UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended: September 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to ________________
Commission File Number: 0-24721
LEXON TECHNOLOGIES, INC.
(Exact name of registrant as specified in charter)
Delaware | 87-0502701 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. No.) |
14830 Desman Road | 90638 |
(Address of principal executive offices) | (Zip Code) |
Issuer's telephone number, including area code:(714) 522-0270
Securities registered pursuant to section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
None | N/A |
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
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.
(1) Yes [ x ] No [ ]
(2) Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [ x ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ x ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 21, 2011, Lexon had 492,535shares of common stock, par value $0.001 outstanding.
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
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Financial Statements: |
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Balance Sheets (unaudited) |
| 4 |
Statements of Operations (unaudited) |
| 6 |
Statements of Cash Flows(unaudited) |
| 7 |
Notes to Financial Statements(unaudited) |
| 9 |
The accompanying notes are an integral part of the unaudited financial statements.
LEXON TECHNOLOGIES, INC. | ||||
STATEMENTS OF OPERATIONS | ||||
(Unaudited) | ||||
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| Three Months Ended | Nine Months Ended | ||
| September 30, | September 30, | ||
| 2011 | 2010 | 2011 | 2010 |
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Net sales | $ 7,383 | $ 985,926 | $ 32,543 | $ 3,200,503 |
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Cost of goods sold | - | 921,260 | - | 2,896,815 |
Gross profits | 7,383 | 64,666 | 32,543 | 303,688 |
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Selling, general and administrative expenses | 202,200 | 401,065 | 371,340 | 1,412,140 |
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Loss from operations | (194,817) | (336,399) | (338,797) | (1,108,452) |
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Other income (expenses): |
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Gain on forgiveness of debt | - | - |
| 274,610 |
Loss on website impairment | (229,194) |
| (229,194) |
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Loss on goodwill impairment | - | - | (940,733) | - |
Interest expense | - | (14,943) | - | (44,889) |
Net other income (expense) | (229,194) | (14,943) | (1,169,927) | 229,721 |
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Loss before income tax provision | (424,011) | (351,342) | (1,508,724) | (878,731) |
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Provision for income taxes | - | - | - | - |
Net loss | $ (424,011) | $ (351,342) | $ (1,508,724) | $ (878,731) |
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Earnings per share of common stock – Basic | (0.002) | (0.001) | (0.005) | (0.002) |
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Earnings per share of common stock - Diluted | (0.002) | (0.001) | (0.005) | (0.002) |
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Weighted average shares of common stock outstanding | 260,248,906 | 548,623,187 | 292,687,341 | 548,623,187 |
The accompanying notes are an integral part of the unaudited financial statements.
LEXON TECHNOLOGIES, INC. | ||
STATEMENTS OF CASHFLOWS | ||
(Unaudited) | ||
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| For The Nine Months Ended | |
| September 30, | |
| 2011 | 2010 |
Cash flows from operating activities: |
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Net loss | $ (1,508,724) | $ (878,731) |
Adjustments to reconcile net loss |
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to net cash provided by (used in) operating activities: |
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Bad debt expense | - | 42,450 |
Depreciation and amortization | 146,750 | 198,975 |
Loss on goodwill impairment | 940,733 | - |
Loss on website impairment | 229,194 |
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Gain on forgiveness of debt | - | (274,610) |
Noncash professional services | 100,000 | 30,000 |
Noncash employee compensation | - | 20,000 |
Changes in assets and liabilities: |
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Accounts receivable | 276,764 | 112,025 |
Inventories | 573,137 | 394,487 |
Security deposit | 20,748 | - |
Goodwill | 2,273,555 | - |
Accounts payable | (518,093) | 107,435 |
Accrued expenses | (240,294) | 193,352 |
Bank overdraft | (107) | - |
Deferred rent | (42,900) | (15,776) |
Other current liabilities | - | 25,695 |
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Total adjustments | 3,759,487 | 834,033 |
