,611) (75,408)
---------------- ---------------- ---------------- ----------------
Net Income (Loss) 209,914 (238,783) 118,851 (562,609)
Other Comprehensive Income (loss)
Change in unrealized holding loss 3,899 491,943 14,358 (149,276)
---------------- ---------------- ---------------- ----------------
Total Comprehensive Income (Loss) $ 213,813 $ 253,160$ 133,209 $ (711,885)
================ ================ ================ ================
Net (Income) Loss Per Common Share, basic and diluted
================
Income (Loss) before minority interest $ 0.00 $ (0.00)$ 0.00 $ (0.00)
Minority interest in loss 0.00 (0.00) 0.00 (0.00)
---------------- ---------------- ---------------- ----------------
Income (Loss) before discontinued operations 0.00 (0.00) 0.00 (0.00)
Income (Loss) on discontinued operations (0.00) (0.00) (0.00) (0.00)
---------------- ---------------- ---------------- ----------------
Net income (loss) per weighted average
common share outstanding $ 0.00 $ (0.00)$ 0.00 $ (0.00)
================ ================ ================ ================
================ ================ ================ ================
Weighted average shares outstanding - basic & 289,098,664 310,303,000 289,098,664 296,469,000
diluted
================ ================ ================ ================
The accompanying notes are an integral part of these consolidated financial statements
F-4
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
----------------------------------
2003 2002
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Cash Flows From Operating Activities (Restated)
Net Income (loss) $ 118,851 $ (562,609)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss from discontinued operations 83,611 -
Loss from sale of investments 27,613 174,431
(Gain) loss from sale of property and equipment 9,959 100,701
(Gain) loss from sale of subsidiaries (279,268)
Impairment of marketable securities 5,022 -
Change in minority interest (209,961) (8,483)
Depreciation 70,484 83,443
Issued common stock for services - 20,000
Changes in operating assets and liabilities:
Increase in restricted cash (202,921) -
Accounts and notes receivable 64,553 (168,127)
Related party receivables (55,198) (44,738)
Prepaid expenses 6,038 40,351
Other assets (6,470) -
Accounts & notes payable (32,474) 8,041
Unearned rent (30,168) 33,853
Deferred revenue 9,099 -
Refundable deposit 10,083 -
Accrued liabilities 7,383 (138,511)
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Net Cash Used by Operating Activities (403,764) (461,648)
Cash Flows From Investing Activities
Proceeds on sale of securities 8,847 166,975
Purchase of property and equipment (7,850) (224,541)
Proceeds from sale of property and equipment - 391,539
Net cash received (distributed) in acquisition (sale) transaction (15,351) 18,545
Purchase of marketable securities - (69,607)
--------------- --------------
Net Cash Provided (Used) by Investing Activities (14,354) 282,911
Cash Flows from Financing Activities
Proceeds from long term debt 968,675 456,815
Principal payments on notes and mortgages payable (627,509) (89,822)
Purchases of treasury stock - (15,949)
--------------- --------------
Net Cash Provided by Financing Activities 341,166 351,044
--------------- --------------
Increase (Decrease) in Cash (76,952) 172,307
Cash at Beginning of Period 108,821 295,343
--------------- --------------
Cash at End of Period $ 31,869 $ 467,650
=============== ==============
Supplemental Disclosures
Interest paid in cash $ 134,320 $ 132,515
Income taxes paid in cash $ - $ -
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Common stock issued for loan costs $ 50,000 $ -
Office equipment acquired through capital lease $ 19,815 $ -
The accompanying notes are an integral part of these consolidated financial statements
F-5
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements are
those of Nexia Holdings, Inc. and Subsidiaries (the Company) and
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 include 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, 2002 Annual Report on Form 10-KSB. Operating
results for the six months ended June 30, 2003 are not indicative
of the results that may be expected for the year ending December
31, 2003.
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 June 30, 2003 of $9,203,791 at June 30, 2003 and a
working capital deficit of $249,020 all of which raises
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.
F-6
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003
NOTE 3 - MATERIAL EVENTS
During April 2003, Hudson Consulting (Hudson), a subsidiary of the
Company, entered into an agreement to sell its interest in Unit
A216 of the Brian Head North Condominiums in Iron County, Utah to
a related party. According to the agreement, Hudson will receive
$1,000 in cash and is relieved of all obligations and liabilities
relating to the property. The Company recognized a loss on sale of
$10,660.
