<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
Commission File Number 02474
LEXON TECHNOLOGIES, INC.
-------------------------------------------------------------
(Exact Name of Registrant, as Specified in its Charter)
87-0502701
------------------------------------
(IRS Employer Identification Number)
DELAWARE
--------------------------------------
(State or other Jurisdiction of Incorporation or Organization)
1401 BROOK DRIVE, DOWNERS GROVE, ILLINOIS 60515
-----------------------------------------------------------------
(Address of Principle Executive Offices)
(630) 916-6196
--------------------------------------
(Registrant's Telephone Number, Including Area Code)
--------------------------------------------------------------------------------
(Former Name, Address, or Fiscal Year, if Changed Since Last Report)
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. YES [X] NO[ ]
ON AUGUST 15, 2000 THERE WERE 13,842,561 SHARES OF LEXON TECHNOLOGIES, INC.'S
COMMON STOCK OUTSTANDING.
<PAGE> 2
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Current assets
Cash $ 3,554 $ 20,892
Accounts receivable, less allowance for doubtful
accounts of $2,500 in 2000 and 1999 47,339 18,153
Inventories 1,656 1,656
Prepaid expenses 1,820 12,570
----------- ----------
Total current assets 54,369 53,271
----------- ----------
Property and equipment
Leasehold improvements 5,371 29,744
Furniture and equipment 147,730 178,452
Capital leases 0 105,458
----------- ----------
153,101 313,654
Accumulated depreciation 103,821 116,631
----------- ----------
Net property and equipment 49,280 197,023
----------- ----------
Other assets
Computer software costs, net of
accumulated amortization of $106,044 in 2000 and
$76,875 in 1999 431,021 325,279
Unamortized debt issue costs 5,492 38,442
Deferred charges 0 72,440
Deposits 0 17,762
----------- ----------
Total other assets 436,513 453,923
----------- ----------
$ 540,162 $ 704,217
=========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
Page 2
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(Unaudited)
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Current liabilities
Current maturities of long-term capital lease
obligations $ 0 $ 19,286
Notes payable 973,000 1,123,000
Stockholder advances 115,000 0
Accounts payable 370,809 217,618
Accrued liabilities
Salaries 94,500 51,600
Interest 45,599 23,219
Other 42,796 0
Distributions 209,774 209,774
------------- -------------
Total current liabilities 1,851,478 1,644,497
------------- -------------
Capital lease obligations, net of current maturities 0 82,499
------------- -------------
Total liabilities 1,851,478 1,726,996
------------- -------------
Stockholders' equity (deficit)
Common stock, par value $0.001 per Share; authorized
100,000,000 shares; issued and outstanding
13,842,561 shares in 2000 and 12,441,561 shares in 1999 13,843 12,442
Additional paid-in capital 417,218 68,119
Retained earnings (deficit) (1,742,377) (1,103,340)
------------- -------------
Total stockholders' deficit (1,311,316) (1,022,779)
------------- -------------
$ 540,162 $ 704,217
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
Page 3
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 267,487 $ 178,441 $ 428,953 $ 365,221
Cost of sales 16,139 25,751 40,938 121,243
------------ ------------ ------------ ------------
Gross profit 251,348 152,690 388,015 243,978
Selling, general and administrative
expenses 465,158 422,671 1,070,278 631,302
------------ ------------ ------------ ------------
Loss from operations (213,810) (269,981) (682,263) (387,324)
------------ ------------ ------------ ------------
Other income (expense)
Interest income 157 0 457 0
Interest expense (32,663) (5,057) (73,365) (5,057)
Other income 0 6,372 150,000 6,372
Loss on sale of assets (42,932) 0 (42,932) 0
Loss on abandonment of leasehold
improvements (27,876) (3,323) (27,876) (3,323)
Forgiveness of debt 36,942 0 36,942 0
------------ ------------ ------------ ------------
Other income (expense), net (66,372) (2,008) 43,226 (2,008)
------------ ------------ ------------ ------------
Loss before income tax expense (280,182) (271,989) (639,037) (389,332)
Income tax expense 0 (39,571) 0 0
------------ ------------ ------------ ------------
Net loss $ (280,182) $ (311,560) $ (639,037) $ (389,332)
============ ============ ============ ============
Weighted average common shares
outstanding 13,842,561 11,500,081 13,478,545 11,500,081
============ ============ ============ ============
Basic and diluted loss per common share $ (.02) $ (.03) $ (.05) $ (.03)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Page 4
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------ PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 11,500,081 $ 11,500 $ - $ 239,725 $ 251,225
Stockholders' deficit
assumed in reverse
acquisition of Rexford,
Inc. by Chicago Map
