SECURITIES AND EXCHANGE COMMISSION
FORM SB-2/A
LEXICON UNITED INCORPORATED
Delaware | 7320 | 06-1625312 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Elie Saltoun Chief Executive Officer, President and Treasurer Lexicon United Incorporated 4500 Steiner Ranch Blvd., Suite # 1708 Austin, Texas 78732 (512) 266-3507 | Louis A. Bevilacqua, Esq. Joseph R. Tiano, Esq. Thelen Reid Brown Raysman & Steiner LLP 701 8th Street, N.W. Washington, D.C. 20001 (202) 508-4281 |
Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share (1) | Proposed maximum aggregate offering price | Amount of registration fee | |||||||||
Common stock, $0.001 par value | |||||||||||||
Total | 2,001,250 | $ | 2.50 | $ | 5,003,125 | $ | 154 |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS
The selling stockholders will sell our shares over a period of nine months, commencing on the effective date of this prospectus, at a price per share equal to $2.50.
The selling stockholders are deemed to be "underwriters" within the meaning of the Securities Act of 1933 and any commissions or discounts given to an underwriter may be regarded as underwriting commissions or discounts under the Securities Act. We are not aware of any agreement or understanding, directly or indirectly, with the selling stockholders and any person to distribute their common stock.
TABLE OF CONTENTS
Page | ||
4 | ||
RISK FACTORS | 7 | |
FINANCIAL RISKS | 7 | |
RISKS RELATING TO OUR BUSINESS | 7 | |
RISKS OF DOING BUSINESS IN BRAZIL | 10 | |
CONCENTRATED CONTROL RISK | 12 | |
MARKET RISKS | 12 | |
FORWARD-LOOKING STATEMENTS | 13 | |
USE OF PROCEEDS | 14 | |
DETERMINATION OF OFFERING PRICE | 14 | |
DILUTION | 14 | |
SELLING SECURITY HOLDERS | 14 | |
PLAN OF DISTRIBUTION | 18 | |
LEGAL PROCEEDINGS | 19 | |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS | 19 | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 21 | |
DESCRIPTION OF SECURITIES | 22 | |
INTERESTS OF NAMED EXPERTS AND COUNSEL | 23 | |
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 23 | |
ORGANIZATION WITHIN LAST FIVE YEARS | 23 | |
BUSINESS | 23 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 28 | |
DESCRIPTION OF PROPERTY | 37 | |
CERTAIN RELATIONSHIPS AND TRANSACTIONS AND DIRECTOR INDEPENDENCE | 37 | |
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS | 38 | |
EXECUTIVE COMPENSATION | 38 | |
FINANCIAL STATEMENTS | 39 | |
39 | ||
WHERE YOU CAN FIND MORE INFORMATION | 39 |
PROSPECTUS SUMMARY
Common stock offered by selling stockholders | 2,001,250 shares. This number represents 23.6% of our current outstanding stock. Approximately 20% of this number is held by our affiliates. (1) | |
Offering Price | $2.50 per share | |
Term of offering | The term will expire on March 29, 2008 | |
Common stock outstanding before the offering | 8,456,250 shares | |
Common stock outstanding after the offering | 8,456,250 shares | |
Proceeds to us | We will not receive proceeds from the offering of shares by the selling stockholders. |
(1) | Based on 8,456,250 shares of common stock outstanding as of June 29, 2007. |
Summary of Selected Financial Information
Fiscal Quarter Ending | Fiscal Year Ending | |||||||||
March 31, 2007 | December 31, 2006 | December 31, 2005 | ||||||||
in US Dollars | in US Dollars | in US Dollars | ||||||||
Revenues | 639,192 | 2,512,205 | 0 | |||||||
Cost of Sales | 411,989 | 1,901,898 | 0 | |||||||
Gross Profits | 227,203 | 610,307 | 0 | |||||||
Costs and expenses | 413,672 | 1,919,287 | 490,160 | |||||||
Operating income (loss) | (186,469 | ) | (1,308,980 | ) | (490,160 | ) | ||||
Other income (expenses) | 11,303 | 44,404 | 26,258 | |||||||
Income taxes | 0 | 0 | 0 | |||||||
Net income (loss) | (175,166 | ) | (1,264,576 | ) | (463,902 | ) | ||||
BALANCE SHEET DATA: | ||||||||||
Working capital | (2,205,077 | ) | (1,882,949 | ) | 883,604 | |||||
Current assets | 1,009,170 | 1,192,883 | 940,809 | |||||||
Total assets | 3,147,551 | 3,288,172 | 943,368 | |||||||
Current liabilities | 3,214,247 | 3,075,832 | 57,205 | |||||||
Total liabilities | 3,537,325 | 3,405,544 | 57,205 | |||||||
Shareholders' equity (deficiency) | (389,774 | ) | (117,372 | ) | 886,163 |
· | We fail to maintain the quality of services we provide to our clients; |
· | We fail to maintain the level of attention expected by our clients; |
· | We fail to successfully leverage our existing client relationships to sell additional services; and |
· | We fail to provide competitively priced services to our clients. |
· | The market acceptance of our service offerings; |
· | The quality and effectiveness of our sales personnel; and |
· | The competitive factors within the accounts receivable management industry in Brazil. |
· | The timing of our clients’ accounts receivable collection programs and the commencement of new contracts and termination of existing contracts; |
· | Customer contracts that require us to incur costs in periods prior to recognizing revenue under those contracts; |
· | The effects of a change of business mix on profit margins; |
· | The timing of additional selling, general and administrative expenses to support new business; |
· | Fluctuations in foreign currency exchange rates; |
· | The amount and timing of new business; and |
· | That our business tends to be slower during summer and holiday seasons. |
Most of our accounts receivable management contracts do not require clients to place accounts with us, may be terminated on 30 or 60 days notice and are on a contingent fee basis. We cannot guarantee that existing clients will continue to use our services at historical levels, if at all.