Net cash provided by (used in) operating activities | 2,250,763 | (44,698) |
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Cash flows from investing activities: |
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Property and equipment | 60,310 | - |
Note receivable | 18,000 | - |
Due from related parties | 138,000 | 60,000 |
Net cash provided by investing activities | 216,310 | 60,000 |
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Cash flows from financing activities: |
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Payments on notes payable | (546,981) | (60,916) |
Payments on capital lease obligations | (30,310) | (16,747) |
Issuance of common stock |
| 11,000 |
Cancellation of common stock | (1,900,000) |
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Distributions to stockholder | - | (8,000) |
Net cash used in financing activities | (2,477,291) | (74,663) |
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Net decrease in cash | (10,218) | (59,361) |
Cash and cash equivalents, at the beginning of period | 10,218 | 61,661 |
Cash and cash equivalents, at the end of period | $ - | $ 2,300.00 |
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Supplemental disclosures: |
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Cash paid during the period: |
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Income taxes | $ - | $ - |
Interest expense | $ - | $ 30,154 |
Noncash investing and financing activities: |
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Common stock issued for acquisition of intangibles | $ - | $ 310,000 |
Common stock issued for employee compensation | $ - | $ 11,500 |
The accompanying notes are an integral part of the unaudited financial statements
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1 - Nature of Business
Lexon Technologies, Inc. ("the Company" or "Lexon") was incorporated in April 1989 under the laws of state of Delaware. Initially registered as California Cola Distributing Company, Inc, the Company changed its name twice; first to Rexford, Inc. in October 1992, and to the current name in July 1999.
In July 1999, Lexon acquired 100% of the outstanding common stock of Chicago Map Corporation (CMC) in exchange for 10,500,000 shares of the Company's common stock through a reverse acquisition accompanied by a recapitalization. The surviving entity, Lexon, reflected the assets and liabilities of Lexon and CMC at their historical book values. Lexon dissolved CMC in 2002.
In April 2002, Lexon acquired 100% of the outstanding common stock of Phacon Corporation (Phacon) in exchange for 17,500,000 shares of Company's common stock through a reverse acquisition accompanied by a recapitalization. As part of the agreement, the Company elected a 1 for 10 reverse stock split and the acquired shares of Phacon were entirely canceled leaving the Company as the surviving entity.
In March 2003, the Company incorporated Lexon Korea Corporation (“LexonKorea”) as a wholly-owned subsidiary in Korea for the purpose of entering into potential business combinations with Korean operating entities. LexonKorea was reorganized in August 2005, and as a result, the Company’s equity share in LexonKorea was reduced to 10%.
In December 2004, the Company acquired 90.16% of the voting stock of Techone Company, Ltd, a company in Korea, by investing $1,588,000. The Company recognized goodwill of $1,851,692 in the acquisition. The Company acquired Techone to develop it as the Company’s core operating business in Korea for manufacturing and selling LTCC related products. However, the development of the LTCC related products was not successful, and the operations of Techone became highly leveraged financially. In August 2005, certain creditors filed an involuntary foreclosure and sold Techone’s assets through public auction to satisfy secured debts. This disposal of assets resulted in a gain $1,315,469 for the year ended December 31, 2005. In February 2006, Techone changed its name to Lexon Semiconductor Corporation and all of its operation has been suspended due to lack of operating working capital. Lexon Semi was dissolved on October 28, 2009 based on a decision of shareholders meeting. Lexon Semi has $241,000 of due to related party and $415,000 of liabilities relation to discontinued operations as of September 30, 2009.
On October 7, 2009, Paragon Toner Inc, a California corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Company whereby the Company issued 347,448,444 shares of common stock (the “Common Stock”) of the Company (the “Acquisition Shares”) to the shareholders of representing approximately 67% of the issued and outstanding Common Stock after completion of the merger in October 2009. The effective date of the Merger was October 22, 2009 (“Effective Date”). We have decided to maintain the name of our predecessor company.