Corporation - - - (40,549) (40,549)
Issuance of common stock 941,480 942 68,119 500 69,561
Net loss - - - (1,089,482) (1,089,482)
Distributions to
stockholders:
Cash - - - (3,760) (3,760)
Accrued - - - (209,774) (209,774)
---------- --------- ---------- ----------- ------------
Balance, December 31, 1999 12,441,561 12,442 68,119 (1,103,340) (1,022,779)
Issuance of common stock 1,401,000 1,401 349,099 - 350,500
Net loss - - - (639,037) (639,037)
---------- --------- ---------- ----------- ------------
Balance, June 30, 2000 13,842,561 $ 13,843 $ 417,218 $(1,742,377) $ (1,311,316)
========== ========= ========== =========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
Page 5
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (639,037) $ (389,332)
------------ -----------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 26,730 14,363
Amortization 62,119 13,913
Write off of deferred charges 72,440 0
Loss on disposition and abandonment of assets 70,808 3,323
Forgiveness of debt (36,942) 0
Change in assets (increase) decrease (18,436) 69,681
Change in liabilities increase (decrease) 282,067 294,201
------------ -----------
Total adjustments 458,786 395,481
------------ -----------
Net cash (used in) provided by operating activities (180,251) 6,149
------------ -----------
Cash flows from investing activities:
Capital expenditures (11,185) (169,893)
Payment of computer software costs (134,911) (44,768)
Acquisition of intangible assets 0 (50,220)
Proceeds from sale of assets 55,590 0
Payment of deposits 0 (15,000)
------------ -----------
Net cash used in investing activities (90,506) (279,881)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 0 223,000
Stockholder advances 115,000 0
Principal payments of notes payable (150,000) 0
Principal payments under capital lease obligations (62,081) 0
Proceeds from issuance of common stock 350,500 500
Cash distributions paid to stockholders 0 (3,759)
------------ -----------
Net cash provided by financing activities 253,419 219,741
------------ -----------
Net decrease in cash (17,338) (53,991)
Cash at beginning of period 20,892 71,526
------------ -----------
Cash at end of period $ 3,554 $ 17,535
============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
Page 6
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 50,985 $ 0
Income taxes 0 0
Supplemental disclosure of noncash investing and financing activities:
Security deposits applied against accounts payable and
capital lease obligations $ 17,762 $ 0
Proceeds from sale of assets applied against accounts payable 5,800 0
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of LEXON Technologies, Inc. (the "Company") and its
wholly-owned subsidiary, Chicago Map Corporation. All material intercompany
accounts and transactions have been eliminated in consolidation.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories - Inventories consists of finished goods which are priced
at the lower of cost, determined by the first-in, first-out method, or market.
Property and Equipment - Property and equipment are recorded at cost.
Expenditures for renewals and betterments which extend the life of such assets
are capitalized. Maintenance and repairs are charged to expense as incurred.
Differences between amounts received and net carrying value of assets retired or
disposed of are charged or credited to income.
Depreciation - Depreciation is charged to income using straight-line
and accelerated methods based on the estimated useful lives of the assets.
Computer Software Costs - Costs related to the purchase and development
of computer software are capitalized from the time technological feasibility is
established until the software is ready for use. Upon the general release of the
software to consumers, capitalized costs are amortized on a straight-line basis
over the estimated economic life of the software, generally twenty-four months.
Amortization expense charged to income was $12,311 and $7,096 for the three
months ended June 30, 2000 and 1999, respectively. During the first six months
of 2000 and 1999 amortization expense was $29,169 and $13,913, respectively.
Unamortized computer software costs determined to be in excess of the net
realizable value of the software are expensed immediately.
Unamortized Debt Issue Costs - Expenses related to the issuance of
notes payable are being amortized on a straight-line basis over the term of the
notes. Amortization expense charged to income was $16,475 for the three months
ended June 30, 2000. During the first six months of 2000 amortization expense
was $32,950. No amortization was charged to income in 1999.
Deferred Charges - Deferred charges consisted of incremental costs
incurred in connection with a proposed offering of securities. The offering was
rescinded during the three months ended March 31, 2000, and these costs,
totaling $72,440, were expensed.