On May 9, 2003, Wasatch Capital Corporation (Wasatch) refinanced
the underlying debt associated with certain land and real
property. The new debt obligation is for $850,000 with an interest
rate of 7.5%, with monthly installment payments of $6,848 through
May 10, 2006 at which time the remaining unpaid balance is due and
payable in full. $647,079 of this amount was disbursed at closing,
with the remaining $202,921 held in reserve (shown as restricted
cash on the balance sheet) for purposes of future improvements or
other uses as Wasatch deems appropriate. Interest will only accrue
on the amount that has actually been disbursed to Wasatch. This
debt obligation is secured by a first trust deed on the land and
building and is personally guaranteed by the president of the
Company. Proceeds from this refinancing were used to retire the
previous debt associated with the land and real property having an
outstanding balance of $591,155 at March 31, 2003, as well as
property taxes owed to Salt Lake County in the amount of $8,700.
On May 15, 2003, Hudson entered into an agreement to sell an
automobile in exchange for the assumption of the monthly payments
by the buyer and the release of Hudson of all obligations and
liabilities relating to the vehicle. The Company recognized a gain
on sale of $701.
During May 2003, Hudson entered into a one-year Consulting
Agreement with Axia Group, Inc. (Axia), a related party. The
agreement calls for Axia to issue of 666,667 shares of common
stock and pay $10,000 per month or hourly billings on a monthly
basis, whichever is greater.
During May 2003, Hudson also entered into a one-year Consulting
Agreement with Diversified Financial Resources Corporation (DFRC).
The agreement calls for payment of $7,500 or the total amount of
hourly billings, whichever is greater, on a monthly basis to
Hudson.
On June 19, 2003, in an inter-company tax free transaction,
Wichita Development Corporation (Wichita), a subsidiary of the
Company, exchanged its shareholdings in Kearns Development
Corporation (Kearns) for the Diversified Holdings I, Inc. (DHI)
shareholdings in Salt Lake Development Corporation (SLDC). (DHI,
Kearns and SLDC were all subsidiaries of Nexia at the time of the
restructuring. See Item 1 Description of Business in the December
31, 2002 NXIA Form 10KSB for a diagram of the corporate structure
of the Company).
F-7
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003
On June 30, 2003, the Company sold its interest in Wichita to
DFRC. The terms of the agreement are as follows:
a) Wichita assigns to DH1 a promissory note in the amount of $14,056.
b) Wichita waives the $112,517 receivable owed to it by Kearns.
c) Nexia waives the $1,565 receivable owed to it by Wichita, and DH1 waives the $407,854
receivable owed to it by SLDC.
d) Wichita issues to DH1 a promissory note in the amount
of $150,000. e) DFRC transfers to DH1 1,148,251 shares of its
restricted common stock with a guaranteed liquidation value of
not less than $1 per share. Although DFRC shares currently
have a market price of approximately $2.70/share, the shares
have been assigned a value of $0.19/share due to concerns
about the liquidity of the DFRC shares.
The Company recognized a gain on sale of
$279,268.
NOTE 4 - SUBSEQUENT EVENTS
During July 2003, Hudson sold its interest in Unit B112 of the
Timberbrook Condominiums in Iron County, Utah. The purchase price
of the unit was $48,000 which resulted in a profit to Hudson of
approximately $8,000.
On July 21, 2003, the Company issued 10,200,000 shares of S-8
common stock to outside parties for services rendered.
During August, 2003, The Company signed a Binding Letter of
Intent to acquire Black Chandelier, Inc. (BCI) a newly formed
corporation, which owns the licensing rights and controls the Los
Angeles based clothing labels Jared Gold and Black Chandelier.
The Company intends to acquire a 100% interest in BCI for Five
Million (5,000,000) shares of its restricted common stock. BCI
assets include several trade marks, a large volume of perfected
digital pattern, sample shop equipment, a library of silk
screens, websites and domain names, a large archive of past
collection and spec samples, and digital artwork for screen
prints.
During August, 2003, the Company signed a 6 month contract with Company
Reporter Inc. for investor relations services in exchange for 3,000,000
shares of its restricted common stock. Company Reporter, Inc. is a full
service investor relations firm specializing in growth stocks.
NOTE 5 - RESTATEMENT OF PRIOR PERIOD RESULTS
The amounts reflected in the statement of operations and
statement of cash flows for the period ended June 30, 2002 have
been restated to account for the merger transaction between Nexia
and Axia that occurred on February 28, 2002, as a reverse acquisition.
