10QSB 1 f04s10q.txt LEXON 04SEP 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2004 Commission File Number 0-24721 LEXON TECHNOLOGIES, INC. ----------------------------------------------------- (Exact Name of Registrant, as Specified in its Charter) Delaware 87-0502701 ------------------------------- ---------------------------------- (State or other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 8 Corporate Park, Suite 300, Irvine, California 92606 ----------------------------------------------------- (Address of Principal Executive Offices) (949)477-4000 -------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate, by check mark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No (2) Yes X No --- --- --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.001 par value 20,688,778 ----------------------------- ---------------------------- Title of Class Number of Shares Outstanding as of September 30, 2004 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXON TECHNOLOGIES, INC. AND SUBSIDIARY FINANCIAL STATEMENTS (UNAUDITED) The accompanying financial statements have been prepared by the Company, without audit, in accordance with the instructions to Form 10-QSB pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore may not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. These financial statements should be read in conjunction with the accompanying notes, and with the historical financial information of the Company. 3 LEXON TECHNOLOGIES, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Balance Sheets ASSETS Sept 30, December 31, 2004 2003 ----------- ----------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 320,658 $ 18,834 Accounts receivable - related - 10,172 Advances to related parties 25,269 25,769 Interest receivable 16,276 6,292 Note receivable 167,000 167,785 ----------- ----------- Total Current Assets 529,203 228,852 ----------- ----------- PROPERTY AND EQUIPMENT, net 3,484 6,375 ----------- ----------- OTHER ASSETS Investments, recorded at cost 261,667 258,333 Deposit on potential foreign investment 175,000 - Deposits - 4,901 ----------- ----------- Total Other Assets 436,667 263,234 ----------- ----------- TOTAL ASSETS $ 969,354 $ 498,461 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 22,914 $ 13,094 Accounts payable - related parties 58,260 43,689 Stock deposits 550,000 - Convertible notes payable 237,000 239,731 Notes payable 30,000 - Accrued interest 22,995 7,255 Accrued wages 684,250 422,564 ----------- ----------- Total Current Liabilities 1,605,419 726,333 ----------- ----------- CONTINGENT LIABILITIES 460,874 460,874 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock, par value $0.001 per share; authorized 100,000,000 shares; 20,688,778 shares issued and outstanding 20,689 20,689 Additional paid-in capital 893,334 893,334 Other comprehensive income 6,524 4,729 Deficit accumulated during the development stage (2,017,486) (1,607,498) ----------- ----------- Total Stockholders' Equity (Deficit) (1,096,939) (688,746) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 969,354 $ 498,461 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 LEXON TECHNOLOGIES, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Operations (Unaudited)
From Inception For the For the on July 18, 2001 Three Months Ended Nine Months Ended Through September 30, September 30, September 30, 2004 2003 2004 2003 2004 ----------- ----------- ----------- ----------- ----------- REVENUES $ - $ - $ - $ - $ - ----------- ----------- ----------- ----------- ----------- EXPENSES Research and development - - - - 405,000 Selling, general and administrative 119,559 136,799 406,395 490,537 1,604,044 Depreciation and amortization 964 875 2,891 2,869 9,793 ----------- ----------- ----------- ----------- ----------- Total Expenses 120,523 137,674 409,286 493,406 2,018,837 ----------- ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (120,523) (137,674) (409,286) (493,406) (2,018,837) ----------- ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Other income - - 5,000 - 6,000 Interest income 3,212 3,065 9,602 3,069 18,884 Loss on sale of assets - - - - (1,134) Interest expense (5,381) (3,187) (15,304) (3,187) (22,399) ----------- ----------- ----------- ----------- ----------- Total Other Income (Expense) (2,169) (122) (702) (118) 1,351 ----------- ----------- ----------- ----------- ----------- NET LOSS (122,692) (137,796) (409,988) (493,524) (2,017,486) ----------- ----------- ----------- ----------- ----------- OTHER COMPREHENSIVE INCOME Gain (loss) on foreign currency adjustments (259) (700) 1,795 4,613 6,524 ----------- ----------- ----------- ----------- ----------- NET COMPREHENSIVE LOSS $ (122,951) $ (138,496) $ (408,193) $ (488,911) (2,010,962) =========== =========== =========== =========== =========== BASIC LOSS PER SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.02) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 20,688,778 20,628,778 20,688,778 20,339,987 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 LEXON TECHNOLOGIES, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Cash Flows (Unaudited)