Revenue Recognition - The Company records sales and related profits as
products are shipped. Revenue from licensing of software is based on sales of
copies of software products in accordance with distribution agreements with
licensed developers and recognized as licensing fees accrue. Revenue for
post-contract customer support, upgrades and enhancements is recognized ratably
over the term of the related agreements, which in most cases is one year.
Income Taxes - Prior to July 21, 1999, Chicago Map Corporation had
elected S corporation status for income tax purposes. Under this election, the
Company was not liable for federal income taxes, but was liable for certain
state income and replacement taxes. Federal taxable income (loss) and tax
credits flowed through to the stockholders to be reported on their individual
income tax returns. Upon acquisition by Rexford, Inc., Chicago Map Corporation
terminated its S corporation election.
7
<PAGE> 9
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share - Basic earnings (loss) per share is computed
using the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is computed using the weighted average number
of common shares and dilutive common share equivalents outstanding during the
year. All of the common share equivalents of 7,806,628 as of June 30, 2000 have
an antidilutive effect on earnings (loss) per share and, therefore, have not
been used in determining the total weighted average number of common shares
outstanding used in calculating diluted earnings (loss) per share. There were no
common share equivalents in the six month period ended June 30, 1999.
2. NATURE OF OPERATIONS
The Company creates digital map technologies which provide for the
design and development of advanced geographic and mapping software applications
for institutional, governmental, corporate and public consumers throughout the
world.
3. NAME CHANGE
Effective July 21, 1999, the name of the Company was changed from
Rexford, Inc. to LEXON Technologies, Inc.
4. ORGANIZATION AND PRESENTATION
On July 21, 1999, LEXON Technologies, Inc. (formerly Rexford, Inc.)
(Rexford) acquired all of the issued and outstanding common stock of Chicago Map
Corporation (Chicago Map) in exchange for 10,500,000 shares of common stock of
Rexford. The shares issued in the acquisition resulted in the owners of Chicago
Map having operating control of Rexford immediately following the acquisition.
Therefore, for financial reporting purposes, Chicago Map is deemed to have
acquired Rexford in a reverse acquisition accompanied by a recapitalization. The
surviving entity reflects the assets and liabilities of Rexford and Chicago Map
at their historical book values and the historical operations of the Company are
those of Chicago Map. The issued common stock is that of Rexford and the
retained earnings (deficit) is that of Chicago Map. The consolidated statements
of income (loss) include operations of Chicago Map for the three and six months
ended June 30, 2000 and 1999 and operations of Rexford for periods after July
21, 1999 (date of acquisition).
5. ACQUISITION
On March 12, 1999, Chicago Map Corporation acquired certain assets of
TRIUS, Inc. for $62,300 in cash and 2,198 shares of common stock of Chicago Map
Corporation. The principal business of TRIUS, Inc. is the development of
computer software technologies.
6. CASH
The Company maintains its cash in bank accounts which at times exceed
the federally insured limit of $100,000. Management believes there is no
significant concentration of credit risk with respect to these accounts.
8
<PAGE> 10
7. DEPRECIATION
Depreciation was charged to income, based on the estimated useful lives
of the assets, in the following amounts:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- -------- Estimated
2000 1999 2000 1999 Life - Years
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Leasehold improvements $ 379 $ 32 $ 861 $ 64 5 - 39
Furniture and equipment 6,623 12,827 12,956 14,299 3 - 7
Capital leases 6,456 - 12,913 - 7
-------- --------- --------- ---------
$ 13,458 $ 12,859 $ 26,730 $ 14,363
======== ========= ========= =========
</TABLE>
8. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Promissory notes due on August 1, 2000 with interest payable
monthly at 12% per annum (18% prior to
February 1, 2000) $ 600,000 $ 750,000
Promissory note due on September 26, 2000 with interest
payable at maturity at 12% per annum 100,000 100,000
Promissory notes with stockholders and employees due on
various dates through July 29, 2000. Interest at 12%
per annum is payable at maturity 273,000 273,000
----------- ------------
Total $ 973,000 $ 1,123,000
=========== ============
</TABLE>
The promissory notes due on August 1, 2000 are secured by all of the
assets of the Company, the common stock of Chicago Map Corporation, and the
guarantees of Chicago Map Corporation and an officer of the Company. In
addition, if the Company does not receive debt or equity financing proceeds in
an aggregate amount of $3,600,000 during the period from December 30, 1999 to
August 1, 2000, the promissory notes will be payable in six equal monthly
installments of principal and interest commencing August 1, 2000, as stated in
the loan agreements.