The transaction was previously accounted for as a merger between
entities under common control. As such, the
F-8
NEXIA HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2003
operations and cash flows previously included those of Nexia for
the six months ended June 30, 2002 and those of the acquired
entities (Diversified Holdings I, Wichita Development
Corporation, Wasatch Capital Corporation, Downtown Development
Corporation, Golden Opportunity Development Corporation, and
Canton Tire Recycling of West Virginia, Inc.) from the date of
the acquisition, February 28, 2002, through June 30, 2002. The
restated amounts, accounting for the transaction as a reverse
merger, reflect the operations and cash flows of the accounting
acquirer (Diversified Holdings I, Wichita Development
Corporation, Wasatch Capital Corporation, Downtown Development
Corporation, Golden Opportunity Development Corporation, and
Canton Tire Recycling of West Virginia, Inc.) for the three
months ended June 30, 2002 and those of Nexia from the date of
acquisition, February 28, 2002, through June 30, 2002. The table
below reflects the change in revenues, net loss, and net loss per
share due to this restatement .
Six Months Ended June 30, 2002
(Restated) (Originally Reported)
Revenues $ 442,637 $ 337,359
Net loss $ (562,609) $ (413,829)
Net loss per share $ (.00) $ (.00)
F-9
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 expansion 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/A
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 had no substantial operations from January 2, 2001 until February 15,
2002. On February 15, 2002, Nexia entered into a Stock Purchase Agreement
("Agreement") with Axia Group, Inc. ("Axia"), pursuant to which Nexia issued to
Axia 255,100,000 restricted shares of Nexia'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. Nexia
intends to manage the interests acquired from Axia 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 10-KSB filed May 30,
2003.
Nexia operates in two primary areas of business: Nexia acquires, leases and
sells real estate; and, Nexia provides financial consulting services. The
following discussion examines Nexia's financial condition as a result of
operations for the six months ended June 30, 2003, and compares those results
with the comparable period from last year.
The amounts reflected in the statement of operations and statement of cash flows
for the period ended June 30, 2002 have been restated to account for the merger
transaction between Nexia and Axia that occurred on February 28, 2002 as a
reverse acquisition, see footnote 5 to the consolidated financial statements.
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.
3
On June 30, 2003 Nexia sold its interest in Wichita Development Corporation
(Wichita) and its subsidiaries Salt Lake Development Corporation and Wichita
Properties to Diversified Financial Resource Corporation ("DFRC").
The provisions of the agreement provide that Nexia transfer to DFRC 100% of all
shares that Nexia held in Wichita (86,795,794) in exchange for among other
things, a promissory note in the sum of $150,000 and 1,148,251 restricted shares
of the common stock of DFRC with a guaranteed resale value of $1.00 per share,
whereby, within 36 months of the sale, DFRC is bound to issue sufficient
additional shares such that the total value at liquidation will equal
$1,000,000. The number of Wichita common shares transferred to DFRC is
approximately 83% of the issued and outstanding shares of Wichita. Control of
Wichita includes the ownership of Salt Lake Development Corporation, a
subsidiary corporation of Wichita.
Wichita holds title to The Trade Center Building. The building was purchased for
$540,554 on August 30, 2000. The Trade Center Building, which opened in 1921, is
located in the downtown business district of Wichita, Kansas, at 120 South
Market Street, Wichita, Kansas. The building is a 48,500 square foot, seven
story office building. Wichita holds title to the property subject to a mortgage
of $280,145 at June 30, 2003. The taxed assessed value of the building is
$600,000.
Salt Lake Development Corporation owns two buildings. The first is located at
268 West 400 South in Salt Lake City, Utah. The building is two stories with
14,347 net rentable square feet of office space. Salt Lake Development purchased
the property on March 6, 1998, by exercising its option to purchase the property
through the payment of $418,762. Salt Lake Development financed the purchase
price and borrowed an additional sum of $222,489, which is secured by the
property. At June 30, 2003, the outstanding debt on the property was $578,898
with monthly payments of $5,934.
The second building held by Salt Lake Development is a two-story 18 unit
apartment building, located at 2402 Wall Avenue in Ogden, Utah. This building
was purchased on July 23, 1998. The property includes an additional 7,500 square
feet of commercial space. The total purchase price was $850,000. The balance
owed at June 30, 2003 was $590,061 with monthly payments of $4,028.