On January 1, 2011, all of the assets and all of the liabilities of the Paragon Toner Division of Lexon Technologies Inc. were exchanged for existing Lexon Technologies Inc. shares specifically 166,300,000 shares held by James Park and 66,700,000 shares held by Young Won.
The internet properties namely 7 inkjet.com, nanoinket.com and Yourcartridges.com remain with Lexon Technologies Inc., and become the main operation of the company.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are primarily used for depreciation of property and equipment, amortization of intangible assets, allowances for doubtful accounts and inventory valuation. Actual results could differ from those estimates.
Revenue Recognition
In 2010, the Company recognizes revenues from product sales when earned. Specifically, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred (or services have been rendered), the price is fixed or determinable, and collectability is reasonably assured. Revenue is not recognized until title and risk of loss have transferred to the customer. The shipping terms for the majority of the Company’s revenue arrangements are FOB (free on board) destination. Revenue is recorded net of customer returns, allowances and discounts that occur under arrangements established with customers.
For the nine months ended September 30, 2011, the Company generates revenues from the operation of the internet properties. The Company has subcontracted all of the operational activities of the Websites and has received 15% of all revenues generated from the Websites on a regular basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be categorized as cash and cash equivalents.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is computed based upon the management’s estimate of uncollectible accounts and historical experience. The Company performs ongoing credit evaluations of its customers to estimate potential credit losses. Amounts are written off against the allowance in the period the Company determines that the receivable is uncollectible.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, slow moving items and other factors in evaluating net realizable value.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are stated at cost. The straight-line method is used to calculate depreciation over their estimated useful lives ranging as follows:
Automobile | 3 years |
Furniture & fixture | 5 to 7 years |
Leasehold improvement | 5 years |
Machinery and equipment | 5 years |
Leasehold improvements are depreciated to expense over the shorter of the life of the improvement or the remaining lease term. Capital expenditures that enhance the value or materially extend the useful life of the related assets are reflected as additions to property and equipment. Expenditures for repairs and maintenance are charged to expense as incurred. Upon a sale or disposition of assets, a gain or a loss is included in the statement of operations.
Impairment of Long-lived Assets
The Company periodically reviews the recoverability of its long-lived assets using the methodology prescribed in accounting guidance now codified as FASB ASC Topic 360, “Property, Plant and Equipment.” The Company also reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted future net cash flows from the operations to which the assets relate, based on management’s best estimates using appropriate assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the asset. In management’s opinion, no such impairment existed as of September 30, 2011 and December 31, 2010.
Goodwill - The Company accounts for intangible assets in accordance with the ASC 350, Intangibles - Goodwill and Other. ASC 350 requires that goodwill no longer be amortized, but instead be tested for impairment at least annually. Additionally, ASC 350 requires that recognized intangible assets be amortized over their respective estimated lives and reviewed for impairment in accordance with ASC 360, Property, Plant, and Equipment. Any recognized intangible assets determined to have an indefinite useful lives will not be amortized, but instead tested for impairment until its life is determined to no longer be indefinite. ASC 350 requires that the values of intangible assets be tested for impairment on at least an annual basis, by comparing the fair value of the assets to their carrying amounts. As a result of the impairment testing, the Company determined that goodwill was significantly impaired due to sales of Paragon Toner division. Goodwill amount was $0 and $3,214,289 as of September 30, 2011 and December 31, 2010, respectively.
Accrued Expenses
The Company’s accrued expenses consist of amounts payable for salaries, payroll taxes and sales taxes.
Deferred Rent
The Company recognizes rent expense equal to the total of the payments and free rent received due over the lease term, divided by the number of months of the lease term applying the straight-line method. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Shipping and Handling
Certain shipping and handling fees are charged to customers and these are classified as revenue. The costs associated with all shipping to customers are recorded as operating expenses. Shipping expenses for the nine months ended September 30, 2011 and 2010 amounted to $0 and $119,482 respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the results of operations in the period that includes the enactment date. The realizability of deferred tax assets is evaluated based on a “more likely than not” standard, and to the extent this threshold is not met, a valuation allowance is recorded. See Note 13Income Taxes for more information about the Company’s income taxes.