The promissory notes due on July 29, 2000 and through September 26,
2000 are secured by the accounts receivable of Chicago Map Corporation.
9
<PAGE> 11
9. LEASE COMMITMENTS
The Company leases office facilities under an operating lease expiring
in April, 2002. Under terms of the lease, the Company is responsible for
insurance, utilities, repairs and maintenance. Future minimum lease commitments
under all noncancelable leases in effect at June 30, 2000 are as follows:
Operating
Year ending December 31, Leases
------------------------ ------
2000 (six months) $ 24,158
2001 50,278
2002 30,000
2003 7,162
2004 3,036
-----------
Net minimum lease payments $ 114,634
===========
During the three months ended June 30, 2000, the Company negotiated an
early buyout option on both of its capital leases. The buy-out resulted in the
forgiveness of debt of $36,942, which is included in other income in the
Consolidated Statements of Income (Loss). Total lease-related expenses for the
capital leases for the three and six months ended June 30, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Depreciation $6,456 - $12,913 -
Interest expense 1,273 - 5,760 -
------ ------- ------- -------
$7,729 - $18,673 -
====== ======= ======= =======
</TABLE>
Rent expense for operating leases charged to income for the three
months ended June 30, 2000 and 1999 was $23,109 and $14,660, respectively.
During the first six months of 2000 and 1999 rent expense was $58,744 and
$26,467, respectively.
10. REVERSE STOCK SPLIT
On July 20, 1999, the stockholders of Rexford, Inc. approved a
one-for-seventy reverse stock split whereby the issued and outstanding shares of
common stock of the Company were reduced from 70,000,000 to 1,000,081. The
reverse stock split did not affect the authorized shares of common stock of the
Company.
10
<PAGE> 12
11. STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require, companies to
record compensation expense for stock-based employee compensation at fair value.
The Company has chosen to account for stock-based compensation using the
intrinsic value method described in Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Under APB No. 25, compensation expense is measured as the excess of market price
over the price the employee must pay to acquire the stock on the grant date.
During July of 1999, the Company issued 3,504,096 stock options, of
which 3,503,096 were outstanding and exercisable at June 30, 2000. The options
were granted at market price and, as a result, no compensation expense has been
recognized in 1999. The weighted average exercise price of the options
outstanding at June 30, 2000 was $2.40 per share. The weighted average life of
the options outstanding at June 30, 2000 was 9.06 years.
Pro forma information regarding consolidated net income (loss) and
earnings (loss) per common share is required by SFAS No. 123 and has been
determined as if the Company had accounted for its stock options under the fair
value method defined in that Statement. The weighted average fair value of stock
options granted during 1999 was $.61 per share. The fair value of the stock
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions: risk-free interest rate of 6.08%, dividend
yield of 0%, expected volatility factor of 10%, and an expected life of 5 years.
The Company's pro forma information for the six months ended June 30, 2000
follows:
PRO FORMA AS REPORTED
--------- -----------
Net loss $(639,037) $(639,037)
Loss per common share
Basic (0.05) (0.05)
Diluted (0.05) (0.05)
These pro forma amounts may not be representative of the effects of
such disclosures in future years.
11
<PAGE> 13
12. STOCK PURCHASE WARRANTS
In connection with the issuance of common stock and notes payable
during 2000 and 1999, the Company issued stock purchase warrants that are
convertible into shares of common stock. Each warrant represents the right to
purchase one share of the Company's common stock. Stock purchase warrants
outstanding at June 30, 2000 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Warrants convertible at an exercise price of $2.50 per
share with expiration dates ranging from
September 2000 to August 2004 648,000
Warrants convertible at an exercise price of $.25 per
share with expiration dates ranging from
September 2000 to February 2001 3,600,000
Warrants convertible at an exercise price of $.50 per
share with expiration dates ranging from February 2001
to August 2001 1,023,000
---------
5,271,000
=========
</TABLE>
13. EMPLOYEE BENEFIT PLAN
During 1999, the Company implemented a defined contribution plan
pursuant to Section 401(k) of the Internal Revenue Code. The plan covers all
employees meeting eligibility and service requirements. Eligible participants
may elect salary deferral contributions up to 15% of compensation, or the
maximum amount allowed under the Internal Revenue Code. The plan does not
provide for discretionary matching contributions by the Company.
14. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of the Company's assets and liabilities.