At the time of the transaction the property held by Wichita and Salt Lake
Development Corporation had a depreciated cost basis of approximately
$1,501,950, including purchase price paid and improvements that were made to the
real properties and buildings during the period of ownership by the two
corporations and while they were subsidiaries of Nexia.
Nexia recorded rental revenues of $122,306 and $239,224 for the three and six
months ended June 30, 2003 respectively, as compared to $119,224 and $341,916
for the same periods in 2002. The decrease in rental revenues was due to a
significant decrease in occupancy rates in the Glendale shopping center.
Nexia had a loss from real estate operations of $14,037 and $82,269 for the
three and six months ended June 30, 2003, compared to a loss of $9,590 and a
gain of $8,226 for the same periods in 2002. The increase in loss is
attributable primarily to the decrease in occupancy.
Nexia will continue efforts to improve profitability and cash flow by working to
increase occupancy and rental income from those properties which have a high
vacancy rate as well as focusing on properties with
4
the highest per square foot rental rates. Nexia also intends to continue to
purchase real estate primarily for appreciation purposes. 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.
Consulting Operations
Nexia, through its majority owned subsidiary, Hudson Consulting Group, Inc.,
("Hudson") provides a variety of financial consulting services to a wide range
of clients. The primary service performed by Hudson involves assisting clients
in structuring mergers and acquisitions. This includes locating entities
suitable to be merged with or acquired by Nexia's clients, as well as providing
general advice related to the structuring of mergers or acquisitions. Hudson
also assists clients in restructuring their capital formation, advises with
respect to general corporate problem solving and provides shareholder relations
services designed to expose its clients to the investment community.
Nexia's consulting subsidiary generates revenues through consulting fees payable
in the client's equity securities, cash, other assets or some combination of the
three. The primary form of compensation received is the equity securities of
clients. When payment is made in the form of equity, the number of shares to be
paid is usually dependent upon the price of the client's common stock (if such
price is available) and the extent of consulting services provided. When stock
is received as payment it is booked as deferred revenue at its currently quoted
market value. After the stock is sold, it is then booked as revenue along with
an accompanying gain or loss on the sale.
Nexia generates cash flow, in part, by liquidating non-cash assets (equity
securities) received as fees for consulting services. As most fees are paid in
the form of equity, the revenues and cash flows realized by Nexia are somewhat
tied to the price of its clients' securities and Nexia's ability to sell such
securities. A decline in the market price of a client's stock can affect the
total asset value of Nexia's balance sheet and can result in Nexia incurring
substantial losses on its income statement.
Nexia's portfolio consists primarily of restricted and unrestricted shares of
common stock in micro to small cap publicly traded companies. This portfolio
currently consists of shares of common stock in over 25 different companies
whose operations range from that of high-tech to oil and gas companies. The
Company's ownership in the above publicly traded companies is less than 20% and
thus accounts for them as investments available for sale at the lower of cost or
market. Nonetheless, Nexia's portfolio is considered extremely volatile.
Revenues from Nexia's financial consulting operations increased for the quarter
ended June 30, 2003, as compared to the comparable period in 2002. Nexia
recorded $52,630 and $110,833 in revenues for the three months and six months
ended June 30, 2003, respectively, from its financial consulting operations as
compared to $20,996 and $100,721 for the same periods of 2002. Nexia experienced
a gain from consulting operations of $5,351 for the three months ended June 30,
2003, and a gain of $6,463 for the six months ended June 30, 2003 as compared to
a gain of $14,730 for the three months ended June 30, 2002and a loss of $73,525
for the six months ended June 30, 2002.
5
Company Operations as a Whole
Revenues
Gross revenues for the three and six month periods ended June 30, 2003, were
$174,936 and $350,057 respectively as compared to $140,220 and $442,637 for the
same periods in 2002. The decrease in six month revenues of $92,580 is due to
the issues stated above.
Losses
Nexia recorded operating losses of $29,122 and $105,188 for the three and six
month periods, respectively ended June 30, 2003, compared to losses of $78,438
and $237,092 for the comparable periods in the year 2002.
Nexia recorded net income of $209,914 and $118,851 for the three and six months
ended June 30, 2003, as compared to net losses of $238,783 and $562,609 for the
same periods in the previous year. The gains attributable primarily to the gain
on the sale of Wichita.