Recent Accounting Pronouncements
In June 2011, the FASB issued new guidance regarding the presentation of comprehensive income. This guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholder’s equity and requires that all changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective retrospectively for fiscal years, and interim periods within those fiscal year, beginning after December 15, 2011 with early adoption permitted.
In September 2011, the FASB issued new guidance addressing the valuation process for goodwill. This guidance provides the ability to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this guidance, an entity will no longer be required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 3 - Inventories
The following table provides the components of inventories as of September 30, 2011 and December 31, 2010:
| September 30, | December 31, |
| 2011 | 2010 |
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Finished goods | $ - | $335,084 |
Raw materials | - | 273,039 |
| - | 608,123 |
Less: Inventory reserve | - | -34,986 |
Total | $ - | $573,137 |
Overhead allocated to the inventory amounted to $0 and $45,853 for the nine months ended September 30, 2011 and 2010, respectively.
Note 4- Property and Equipment
Property and equipment consist of the following as of September 30, 2011 and December 31, 2010:
| September 30, | December 31, |
| 2011 | 2010 |
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Automobile | $ - | $34,092 |
Furniture and fixture | - | 53,388 |
Leasehold improvement | - | 5,060 |
Machinery and equipment | - | 439,030 |
| - | 531,570 |
Less: Accumulated depreciation | - | -471,260 |
Net property and equipment | $ - | $60,310 |
Depreciation expense amounted to $0 and $40,578 for the nine months ended September 30, 2011 and 2010, respectively.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 5 - Capitalized Website Costs
The Company amortizes its website over the estimated useful life of three years. The carrying amount and accumulated amortization related to the website costs as of September 30, 2011 and December 31, 2010, are as follows:
| September 30, | December 31, |
| 2011 | 2010 |
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Gross balance | $633,589 | $633,589 |
Less: Accumulated amortization | -404,395 | -257,645 |
Loss on website impairment | -229,194 |
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Net balance | $ - | $375,944 |
Total amortization expenses were $146,750 and $158,397 for the nine months ended September30, 2011 and 2010, respectively. Amortizable intangible assets are tested for impairment when impairment indicators are present, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. As a result of the impairment testing, the Company determined that the value of website was significantly impaired due to sales of Paragon Toner division. Net value of website is $0 and $375,944 as of September 30, 2011 and December 31 2010, respectively.
Note 6 - Transactions with Related Parties
Due from Related Parties
Advances to family members of the stockholder are unsecured, non-interest bearing and due on demand. The Company has $0 and $138,000 due from related parties as of September 30, 2011 and December 31, 2010, respectively.
Due to Related Parties
Interest bearing notes payable to related parties consisting of the following as of September 30, 2011 and December 31, 2010:
| September30, | December 31, |
| 2011 | 2010 |
Unsecured note payable to a shareholder, with interest at 7.5% per annum. Note is in default and is payable on demand. | $5,000 | $5,000 |
Expired convertible debt issued to a former employee, with interest at 7.5% per annum. The conversion maturity date was in October 2004. The note is payable on demand. | 30,000 | 30,000 |
Expired convertible debt issued to a Director, with interest at 7.5% per annum. The conversion maturity date was in October 2005. The note is payable on demand. | 56,960 | 56,960 |
Total notes payable | $91,960 | $91,960 |
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 7- Line of Credit
The Company has a line of credit with a bank with a maximum borrowing limit of $450,000. The outstanding balance was $0 and $450,000 as of September 30, 2011 and December 31, 2010.
The Company incurred interest expenses on this line of credit of $0 and $26,872 for the nine months ended September 30, 2011 and 2010, respectively.