Measurement of deferred tax assets and liabilities is based upon the provisions
of enacted tax laws and the effects of future changes in tax laws or rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Deferred tax assets and liabilities at June 30, 2000 consist of the
following:
Deferred tax assets attributable to:
Allowance for doubtful accounts $ 968
Net operating loss carryforwards 644,924
-----------
Gross deferred tax assets 645,892
Valuation allowance (642,153)
-----------
Net deferred tax assets 3,739
-----------
Deferred tax liability attributable to:
Depreciation (3,739)
-----------
Net deferred tax asset (liability) $ -
===========
12
<PAGE> 14
14. INCOME TAXES (CONTINUED)
At June 30, 2000, the Company had net operating loss carryforwards for
tax purposes of $1,664,801 expiring as follows:
YEAR AMOUNT
---- ------
2002 $ 7,342
2003 49,380
2004 34,314
2005 7,609
2006 6,144
2008 4,073
2009 3,497
2010 2,746
2011 42,794
2017 46,350
2018 365,433
2019 456,082
2020 639,037
----------
$1,664,801
==========
15. TRANSACTIONS WITH RELATED PARTY
During the three month period ended June 30, 2000 the Company began
leasing space from an entity owned by an officer and director for $2,400 per
month. In addition, the Company sold certain assets to an entity owned by an
officer and director for a total of $61,390.
During 1999, Chicago Map Corporation leased office facilities on a
month-to-month basis from a stockholder at a monthly rental of $3,000. Rent
expense charged to income amounted to $9,000 and $12,000 for the three and six
months ended June 30, 1999.
16. OTHER EVENTS
In February 2000, a new equity investor acquired voting control of the
Company's issued and outstanding shares of common stock. Thereafter, a major
reorganization of the Company and its board of directors was implemented. A new
management team was installed and administrative staff was reduced
significantly. The Company negotiated the transfer of its lease to a related
party at a reduced rent. These changes are expected to reduce employment costs
significantly and result in other cost savings on an annualized basis. In
addition, management is reviewing other financial alternatives available to the
Company to increase liquidity, including restructuring its debt and raising
additional capital.
13
<PAGE> 15
17. SUBSEQUENT EVENTS
The Company incurred a net loss of $280,182 and $639,037 in the three
and six months ended June 30, 2000 and used substantial amounts of working
capital in its operations. At June 30, 2000, current liabilities exceeded
current assets by $1,797,109 and total liabilities exceeded total assets by
$1,311,316. As a result of these losses, management has executed changes in its
operations to reduce its cash requirements and is working towards raising
additional capital to funds its operations. The continued operations of the
Company are dependent upon the success of these strategies and its ability to
meet its financing requirements.
On August 10, 2000, the Company entered into a Fifth Supplemental
Agreement to amend the terms of a loan made to the Company on August 10, 1999 by
a group of investors. Under the terms of the Agreement, the maturity date of the
loan was extended from August 1, 2000 to September 10, 2000. In addition, the
terms of the Agreement require an officer and stockholder of the Company to sell
to the group of investors 100,000 shares of the Company's common stock in
exchange for $10.00. This amendment and extension allowed the Company to avoid
having the group of lenders declare an event of default under the original
August 10, 1999 loan.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Some of the information in this Quarterly Report may be
forward-looking statements under the federal securities laws. Such
statements can be identified by the use of words such as "anticipates,"
"intends," "seeks," "believes," "estimates," and "expects." These
statements discuss expectations for the future, contain projections
concerning the results of our operations or our future financial
condition or state other forward-looking information. Such statements
are subject to a number of risks and uncertainties that have been
identified in previous filings with the Securities and Exchange
Commission. Our actual results, performance or achievements could
differ substantially from the results expressed in, or implied by,
those statements. We assume no responsibility for revising
forward-looking statements in light of future events or circumstances.
RESULTS OF OPERATIONS:
Net sales increased for the three months ended June 30, 2000
to $267,487 from $178,441 for the three months ended June 30, 1999.
During the first six months of 2000 net sales increased to $428,953
from $365,221 compared to the same period in the prior year. The
primary factor in the general increase of the year-to-date sales is the
Company's shift from the retail market to the more profitable
commercial market and its new focus on the National Atlas project.
Gross profit increased during the three months ended June 30,
2000 to $251,348 or 94.0% of net sales, compared to $152,690 or 85.6%
of net sales for the same period in the prior year. For the six month
period ended June 30, 2000 gross profit increased to $388,015 or 90.5%
of net sales from $243,978 or 66.8% of net sales for the same period in
1999. The variation in gross profit for the six months then ended June
30, 2000 compared to the same period in the prior year is primarily
related to the decrease in development costs incurred on Chicago Map
Corporation products being sold in the retail market.