Nexia does not expect to operate at a profit through fiscal 2003. Since Nexia's
activities are closely tied to the securities markets and the ability to operate
its real estate properties at a profit, future profitability or its revenue
growth tends to follow changes in the securities and 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 six months ended June 30,
2003, were $20,436 and $24,360, respectively, compared to $83,578 and $171,793
for the same periods in 2002. The decrease in expenses is due to cost-cutting
measures implemented by Nexia.
Depreciation and amortization expenses for the six months ended June 30, 2003
and June 30, 2002, were $70,484 and $83,443, respectively. The decrease was due
primarily to the permanent impairment of one of Nexia's properties for the year
ended December 31, 2002, which therefore caused a significant decrease in its
depreciable base.
Capital Resources and Liquidity
On June 30, 2003, Nexia had current assets of $1,029,137 and $4,482,637 in total
assets. Nexia had a net working capital deficit of $249,020 at June 30, 2003.
The working capital deficit is due primarily to mortgages which will or may come
due in the next twelve months due to call provisions present in the mortgage.
Net cash used in operating activities was $403,764 for the six months ended June
30, 2003, compared to $461,648 for the three months ended June 30, 2002.
Cash used in investing activities was $14,354 for the six months ended June 30,
2003, compared to cash flow provided by investing activities of $282,911 for the
same period in 2002.
Cash provided by financing activities was $341,166 for the six months ended June
30, 2003, compared to $351,044 for the six months ended June 30, 2002.
6
Due to Nexia's 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 may experience occasional cash flow shortages. To
cover these shortages we may need to sell securities from time to time at a
loss. In addition, the Company is currently experiencing challenges with regard
to cash flows. We are looking at several options to improve this situation,
including the private placement of Nexia common stock.
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.
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
on this property may increase or decrease as property tax rates change and as
the property is assessed or reassessed by taxing authorities. If property taxes
increase, Nexia's operations could be adversely affected.
ITEM 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. No significant changes
were made in Nexia'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, Nexia has no segregation of duties related to
internal controls.
7
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since the filing of Nexia's 10-KSB for the period ended December 31, 2002 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, 2002, filed May 30, 2003.
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 made an appearance in case filing a
counterclaim and naming Axia Group, Inc., Richard Surber, Ed Haidenthaller and
Rurairidh Campbell as third party defendants. 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. Hudson, Surber and Axia have filed a response to the
counterclaims denying any wrongdoing and asserting its defenses to the claims
asserted by the defendants.
Interbay Funding, LLC v. Wichita Development Corporation and Richard D. Surber.
Suit was filed on May 21, 2003 in the District Court of Sedgwick County, Kansas,
Case No. 03CV2074. Suit has been filed seeking to foreclose on the mortgage held
by Interbay Funding on the office building operated by Wichita Development in
Wichita Kansas. The suit alleges that mortgage payments are delinquent as of and
from February 1, 2002 and that the sum of $270,470.57 is sought to satisfy the
outstanding mortgage on the building. The claims alleged in this suit have been
resolved and the litigation has been dismissed.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
8
ITEM 6. 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 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 1 Form 8-K report.
-------------------
1) 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.
Subsequent to the end of the period covered by this report Nexia filed a Form
8-K report.
(2) On July 18, 2003, the Company filed a Form 8-K announcing that
it had entered into a Stock Purchase Agreement with
Diversified Financial Resources Corporation on June 30, 2003.
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 19th day of September 2003.
Nexia Holdings, Inc.
/s/ Richard Surber
Richard Surber, President and Director
9
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. 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) 13 Stock Purchase Agreement with Diversified Financial Resources
Corporation dated June 30, 2003, providing
for the transfer of control of Wichita
Development Corporation and Salt Lake
Development Corporation.
Certifications
31(i) 11 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-
OXLEY ACT OF 2002
32(i) 12 CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
* Previously filed as indicated and incorporated herein by
reference from the referenced filings previously made by
Nexia.
10
Exhibit 31(i)
I, Richard Surber, certify that:
1. I have reviewed this quarterly Report on Form 10-QSB for Nexia Holdings, Inc.
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report my conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation;; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: September 19, 2003
/s/ Richard Surber
--------------------------------------------------------------------------------
Richard Surber the President, CEO & CFO of Nexia Holdings, Inc.
11
Exhibit 32(i)
CERTIFICATION
I, Richard Surber, Chief Executive and Financial Officer of Nexia Holdings, Inc. (the
"Registrant"), do hereby certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
(1) the Quarterly Report of Form 10-QSB of the
Registrant, to which this certification
is attached as an exhibit (the "Report") fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Report fairly
presents, in all material respects, the
financial condition and result of operations of the Registrant.