From Inception on July 18, 2001 For the Nine Months Ended Through Sept 30, Sept 30, 2004 2003 2004 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (409,988) $ (493,524) $(2,017,486) Adjustments to reconcile net loss to net cash (used) in operating activities: Depreciation and amortization 2,891 2,869 9,793 Stock for services - - 13,720 Stock for technology - - 375,000 Bad debt expense 10,574 - 10,574 Changes in assets and liabilities: (Increase) decrease in other assets 4,901 (16,856) - (Increase) decrease in accounts receivable 98 - (10,074) (Increase) decrease in accrued interest (9,984) (3,260) (16,276) Change in currency conversion 1,795 4,613 6,524 Increase (decrease) in accounts payable and accrued expenses 299,871 223,001 573,242 ----------- ----------- ----------- Net Cash (Used in) Operating Activities (99,842) (283,157) (1,054,983) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for property and equipment - (2,020) (13,277) Cash paid for related party notes receivables - (173,883) (235,554) Cash received from related party notes receivables - 27,000 42,000 Cash paid for investments and potential investments (178,334) (250,000) (436,667) Advances to officers - - - Cash placed into escrow - - (150,000) Cash received from escrow - - 150,000 Cash paid for note receivable - - (200,000) Note receivable converted in acquisition - - 200,000 Cash received in acquisition - - 34,408 ----------- ----------- ----------- Net Cash (Used in) Investing Activities (178,334) (398,903) (609,090) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Receipt of subscription receivable - - 220,000 Proceeds from related party notes - 205,838 239,731 Proceeds from notes payable 45,000 - 45,000 Cash received on notes payable (15,000) - (15,000) Cash received from stock deposits 550,000 - 550,000 Cash received from issuance of common stock - 410,000 945,000 ----------- ----------- ----------- Net Cash Provided by Financing Activities 580,000 615,838 1,984,731 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 301,824 (66,222) 320,658 CASH AND CASH EQUIVALENTS AT BEG OF PERIOD 18,834 86,801 - ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 320,658 $ 20,579 $ 320,658 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Cash Payments For: Interest $ - $ - $ - Income taxes $ - $ - $ - Non-Cash Investing and Financing Activities Stock issued for technology $ - $ - $ 375,000 Stock issued for services $ - $ - $ 13,720
The accompanying notes are an integral part of these consolidated financial statements. 6 LEXON TECHNOLOGIES, INC. AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements September 30, 2004 and December 31, 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed financial statements 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 have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed 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 condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto included in its December 31, 2003 Annual Report on Form 10-KSB. Operating results for the three months and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. NOTE 2 - GOING CONCERN The Company's consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has historically incurred significant losses which have resulted in an accumulated deficit of $2,017,486 at September 30, 2004, a working capital deficit of approximately $1,076,000, and limited internal financial resources. These factors combined, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties. It is the intent of management to continue to raise additional funds to sustain operations and to pursue acquisitions of operating companies in order to generate future profits for the Company. NOTE 3 - MATERIAL EVENTS During the nine months ended September 30, 2004, the Company received a total of $45,000 proceeds from notes payable issued to three separate unrelated parties, bearing interest at 7.5% per annum. $15,000 of this amount was repaid during the three months ended September 30, 2004. $20,000 of these notes payable matured on September 30, 2004 and is considered past-due, and the remaining $10,000 is due on demand. Also during the three months ended September 30, 2004, the Company received a total of $550,000 towards the purchase of common stock. At September 30, 2004, the number of shares to be issued had not yet been determined, and accordingly, the amount has been recorded as a stock deposit in the accompanying financial statements until the common stock is issued. With these funds, the Company made a deposit of $175,000 on a potential foreign investment in South Korea (See also Note 4 - Subsequent Events). 7 LEXON TECHNOLOGIES, INC. AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements September 30, 2004 and December 31, 2003 NOTE 4 - SUBSEQUENT EVENTS Subsequent to September 30, 2004, the Company received an additional $1,125,000 from two separate investors towards the purchase of common stock, for total proceeds of $1,675,000. The Company is to issue a total of 9,906,250 shares of common stock to these two investors for the $1,675,000 received, although the shares have not yet been issued. The Company is also to issue an additional 1,000,000 shares of common stock to a consultant who assisted the Company with the transaction. With the majority of the proceeds received as described above, the Company has advanced a total of $1,585,000 towards the purchase of an approximate 90% interest in a Republic of Korea corporation that manufactures and sells Low Temperature Cofired Ceramic ("LTCC") components, including LTCC wafer probe cards, LTCC circuit boards, LTCC Light Emitting Diode (LED) displays and related products for the semiconductor testing and measurement, custom Printed Circuit Board (PCB), and cellular phone industries. As of the date of this report, this acquisition, however, had not yet been finalized. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-looking Statements --------------------------------------------------------- This report may contain "forward-looking" statements. Examples of forward- looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of our management or Board of Directors; (c) statements of future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "anticipate," "expect," "may," "project," "intend" or similar expressions. General ------- The Company was formed in July of 2001 to commercialize a proprietary device and proprietary software package that reduces the amount of electricity required to power various indoor lighting devices in commercial buildings, factories, and office structures, as well as outdoor street and parking lot lighting. Since inception, our business activities have included raising capital, developing prototype devices and attempting to establish a marketing and sales distribution network. Because market conditions and competition have increased substantially in this area, we have shifted our primary focus to seeking joint venture partners, business acquisitions and business alliances in an effort to commence business operations outside the electrical products area, although we have not reached any definitive agreements to date. During the first quarter of 2003, the Company identified an opportunity in the nanotechnology business. The Company devoted considerable time and attention to the investigation and evaluation of the nanotechnology business, specifically the manufacture and sale of metal nanoparticles. During the second quarter of 2004, the Company identified an opportunity in the cofired ceramics business. Subsequent to the date of the financial statements included in this report, the Company has advanced a total of $1,585,000 towards the purchase of an approximate 90% interest in Techone Company, Ltd., a Republic of Korea corporation that manufactures and sells Low Temperature Cofired Ceramic ("LTCC") components, including LTCC wafer probe cards, LTCC circuit boards, LTCC Light Emitting Diode (LED) displays and related products for the semiconductor testing and measurement, custom Printed Circuit Board (PCB), and cellular phone industries. This acquisition, however, has not yet been finalized. Funding for this advancement was accomplished through two separate private placements that will result in the sale of 9,906,250 shares of the Company's common stock for aggregate proceeds of $1,675,000 or an average price of $0.17 per share. Due to the above potential acquisition, the information presented below under Result of Operations may not be indicative of the future operations of the Company. Foreign Currency Adjustment --------------------------- For the nine months ended September 30, 2004, the functional currency for our foreign subsidiary has been determined to be the Republic of Korea won. Any applicable assets and liabilities have been translated at period end exchange rates and operating statement items are translated at average exchange rates prevailing during the period. For the nine months ended September 30, 2004, we had a gain of $1,795 as a result of foreign currency translation adjustment. 9 This currency translation adjustment affects assets and liabilities of the subsidiary recorded for the periods presented. Results of Operations --------------------- Nine Months Ended September 30, 2004 compared to September 30, 2003 ------------------------------------------------------------------- We had no revenues for the nine months ended September 30, 2004 and have had no revenues from inception (July 18, 2001) to date. As previously mentioned, subsequent to September 30, 2004, the Company has advanced a total of $1,585,000 towards the purchase of an approximate 90% interest in a Republic of South Korea corporation. Until this acquisition is finalized or a separate appropriate business opportunity is identified, we cannot predict when or if we will be able to generate revenues from operations. Operating expenses for the nine months ended September 30, 2004 were $409,286, consisting primarily of $406,395 for general and administrative expenses. Operating expenses for the prior year period were $493,406. The decrease in operating expenses during the nine months ended September 30, 2004 from the same period in 2003 reflects the reduction in outside professional fees and travel costs. Operating expenses since inception (July 18, 2001) total $2,018,837, consisting primarily of $405,000 for research and development, and $1,604,044 for general and administrative expenses. Our net loss per share for the nine months ended September 30, 2004 was $0.02, based on a weighted average of 20,688,778 shares outstanding. In April 2003, the Company acquired a 3% interest in Nano Plasma Center Company, Ltd. ("NPC"), a development stage company headquartered in Daejon, Republic of Korea focusing on the manufacture and distribution of metal nanoparticles. This $250,000 investment was made by the Company's subsidiary, Lexon Korea Corporation. Subsequently, the Company received $167,000 from a director of the Company pursuant to a convertible debenture agreement. The note bears interest at 7.5% interest, matured on October 27, 2004 and is convertible into 668,000 shares of the Company's stock at $0.25 per share at any time upon the election of the Company and/or the holder, up until the maturity date. An additional $40,000 was received from the director during October 2003 pursuant to a separate convertible debenture agreement. This note also bears interest at 7.5% per annum and matured on October 27, 2004. This separate note is convertible into 160,000 shares of the Company's common stock at $0.25 per share at any time upon the election of the Company and/or the holder. Both amounts are currently considered past-due, and possibly may be converted into common shares in the future. The $167,000 received pursuant to the first note was then loaned to NPC pursuant to a separate debenture agreement. This note receivable bears interest at 7.5% interest and matured on June 30, 2004. Interest receivable on this note at September 30, 2004 totaled $16,276. This loan was offered to NPC as an inducement to continue business combination efforts. Discussions about such a combination were unproductive and have been discontinued. At the date of this filing, the Company has not yet received payment on this loan and intends to pursue collection by any means necessary. During the nine months ended September 30, 2004, the Company received a total of $45,000 proceeds from notes payable issued to three separate unrelated parties, bearing interest at 7.5% per annum. $15,000 of this amount was repaid during the three months ended September 30, 2004. $20,000 of these notes payable matured on September 30, 2004 and is considered past-due, and the remaining $10,000 is due on demand. 