Selling, general and administrative expenses increased to
$465,158 or 173.9% of net sales for the three months ended June 30,
2000 compared to $422,671 or 236.9% of sales for the same period in
1999. Selling and administrative expenses for the six month period
ended June 30, 2000 increased to $1,070,278 or 249.5% of net sales
compared to $631,302 or 172.9% of sales for the same period in 1999.
The increases are primarily attributable to the expenses necessary to
implement the National Atlas of the United States of America project.
Interest expense for the three months ended June 30, 2000 was
$32,663 compared to $5,057 for the same period in 1999. For the six
month period ended June 30, 2000 interest expense was $73,365 compared
to $5,057 for the same period in 1999. This increase was attributable
to various interim working capital loans.
As a result of the factors described above, net loss decreased
to ($280,182) for the three months ended June 30, 2000 from ($311,560)
for the same period in 1999. Basic earnings per share for the second
fiscal quarter of 2000 were ($0.02) compared to ($0.03) for the same
period in the prior year. For the first six months of 2000 net income
was a loss of ($639,037) compared to a loss of ($389,332) for the same
period in the prior
15
<PAGE> 17
year. Basic earnings per share for the six month period ended June 30,
2000 were ($.05) compared to ($.03) for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended June 30, 2000 the primary source of
liquidity was cash provided by equity investments and stockholder
advances. The net cash used in operations was $180,252 for the six
months ended June 30, 2000 compared to net cash provided by operations
of $6,149 for the same period in 1999.
Net cash used in investing activities was $90,505 which was
mainly due to payments of computer software costs of $134,911. For the
same period in the prior year net cash used in investing activities was
$279,881.
Net cash provided by financing activities was $253,419 for the
six months ended June 30, 2000 compared to $219,741 provided in the
prior year.
The Company incurred a net loss of $280,182 and $639,037 in
the three and six months ended June 30, 2000 and used substantial
amounts of working capital in its operations. At June 30, 2000, current
liabilities exceeded current assets by $1,797,109. While the Company
believes it could generate substantial profits and cash flow through
the distribution of the National Atlas of the United States, completing
development of this product will require significant additional funding
for which the Company currently has no commitments. The Company is
currently working towards raising additional capital, but there can be
no assurance that such capital will be available on terms acceptable to
the Company, if at all. Cash generated from the Company's operations is
currently significantly insufficient to fund the development of the
National Atlas project and satisfy the Company's other working capital
requirements. In addition, the Company is required to make significant
payments of principal and interest on its outstanding indebtedness. In
light of these factors, there can be no assurance that the Company will
be able to continue its operations on a going-forward basis if it is
unable to obtain additional capital.
16
<PAGE> 18
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company does not currently possess a significant or
material investment portfolio due to limitations on its cash resources.
To the extent that the Company's cash resources are invested in
interest-bearing or investment-type accounts, the Company's investment
portfolio would be exposed to market risk as it relates to interest
rates. Investments are comprised of certificates of deposit, commercial
paper, U.S. Treasury securities, asset-backed securities, and money
market accounts. Only high credit quality issuers are used and exposure
to any one issuer is limited by policy. Maturities and average lives
are laddered up to a maximum term of three years. These investments are
considered available for sale and are recorded on the balance sheet at
fair value.
17
<PAGE> 19
LEXON TECHNOLOGIES, INC.
PART II - OTHER INFORMATION
JUNE 30, 2000
ITEM 1. LEGAL PROCEEDINGS.
On December 15, 1997, Chicago Map was served with a complaint in case
captioned Integrated GPS Technologies, Inc. v. Chicago Map Corporation,
Defendant Civil Action No. H-97-4063 in the United States District Court for the
Southern District of Texas. The complaint alleged that Chicago Map committed
trademark infringement and engaged in false advertising and unfair competition,
under both federal and Texas state law related to Chicago Map's Precision
Mapping (TM) software and demanded declaratory and injunctive relief as well as
unspecified monetary damages.
At the close of the plaintiff's case, the trial judge granted Chicago
Map's motion for a directed verdict and the plaintiff appealed to the Fifth
Court of Appeals. Oral argument has been scheduled for September 7, 2000.