/s/ Richard Surber
------------------------------------
Richard Surber
Chief Executive and Financial Officer
September 19, 2003
12
Exhibit 10(i)
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") date
June 30, 2003, by,
between and among DIVERSIFIED FINANCIAL RESOURCES CORPORATION, a
Nevada Corporation ("DFRC"), and DIVERSIFIED HOLDINGS I, INC., a Nevada
corporation, ("DHI") and Wichita Development Corporation, (Wichita) Salt Lake
Development Corporation, (SLDC) Kearns Development Corporation, (Kearns), and Nexia
Holdings, Inc. (Nexia).
WHEREAS, Nexia owns 86,795,794 shares of the
issued and outstanding common stock
of Wichita Development Corporation ("Wichita"), a Nevada
corporation, which owns real property (either directly or
through its ownership of Salt Lake Development Corporation)
located in Salt Lake County, Utah, Weber County, Utah and
Sedgwick County, Kansas; and
WHEREAS, Nexia desires to sell and DFRC desires
to purchase Eighty Six Million Seven
Hundred Ninety Five Thousand Seven Hundred Ninety Four
(86,795,794) shares of common stock, representing an interest
in excess of eighty three percent (83%) of the issued and
outstanding shares of Wichita in exchange for the transfer to
DHI of the David Wolfson promissory note with a current value
of $14,056, the offset of a $112,517 debt owed to Wichita by
Kearns Development Corporation, and the forgiveness of
$407,854 in debt owed to Nexia Holdings, Inc. by SLDC offset
by $1,565 in debt owed to Nexia by Wichita, DHI shall receive
$284,719.99 worth of restricted common stock of DFRC, Wichita
shall deliver to DHI a promissory note in the sum of $150,000
and DHI shall receive 1,000,000 shares of DFRC's restricted
common stock with a guaranteed liquidation value of not less
than $1 per share;
NOW, THEREFORE, in consideration of the mutual
covenants, agreements, representations and warranties herein contained,
the parties hereby agree as follows:
(b) Purchase and Sale. Nexia hereby agrees to sell, transfer, assign and
convey to DFRC and DFRC hereby agrees to purchase and acquire from Nexia,
Eighty Six Million Seven Hundred Ninety Five Thousand Seven Hundred Ninety
Four (86,795,794) shares of the common voting stock of Wichita Development
Corporation, a Nevada corporation, (the "Wichita Shares")
(c)Purchase Price and Exchanges.
The items of compensation to be transferred by agreement of parties hereto
shall consist of the following:
(a)Wichita shall assign to DHI the David Wolfson promissory note with a current balance of $14,056
(b)Wichita shall waive and offset $112,517 owed to Wichita by Kearns Development Corporation.
(c)Nexia Holdings shall waive and offset debt owed to it by Salt Lake Development
Corporation in the sum of $407,854 and $1,565 of debt owed
13
to Nexia by Wichita in exchange for the delivery of 148,251 shares of the
restricted common stock of DFRC.
(d) Wichita shall give to DHI a promissory note in the face amount of
$150,000.
(e) Diversified Financial Resources Corporation shall transfer to DHI
1,000,000 shares of it's restricted common stock with a guarantee
liquidation value of not less than $1 per share, such that DFRC will issue
sufficient additional shares of DFRC common stock t provide DHI with net
proceeds from the sale of all shares in an amount of not less than
$1,000,000 within 36 months from the date hereof, the issuance of additional
shares shall be treated as part of the original issuance and DFRC agrees to
tack the holding period of the additional shares to the date of this
agreement in compliance with the provisions of Rule 144 and Rule 144(k).
(d) Warranties and Representations of Wichita and DFRC. In order to induce DHI
and Nexia to enter into the Agreement and to complete the transaction
contemplated hereby, Wichita and DFRC warrants and represents to DHI and Nexia
that:
1) Organization and Standing. Wichita an DFRC are corporations duly organized,
validly existing and in good standing under the laws of the State of their
incorporation, are qualified to do business as a foreign corporation in every
other state or jurisdiction in which it operates to the extent required by the
laws of such states and jurisdictions, and has full Power and authority to carry
on its business as now conducted and to own and operate its assets, properties
and business.