Note 8 - Notes Payable
The Company has long term notes payable as follows:
| September30, | December 31, |
| 2011 | 2010 |
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A note payable to a bank, due in monthly installments of $2,931, including interest at the bank’s prime plus 1.25% (4.50% as of March 31, 2010). The note matures in May 2011, and is collateralized by substantially all the assets of the Company. The note is subject to various restrictive covenants, including maintenance of financial ratios at all times. | $ - | $14,423 |
A note payable to a bank, due in monthly installments of $4,587, including interest at the bank’s prime plus 1.50% with minimum interest rate of 6.25% (6.25% as of March 31, 2010). The note matures in January 2012, and is collateralized by substantially all the assets of the Company. | - | 82,558 |
Total notes payable | - | 96,981 |
Less: Current portion | - | (65,778) |
Notes payable, net of current | $ - | $31,203 |
Total interest expense on the notes payable were $0 and $6,742 for the nine months ended September 30, 2011and 2010, respectively.
Note 9 - Capital Lease Obligations
The Company entered into numerous capital lease agreements with leasing companies to purchase certain equipment and transportation vehicles. As of September 30, 2011 and December 31, 2010, these assets are carried as follows:
| September 30, | December 31, |
| 2011 | 2010 |
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Equipment | $ - | $162,889 |
Transportation vehicles | - | 32,800 |
Less: Accumulated depreciation | - | -190,340 |
| $ - | $5,349 |
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The related future minimum lease payments under the capital lease obligations are as follows:
| September 30, | December 31, |
| 2011 | 2010 |
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Total minimum lease payments | $ - | $ 34,868 |
Less: Amount representing interest | - | (4,558) |
Present value of net minimum lease payments | - | 30,310 |
Less: Current portion | - | (20,447) |
Capital lease obligations, net of current portion | $ - | $ 9,863 |
Total interest expenses from the capital lease obligations were $0 and $6,103 for the six months ended June 30, 2011 and 2010, respectively.
Note 10 - Commitments and Contingencies
Legal Proceedings
On July 14, 2008, Advanced Digital Technology Co. Ltd., a Korean corporation (“ADT”), filed a claim against Lexon and certain named individuals who are former and current officers of the Company. The claim alleges breach of an agreement to settle an earlier dispute, involving ADT's investment of $150,000 in Lexon on or about January 16, 2007 and ADT's subsequent unilateral decision to rescind and demand a refund of this investment. The total amount of damages claimed under the pending lawsuit is the investment amount of $150,000 plus filing costs, interest and attorney fees for an aggregate amount of $178,522. On November 9, 2010, judgment was entered against Lexon Technologies for the amount of $206,548. Lexon has already appealed such decision. The amount of such loss is reflected in our financials.
However, on September 5, 2008, Vivien and David Bollenberg, a current shareholder (the “Bollenbergs”), filed a claim against Lexon and other third parties, including ByungHwee Hwang (also referred to as "Ben Hwang") and other financial agents and institutions involved in the alleged fraudulent transaction. The lawsuit is currently pending in the Orange County Superior Court in Santa Ana, California. The filed complaint alleges that Ben Hwang together with his representatives, including his accountant, escrow agent and real estate agent/broker, made certain representations to and solicited the Bollenbergs to make an investment in several companies and ventures including Lexon with the intent to misappropriate the solicited funds for personal use. The Bollenbergs allege that they invested a total of $1,500,000 among and between the various companies and ventures recommended by Ben Hwang, of which investment amount approximately $550,000 was invested in Lexon ($150,000 for 600,000 shares at $0.25 per share and $400,000 initially invested in Lexon Korea and later converted into 1,150,000 shares in Lexon for a total of 1,750,000 shares in Lexon). On April 1, 2011, after a trial was concluded, judgment was entered in favor of the Lexon Technologies whereby Lexon was not found liable for any causes of action brought by the Plaintiff.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 11 – Sales of Paragon Toner, Inc.
On January 1, 2011, all of the assets and all of the liabilities of the Paragon Toner Division of Lexon Technologies Inc. were exchanged for existing Lexon Technologies Inc. shares specifically 166,300,000 shares held by James Park and 66,700,000 shares held by Young Won.