Chicago Map maintains insurance policies which cover intellectual property
infringement actions and Chicago Map believes that any damage awards granted to
the plaintiff in Integrated GPS v. Chicago Map should be subject to payment or
reimbursement by Chicago Map's insurance policies. If, as a result of
determinations adverse to Chicago Map, Chicago Map is ordered to pay Integrated
GPS damages from its cash reserves or assets without payment or reimbursement
from Chicago Map's insurer or if Chicago Map is ordered to cease distribution of
its Precision Mapping software, such determinations could have a materially
adverse effect on Chicago Map's financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) RECENT SALES OF UNREGISTERED SECURITIES.
On May 11, 2000, the Company issued 400,000 shares to Anthony Perino in
exchange for $100,000, under the terms of a Stock Purchase Agreement, dated
February 9, 2000, by and among Lexon, Steven J. Peskaitis and Mr. Perino. This
issuance was exempt from registration in reliance on Section 4(2) of the Act.
ITEM 3. DEFAULT BY THE COMPANY ON ITS SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On June 12, 2000, in the second closing of a series of transactions
between Lexon and Anthony Perino, Chairman, Chief Executive Officer and majority
stockholder of Lexon, Mr. Perino acquired (i) 2,000,000 shares of Lexon's common
stock from Steven J. Peskaitis in exchange for a cash payment of $500 and (ii)
400,000 shares of Lexon's common stock from Lexon in exchange for a cash payment
of $100,000 (collectively the "Shares"). Perino's acquisition of the Shares was
effected under the terms of a Stock Purchase Agreement, through which Perino
acquired voting control of Lexon's issued and
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<PAGE> 20
outstanding common stock. Lexon's issuance of the aforementioned 400,000 shares
of common stock were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
On July 19, 2000, Peter J. Haleas resigned as a director of the
Company.
On August 1, 2000, Jerome Wolowicki resigned as Chief Financial Officer
and as director of the Company.
On August 10, 2000, the Company entered into a Fifth Supplemental
Agreement to amend the terms of a loan made to the Company on August 10, 1999 by
a group of investors. Under the terms of the Agreement, the maturity date of the
loan was extended from August 1, 2000 to September 10, 2000. In addition, the
terms of the Agreement require an officer and stockholder of the Company to sell
to the group of investors 100,000 shares of the Company's common stock in
exchange for $10.00. This amendment and extension allowed the Company to avoid
having the group of lenders declare a default of the original August 10, 1999
loan.
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<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Incorporation Page Number
Exhibit by Reference (if
Number (if applicable) applicable)
------ --------------- -----------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated as of
July 21, 1999, by and between Rexford, Inc, and
Chicago Map Corporation........................... +
2.2 Securities Purchase Agreement, dated as of August 10,
1999, by and among LEXON Technologies, Inc. and
Miller Capital Corporation, Stephen A. McConnell,
Jock Patton and Dickerson Wright.................. ++
3.1 Articles of Incorporation............................. +
3.2 Bylaws................................................ ++++
4.1 Interim Loan Agreement, dated as of March 26, 1999,
by and between Chicago Map Corporation and Mark
Scharmann......................................... ++++
4.2 Promissory Note, dated as of March 26, 1999, by and
between Chicago Map Corporation and Mark A.
Scharmann......................................... ++++
4.3 Security Agreement, dated as of March 26, 1999, by
and between Mark A. Scharmann and Chicago Map
Corporation....................................... ++++
4.4 Interim Loan Agreement, dated as of April 29, 1999,
by and between Steven J. Peskaitis and Chicago
Map Corporation................................... ++++
4.5 Promissory Note, dated as of April 29, 1999, by and
between Chicago Map Corporation and Steven J.
Peskaitis......................................... ++++
4.6 Promissory Note, dated as of July 10, 1999, by and
between Chicago Map Corporation and Steven J.
Peskaitis......................................... ++++
4.7 Promissory Note, dated as of July 10, 1999, by and
between Chicago Map Corporation and Stanley J.
Peskaitis......................................... ++++
4.8 Promissory Note, dated as of July 10, 1999, by and
between Chicago Map Corporation and John B.
McLean............................................ ++++
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
Incorporation Page Number
Exhibit by Reference (if
Number (if applicable) applicable)
------ --------------- -----------
<S> <C> <C>
4.9 Form of Stock Option Agreement and Schedule thereto,
dated as of July 21, 1999 by and between LEXON
Technologies, Inc. and Steven J. Peskaitis........ ++++
4.10 Promissory Note, dated as of August 10, 1999, by
LEXON Technologies, Inc. and Miller Capital
Corporation, Stephen A. McConnell, Jock Patton
and Dickerson Wright.............................. ++
4.11 Security and Pledge Agreement, dated as of August 10,
1999 by and among LEXON Technologies, Inc. and
Miller Capital Corporation, Jock Patton, Stephen
A. McConnell and Dickerson Wright................. ++
4.12 Continuing Guaranty, dated as of August 10, 1999, by
and among Chicago Map Corporation and Steven J.