10 As stated above, subsequent to the date of the financial statements included in this report, we have advanced a total of $1,585,000 towards the purchase of an approximate 90% interest in Techone. If the acquisition is completed, we anticipate that operating expenses will increase substantially as the operations of Techone will be our main focus going forward. Liquidity and Capital Resources ------------------------------- Our primary source of liquidity has been cash proceeds from the sale of our common stock and convertible debentures. We have raised additional capital through private placements for the anticipated acquisition of Techone, as described above. We anticipate raising additional capital to fund further manufacturing, development, and sales and marketing campaigns. At September 30, 2004 we had negative working capital of $1,076,216. We had cash and cash equivalents of $320,658. We also have related party advances of $25,269. We expect these advances to be repaid within the next six months. We have a note receivable that is past due at September 30, 2004 with accrued interest of $16,276. We are seeking to collect on this note as soon as possible. Current liabilities at September 30, 2004 totaled $1,605,419, consisting of accounts payable of $22,914, accounts payable - related parties of $58,260, notes payable of $30,000, convertible notes payable of $237,000, accrued interest of $22,995, and accrued wages of $684,250. Current liabilities also includes $550,000 in stock deposits where the shares of common stock were not issued until subsequent to September 30, 2004. We have oral salary agreements with J. Jehy Lah, the chairman of our board of directors, Ben Hwang, our Secretary, and Kenneth Eaken, our C.E.O. and President. At this time all salary payments are being accrued until operating revenues or other funds are available sufficient to pay the accrued amounts. For the nine months ended September 30, 2004, cash flows used by operating activities totaled $99,842 compared to $283,157 in the prior year period. Our operating activities since inception have been funded by the sale of our common stock and the issuance of convertible notes and promissory notes. For the nine months ended September 30, 2004, cash used in investing activities was $178,334. $3,334 of this amount was for an additional investment in a Republic of Korea entity called G2K, for a total of $11,667 invested in G2K. The additional $175,000 was an advanced deposit on a potential acquisition of a separate Republic of Korea corporation as described previously. Cash used in the prior year period totaled $398,903, primarily for our $250,000 investment in NPC for a 3% interest in the company, and an additional loan of $173,883 to NPC. Cash provided by financing activities for the nine months ended September 30, 2004 consisted of $45,000 proceeds received from three separate note agreements with unrelated third parties, and stock deposits totaling $550,000. In the prior year period, we received $410,000 proceeds from the sale of our common stock and $205,838 proceeds from related party notes. 11 Because we have had no significant operations, have an operating loss and are dependent on financing to continue operations, our financial statements contain a going concern qualification. We expect to need additional financing to fund operations of Techone, if the acquisition is eventually finalized as expected. We intend to continue to seek financing from traditional lending sources, loans from or private sales of our securities to our existing officers, directors, and shareholders, or such other debt or equity offerings that may be available to us. There is no assurance that we will be able to obtain funding when and if needed, or that such funding, if available, can be obtained on terms reasonable or acceptable to us. ITEM 3. CONTROLS AND PROCEDURES Our principal executive and financial officer has participated with management in the evaluation of effectiveness of the controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our principal executive and financial officer believes that our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) are effective as of the end of the period covered by the report. There have been no changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the period covered by this report. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are not aware of any material pending or threatened litigation. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULT BY THE COMPANY ON ITS SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS No matters were submitted to the shareholders during the quarter ended September 30, 2004. ITEM 5. OTHER INFORMATION Effective June 18, 2004, Lexon has moved its business office to 8 Corporate Park, Suite 300, Irvine, CA 92606. Telephone and fax numbers are unchanged. ITEM 6. EXHIBITS Exhibit 31 - CERTIFICATION AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANNES-OXLEY ACT OF 2002. Exhibit 32 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. LEXON TECHNOLOGIES, INC. Date: November 19, 2004 /S/Kenneth J. Eaken, CEO Principal Executive and Financial Officer