The internet properties namely 7 inkjet.com, nanoinket.com and Yourcartridges.com remain with Lexon Technologies Inc., and become the main operation of the company.
Note 12 – Services Contract
On January 1, 2011, Lexon and Paragon have decided to enter into contractual relationship regarding Lexon’s internet properties. Lexon has subcontracted all of the operational activities to Paragon Toner including but not limited to billing, collection, maintenance of website, advertising and all other activities related to the operation of the Websites. In return for the operation of the Websites, Paragon hereby agrees to pay to Lexon the agreed amount of 15% of all revenues generated from the Websites. This agreement shall be enforceable between the Parties for a period of 2 years from the date of agreement. However, it is subject to renegotiation at end of each year.
Note 13 – Redemption of stock subscription
On October 3, 2011, Lexon Technologies Inc. entered into four subscriptions agreements with new investors, Senderbell Holdings Limited, Treasure Chest Holdings Limited, Blueberry Enterprises Limited, and Hockworth Holdings Limited. The total number of share subscribed is 3,500,000 and the total amount of investment is $300,000. Investments will be paid in the promissory note for a term of six months. The transactions will be cancelled if the Company does not execute a contract to raise $4,400,000 by October 30, 2011.
Note 14 - Income Taxes
Significant components of deferred tax assets are as follows:
| September 30, | December 31, |
| 2011 | 2010 |
|
|
|
Loss carry forwards | $ 3,000,000 | $ 2,179,612 |
Other | 229,720 | 229,720 |
Total deferred tax asset | 3,229,720 | 2,409,332 |
|
|
|
Valuation allowance |
| 2,409,332 |
Total deferred tax asset, net | $ - | $ - |
As of September 30, 2011, the Company had approximately $3,000,000 of net operating loss (“NOL”) carryforwards for U.S. federal income tax purposes expiring in 2020 through 2030. In addition, the Company has California state NOL carryforwards of approximately $2,600,000 expiring in 2013 through 2020.
LEXON TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The ability to realize the tax benefits associated with deferred tax assets, which includes benefits related to NOL’s, is principally dependent upon the Company’s ability to generate future taxable income from operations. The Company has provided a full valuation allowance for its net deferred tax assets due to the Company’s net operating losses. The valuation allowance has increased by $820,388 during the nine months ended September 30, 2011.
Section 382 of the Internal Revenue Code (“IRC”) imposes limitations on the use of NOL’s and credits following changes in ownership as defined in the IRC. The limitation could reduce the amount of benefits that would be available to offset future taxable income each year, starting with the year of an ownership change.
Note 15 - Subsequent Events
On October 26, 2011, shareholdersof Lexon Technologies Inc. appointed new directors, Byung Jin Kim, Eu Gene Lee, and KyuSeok Lee. The effective date for appointment to be November 7, 2011. The current directors will also resign on that separate date. An additional 8-K will disclose the completion of the effective date as well as possibly other 8-K disclosure required events. The shareholders of the Company all voted in favor for the changed from Lexon Technologies Inc. to SOCIAL BANK INCORPORATED.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report.
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.
Results of Operation for the Three Months Ended September 30, 2011 as Compared to the Three Months Ended September 30, 2010
Revenues.
Revenues decreased by $978,543 to $7,383 for the three months ended September 30, 2011 as compared to $985,926for the three months ended September 30, 2010. This decline was primarily attributed to the restructuring of the Company, whereby only the internet properties remain.
Cost of Goods Sold.
Cost of Goods Sold decreased by $ 921,260 to $0 for the three months ended September30, 2011 as compared to $921,260for the three months ended September 30, 2010. This decline was primarily attributed to the restructuring of the Company, whereby only the internet properties remain.
Selling, General and Administrative Expenses.
Selling, General and Administrative Expenses (“SG&A”) decreased by $198,865 to $202,200 for the three months ended September30, 2011 as compared to $401,065 for the three months ended September 30, 2010. This decrease of $306,865 in SG&A was attributed to the restructuring whereby only internet properties remain and overhead has been significantly reduced.