2) Ownership of the Shares. As of the Date hereof, Wichita and DFRC are the sole
owner of the shares that are to be transferred to DHI pursuant to this
Agreement, free and clear of all liens, encumbrances and restrictions, other
then those imposed due to the fact the shares have not been registered with the
Securities an Exchange Commission and carry a Rule 144 legend
3) Taxes. Wichita and DFRC have filed al federal, state and local income or
other tax returns and reports that they are required to file with all
governmental agencies, wherever situate, and has paid or accrued for payment all
taxes as shown on such returns, such that a failure to file, pay or accrue will
not have a material adverse effect on Wichita and DFRC or the shares of stock
which are the subject of this Agreement.
4) Pending Actions. There are no materia legal actions, lawsuits, proceedings o
investigations, either administrative or judicial, pending or to the knowledge
of Wichita threatened, against or affecting Wichita and DFRC and/or the shares
of common stock, except as has been disclosed to DHI. Wichita and DFRC ar not in
violation of any material law, ordinance or regulation of any kind whatever,
including, but not limited to the Securities Act of 1933, (the "33 Act") the
Securities Exchange Act of 1934, as amended (the 34 Act") the Rules and
Regulations of the U.S. Securities and Exchange Commissio ("SEC"), or the
Securities Laws and
14
Regulations of any state.
5) Governmental Regulation. The completion of the transactions contemplated by
the Agreement will not, in and of themselves, violate any governmental law, rule
or regulation which would in any way affect or jeopardize the validity of this
Agreement.
6) Ownership of Assets. Wichita and DFR have good, marketable title, without any
liens or encumbrances of any nature whatever, to the shares which are the
subject of this Agreement.
7) No Misleading Statements or Omissions.
-- ---------- ---------- -- ----------
Neither the Agreement nor any financial statement, exhibit, schedule or document
attached hereto, contains any materially misleading statement, or omits any fac
or statement necessary to make the other statements or facts therein set forth
not materially misleading.
8) Validity of the Agreement. All corporate action and other proceedings
required to be taken by Wichita and DFRC in order to enter into and to carry out
the Agreement have been duly and properly taken. No additional corporate or
other action o the part of Wichita and DFRC is required i connection with this
Agreement, or the transaction contemplated herein. The Agreement has been duly
executed by Wichita and DFRC and constitutes the valid and binding obligation of
each of them, except to the extent limited by applicable bankruptcy,
reorganization, insolvency moratorium or other laws relating to o affecting
generally the enforcement of creditors rights. The execution and delivery of the
Agreement and the carrying out of its purposes will not result in the breach of
any of the terms or conditions of, or constitute a default under or violate any
of the Certificate of Incorporatio or document of undertaking, oral or written,
to which Wichita and DFRC is party or is bound or may be affected, nor will such
execution, delivery and carrying out violate any order, writ, injunction,
decree, law, rule or regulation of any court, regulatory agency or other
governmental body; and the business now conducted by Wichita and DFRC can
continue to be so conducted after completion of the transaction contemplated
hereby.
9) Enforceability of the Agreement. When duly executed and delivered, the
Agreement and the Exhibits hereto which are incorporated herein and made a part
hereof are legal, valid, and enforceable by DHI according to their terms, except
to th extent limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or affecting generall the enforcement of
creditors rights an that at the time of such execution and delivery, DHI will
have acquired title in and to the DFRC common shares free and clear of all
claims, liens and encumbrances.
(e) Warranties and Representations of DHI and Nexia
---------- --- --------------- -- --- --- -----
In order to induce DFRC to enter into the Agreement and to complete the
transaction contemplated hereby, DHI and Nexia warrant and represent to DFRC
that:
1) Organization and Standing.
------------ --- ---------
DHI and Nexia are corporations duly organized, validly
15
existing and in good standing under th laws of the State of Nevada, are
qualified to do business as a foreign corporation i every other state in which
they operat to the extent required by the laws of such states, and have full
power and authority to carry on their businesses as now conducted and to own and
operate their assets, properties and business.
2) No Misleading Statements or Omissions.
-- ---------- ---------- -- ----------
Neither the Agreement nor any financial statement, exhibit, schedule or document
attached hereto or presented to DFRC in connection herewith contains any
materially misleading statement, or omits any fact or statement necessary to
make the other statements of facts therein set forth not materially misleading.