Peskaitis and Miller Capital Corporation, Jack
Patton, Stephen A. McConnell and Dickerson Wright. ++
4.13 Stock Pledge and Security Agreement, dated as of
August 10, 1999, by and among Steven J. Peskaitis
and Miller Capital Corporation, Stephen A.
McConnell, Jack Patton and Dickerson Wright....... ++
4.14 Warrants to Purchase Common Stock, dated as of
August 10, 1999, by LEXON Technologies, Inc. ++
4.15 Supplemental Agreement to Bridge Loan Transaction,
dated as of December 30, 1999, by and among LEXON
Technologies, Inc., Chicago Map Corporation and
Steven J. Peskaitis and Miller Capital
Corporation, Stephen A. McConnell, Jock Patton
and Dickerson Wright.............................. ++++
10.1 Stock Purchase Agreement dated as of February 9,
2000, by and among Anthony Perino and LEXON
Technologies, Inc. and Steve J. Peskaitis......... +++
10.2 Industrial Building Lease, dated as of June 1, 1999,
by and between Chicago Map Corporation and United
States Brass & Copper Co., for office space at
1401 Brook Drive, Downers Grove, IL 60615......... ++++
10.3 Cooperative Research and Development Agreement, dated
as of March 26, 1999, by and among United States
Geological Survey and Chicago Map Corporation..... ++++
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
Incorporation Page Number
Exhibit by Reference (if
Number (if applicable) applicable)
------ --------------- -----------
<S> <C> <C>
10.4 Employment Agreement, dated as of March 12, 1999, by
and between Chicago Map Corporation and Paris
Karahalios........................................ ++++
10.5 Employment Agreement, dated as of March 12, 1999, by
and between Chicago Map Corporation and David A.
Schulz............................................ ++++
10.6 Employment Agreement, dated as of April 19, 1999, by
and between Chicago Map Corporation and Kenneth
J. Eaken.......................................... ++++
10.7 Employment Agreement, dated as of February 23, 1999,
by and between Chicago Map Corporation and John
B. McLean......................................... ++++
10.8 Employment Agreement, dated as of May 1, 1999, by and
between Chicago Map Corporation and Steven J.
Peskaitis......................................... ++++
10.9 Registration Rights Agreement, dated as of
February 9, 2000, by and among Anthony Perino and
LEXON Technologies, Inc........................... +++++
10.10 Voting Trust Agreement, dated as February 9, 2000, by
and among, Anthony Perino, as Voting Trustee, and
Steven J. Peskaitis and Stanley Peskaitis......... +++++
11.1 Statement Re: Computation of Per Share Earnings.......
27 Financial Data Schedule...............................
</TABLE>
+ Incorporated by reference to LEXON Technologies, Inc.'s Current
Report on Form 8-K, dated as of July 21, 1999 and filed with the SEC
on August 4, 1999.
++ Incorporated by reference to LEXON Technologies, Inc.'s Current
Report on Form 8-K, dated as of August 10, 1999 and filed with the
SEC on August 24, 1999.
+++ Incorporated by reference to LEXON Technologies, Inc.'s Current
Report on Form 8-K, dated as of February 9, 2000 and filed with the
SEC on February 18, 2000
++++ Incorporated by reference to LEXON Technologies, Inc.'s Annual
Report on Form 10-K, dated as of December 31, 1999 and filed with
the SEC on April 14, 2000.
+++++ Incorporated by reference to LEXON Technologies, Inc.'s Quarterly
Report on Form 10-Q, dated as of March 31, 2000 and filed with the
SEC on May 22, 2000.
(b) Current Reports on Form 8-K
II-5
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEXON TECHNOLOGIES, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
executive officer of the registrant.
/s/ Anthony Perino August 18, 2000
----------------------------------- --------------------------
Anthony Perino Date
Principal Executive Officer
LEXON TECHNOLOGIES, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
accounting officer of the registrant.
/s/ Kenneth J. Eaken August 18, 2000
----------------------------------- --------------------------
Kenneth J. Eaken Date
Principal Accounting Officer
<PAGE> 25
LEXON TECHNOLOGIES, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11.1 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