Other Income and Expenses.
Other expenses for the three months ended September 30, 2011 was $229,194 as compared to $14,943 for the three months ended September 30, 2010.Interest expenses for the three months September 30, 2011 was $0 compared to $14,943 in interest expenses for the three months ended September 30, 2010.
Net loss
As a result, we recorded a net loss of $424,011 for the three months ended September 30, 2011 compared with a net loss of $351,342 for the three months ended September 30, 2010.
Results of Operation for the Nine Months Ended September 30, 2011 as Compared to the Nine Months Ended September 30, 2010
Revenues.
Revenues decreased by $3,167,960 to $32,543 for the nine months ended September 30, 2011 as compared to $3,200,503 for the nine months ended September 30, 2010. This decline was primarily attributed to a sharp decrease in sales because of the restructuring of Lexon as well as a reduced budget for internet marketing.
Cost of Goods Sold.
Cost of Goods Sold decreased by $ 2,896,815to $0 for the nine months ended September 30, 2011 as compared to $2,896,815for the nine months ended September 30, 2010. This decline was primarily attributed to the restructuring of the Company, whereby only the internet properties remain.
Selling, General and Administrative Expenses.
Selling, General and Administrative Expenses (“SG&A”) decreased by $1,040,800 to $371,340 for the nine months ended September 30, 2011 as compared to $1,412,140 for the nine months ended September 30, 2010. This decrease of $1,040,800in SG&A occurred as result of reduced overhead expenses post restructuring.
Other Income and Expenses.
Other expenses for the nine months ended September 30, 2011 was $1,169,927 compared with other income of $229,721 for the nine months ended September 30, 2010. This increase was primarily attributed to the loss on goodwill impairment as result of the restructuring of the Company. Interest expenses for the nine months ended September 30, 2011 was $0 compared to $44,489 in interest expenses for the nine months ended September 30, 2010.
Net loss
As a result, we recorded a net loss of $1,508,724 for the nine months ended September 30, 2011 compared with a net loss of $878,731for the nine months ended September 30, 2010.
Liquidity and Capital Resources.
At September 30, 2011, we had current assets of $0 and current liabilities of $288,251.
Current liabilities at September 30, 2011 was $288,251, consisted of accounts payable of $98,544, accounts payable due to related parties of $91,960, bank overdraft of $20,347 and accrued expenses of $77,400.
For the nine months ended September 30, 2011, net cash provided by operating activities totaled $2,250,763 compared to net cash used in operating activities of $44,698 in the prior year period. Our operating activities since inception have been funded primarily by income organically generated by the company and by the limited sale of our common stock.
Net cash provided by investing activities for the nine months ended September 30, 2011 amounted to $216,310 compared to net provided by in investment activities of $60,000 for the same previous year period.
Net cash used infinancing activities for the nine months ended September 30, 2011 was $2,477,291 compared to net cash used in financing activities of$74,663 for the nine months ended September 30, 2010. This increase was primarily attributed to the cancellation of common stock as result of the restructuring of the Company.
Net cash and cash equivalents at September 30, 2011 was $0.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 4. | CONTROLS AND PROCEDURES |
Our Chief Executive Officer, President, and Chief Financial Officer (the “Certifying Officer”) is responsible for establishing and maintaining disclosure controls and procedures for the Company. The
Certifying Officer has designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this report was prepared. The Certifying Officer has evaluated the effectiveness of the Company's disclosure controls and procedures within 90 days of the date of this report and believes that the Company’s disclosure controls and procedures are effective based on the required evaluation. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
ITEM 4T. | CONTROLS AND PROCEDURES |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 1. | LEGAL PROCEEDINGS |
To the best knowledge of management, there are two pending legal proceedings against us.