3) Validity of the Agreement. All corporate action and proceedings required to
be taken by DHI and Nexia in order to enter int and to carry out the Agreement
have been duly and properly taken. The Agreemen has been duly executed by DHI
and Nexia, and constitutes a valid and binding obligation of DHI and Nexia. The
execution and delivery of the Agreement and the carrying out of its purposes
will not result in the breach of any of the terms or conditions of, or
constitute a default under or violate, the Certificate of Incorporation or By
Laws, or any agreement, lease, mortgage, bond, indenture, license or other
document or undertaking, oral or written, to which DHI or Nexia is a party or is
bound or may be affected, nor will such execution, delivery and carrying out
violate any order, writ, injunction, decree, law, rule or regulation of any
court regulatory agency or other governmental body.
4) Enforceability of the Agreement. When duly executed and delivered, the
Agreement and the Exhibits hereto which are incorporated herein and made a part
hereof are legal, valid, and enforceable by DFRC according to their terms, and
that at the time of such execution and delivery, DFRC will have acquired good,
marketable title in and to the shares acquired herein, fre and clear of all
liens and encumbrances.
(f) Term. All representations, warranties, covenants and agreements made herein
and in the exhibits attached hereto shall survive the execution and delivery of
the Agreement and payment pursuant thereto.
(g) Conditions Precedent to Closing.
---------- --------- -- -------
1) The obligations of DFRC under the Agreement shall be and are subject to
fulfillment, prior to or at the Closing of each of the following conditions:
(a) That DHI and Nexia and their management representations an warranties
contained herein shall be tru and correct at the time of closing date as if such
representations and warrantie were made at such time;
(b) That DHI and Nexia and their management shall have performed or complied
with all agreements, terms an conditions required by the Agreement to be
performed or complied with by them prior to or at the time of Closing;
2) The obligations of DHI and Nexia under the Agreement shall be and are
subject to
16
fulfillment, prior to, at the Closing or subsequent to the Closing of each o
the following conditions:
(a) That DFRC's representations and warranties contained herein shall be true
and correct at the time of Closing as if such representations and warrantie were
made at such time; and
(b) That DFRC shall have performe or complied with all agreements, terms and
conditions required by the Agreement to be performed or complied with by them
prior to or at the time of Closing.
(h) Termination. The Agreement may be terminated a any time before or; at
Closing, by:
1) The mutual agreement of the parties;
2) Any party if:
(a) Any provision of the Agreement applicable to a party shall be materially
untrue or fail to be accomplished.
(b) Any legal proceeding shall have been instituted or shall be imminently
threatening to delay, restrai or prevent the consummation o the Agreement.
Upon termination of the Agreement for any reason, in accordance with the terms
and conditions set forth in this paragraph, each said party shall bear all costs
and expenses as each party has incurred and no party shall be liable to the
other.
(i) Miscellaneous Provisions. This Agreement is th
------------- -----------
This Agreement is the entire agreement between the parties in respect of the
subject matter hereof, and there are no other agreements, written or oral, nor
may the Agreement be modified except in writing and executed by all of the
parties hereto. The failure to insist upon strict compliance with any of the
terms, covenants or conditions of the Agreement shall not be deemed a waiver o
relinquishment of such right or Power at any other time or times.
(j) Closing. ------- The Closing of the transactions contemplated by the
Agreement ("Closing") shall take place at 1:00 P.M. on June 30, 2003. The
Closing shall occur at such place as the parties hereto shall agree upon. At the
Closing, all of the documents and items referre to herein shall be exchanged.
(k) Wichita's Officers and Directors.
--------- -------- --- ---------
All of Wichita's current officers and directors may resign effective with the
closing, the parties hereby agree that Richard Surber may remain in his current
position as vice-president and as a director of the company until such time as
the current mortgages on the real property held by Wichita have been paid in
full.
(l) Governing Law.
--------- ----
The Agreement shall be governed by and construed in accordance with the
internal laws of the State of Utah.
(m) Counterparts. The Agreement may be executed in duplicate facsimile
counterparts, each of which shall be deemed an original and together shall
constitute one and the same binding Agreement, with one counterpart being
delivered to each party hereto.
17
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the
date and year above first written.
Wichita Development
Corporation
By: /s/
---
Edward T. Wells,
President
Diversified Holdings I, Inc.
By: /s/
---
Richard D. Surber,
President
Diversified Financial
Resources Corporation
By: /s/
---
John Chapman, Presiden
Nexia Holdings, Inc.
By: /s/
---
Gerald Einhorn, Vice-
President
Salt Lake Development
Corporation
By: /s/
---
Richard Surber,
President
Kearns Development Corporatio
By: /s/
---
Richard Surber,
President
18