On July 14, 2008, Advanced Digital Technology Co. Ltd., a Korean corporation (“ADT”), filed a claim against Lexon and certain named individuals who are former and current officers of the Company. The claim alleges breach of an agreement to settle an earlier dispute, involving ADT's investment of $150,000 in Lexon on or about January 16, 2007 and ADT's subsequent unilateral decision to rescind and demand a refund of this investment. The total amount of damages claimed under the pending lawsuit is the investment amount of $150,000 plus filing costs, interest and attorney fees for an aggregate amount of $178,522. On November 9, 2010, judgment was entered against Lexon Technologies for the amount of $206,548. Lexon has already appealed such decision. The amount of such loss is reflected in our financials.
However, on September 5, 2008, Vivien and David Bollenberg, a current shareholder (the “Bollenbergs”), filed a claim against Lexon and other third parties, including ByungHwee Hwang (also referred to as "Ben Hwang") and other financial agents and institutions involved in the alleged fraudulent transaction. The lawsuit is currently pending in the Orange County Superior Court in Santa Ana, California. The filed complaint alleges that Ben Hwang together with his representatives, including his accountant, escrow agent and real estate agent/broker, made certain representations to and solicited the Bollenbergs to make an investment in several companies and ventures including Lexon with the intent to misappropriate the solicited funds for personal use. The Bollenbergs allege that they invested a total of $1,500,000 among and between the various companies and ventures recommended by Ben Hwang, of which investment amount approximately $550,000 was invested in Lexon ($150,000 for 600,000 shares at $0.25 per share and $400,000 initially invested in Lexon Korea and later converted into 1,150,000 shares in Lexon for a total of 1,750,000 shares in Lexon). On April 1, 2011, after a trial was concluded, judgment was entered in favor of the Lexon Technologies whereby Lexon was not found liable for any causes of action brought by the Plaintiff.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None ITEM 3. | DEFAULT UPON SENIOR SECURITIES |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit 31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13(A)-14 AND 15(D)-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. * |
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Exhibit 31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13(A)-14 AND 15(D)-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. * |
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Exhibit 32 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. * |
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
________________________
*Filed herewith.
**Furnished herewith.
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.
| LEXON TECHNOLOGIES, INC. | |
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Date: November 21, 2011 | By: | /s/ James Park |
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| James Park |
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| President, Chief Executive Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates stated.
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER |
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, |
RULES 13a-14 AND 15d-14 |
AS ADOPTED PURSUANT TO |
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |
I, James Park, certify that:
1. I have reviewed this Report;
2. Based on my knowledge, this 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 Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of, and for, the periods presented in this Report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this Report our 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
(d) disclosed in this Report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
/s/ James Park
James Park
Chief Executive Officer
Date: November 21, 2011
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIALOFFICER |
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, |
RULES 13a-14 AND 15d-14 |
AS ADOPTED PURSUANT TO |
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |
I, Bong S. Park, certify that:
1. I have reviewed this Report;
2. Based on my knowledge, this 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 Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of, and for, the periods presented in this Report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this Report our 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
(d) disclosed in this Report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
/s/ Bong S. Park
Bong S. Park
Chief Financial Officer
Date: November 21, 2011
Exhibit 32
CERTIFICATION PURSUANT TO |
18 U.S.C. SECTION 1350, |
AS ADOPTED PURSUANT TO |
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 |
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In connection with the Quarterly Report of Lexon Technologies, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (“Report” ), I, James Park, Chief Executive Officer and I, Bong S. Park Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ James Park
James Park
Chief Executive Officer
Chief Financial Officer
Date: November21, 2011
/s/ Bong S. Park
Bong S. Park
Chief Financial Officer
Date: November 21, 2011
Related Party Disclosures | 3 Months Ended | ||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||
| Related Party Disclosures | |||||||||||||||||||
| Related Party Transactions Disclosure [Text Block] | Note 6 - Transactions with Related Parties
Due from Related Parties
Advances to family members of the stockholder are unsecured, non-interest bearing and due on demand. The Company has $0 and $138,000 due from related parties as of September 30, 2011 and December 31, 2010, respectively.
Due to Related Parties
Interest bearing notes payable to related parties consisting of the following as of September 30, 2011 and December 31, 2010:
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