The executive offices of our subsidiary and all of our material operations are in Brazil and we expect to make further investments in Brazil in the future. Therefore, our business, financial condition and results of operations are to a significant degree subject to economic, political and social events in Brazil, including the material risks outlined below.
CONCENTRATED CONTROL RISK
· | deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt; |
· | disclose commissions payable to the broker-dealer and the Registered Representative and current bid and offer quotations for the securities; and |
· | send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account, the account's value and information regarding the limited market in penny stocks. |
· | our potential inability to raise additional capital; |
· | our potential inability to obtain the right to develop our target markets or to exploit the rights currently held by us; |
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· | our potential inability to compete with other finance companies that may be more experienced and better capitalized than us; |
· | changes in domestic and foreign laws, regulations and taxes; |
· | changes in economic conditions; |
· | lack of resources compared to our competitors; |
· | uncertainties and risks related to the legal systems and economics in our target markets, including Brazil’s legal system and economic, political and social events in Brazil and other target markets; |
· | fluctuations in currency exchange rates; |
· | the effects of any applicable currency restrictions, including any restrictions on the repatriation of funds back to the United States; |
· | a general economic downturn or a downturn in the securities markets; |
· | Regulations of the Commission which affect trading in the securities of “penny stocks;” and |
· | other risks and uncertainties. |
DILUTION
Name | Beneficial Ownership Before the Offering(1) | Shares of Common Stock Included in prospectus | Beneficial Ownership After the Offering(1)(2) | Percentage of Common Stock Owned After Offering(1)(2) | ||||
Elie Saltoun | 5,818,7503 | 1,163,750 | 4,655,000 | 55.05% | ||||
Omar Malheiro Silva Araújo 4 | 1,400,000 | 280,000 | 1,120,000 | 13.24% | ||||
Manuel da Costa Fraguas 5 | 600,000 | 120,000 | 480,000 | 5.68% | ||||
Jeffrey Nunez 6 | 250,000 | 50,000 | 200,000 | 2.37% | ||||
Keyano Invest Inc. | 5,818,7503 | 1,163,750 | 4,655,000 | 55.05% | ||||
Choi S. Ang | 2,500 | 2,500 | 0 | * | ||||
Bemberg International Ltd. 7 | 25,000 | 25,000 | 0 | * | ||||
Bessie Chan | 2,500 | 2,500 | 0 | * | ||||
Brenda Chan | 5,000 | 5,000 | 0 | * | ||||
Dennis Chan | 2,500 | 2,500 | 0 | * | ||||
Fan Yeung Chan | 7,500 | 7,500 | 0 | * | ||||
Ka Wai Kerry Chan | 5,000 | 5,000 | 0 | * | ||||
Kelvin Chan | 2,500 | 2,500 | 0 | * | ||||
Lisa Chan | 2,500 | 2,500 | 0 | * | ||||
Samuel Chan | 2,500 | 2,500 | 0 | * | ||||
Lila Yuk Chun Chang | 2,500 | 2,500 | 0 | * | ||||
Henry Chau | 2,500 | 2,500 | 0 | * | ||||
Mabel Chan | 2,500 | 2,500 | 0 | * | ||||
Phuong K. Ly Chau | 2,500 | 2,500 | 0 | * | ||||
Van Q. Chau | 5,000 | 5,000 | 0 | * | ||||
Bo Huan Chen | 2,500 | 2,500 | 0 | * | ||||
Chong Bin Chen | 10,000 | 10,000 | 0 | * | ||||
Yen Liang Chen | 2,500 | 2,500 | 0 | * | ||||
Shek Fei Vivia Cheng | 2,500 | 2,500 | 0 | * | ||||
Wilson Cheng | 2,500 | 2,500 | 0 | * | ||||
John Y. Cheung | 2,500 | 2,500 | 0 | * | ||||
Shek Kwok Fai | 2,500 | 2,500 | 0 | * | ||||
Ching Hung Mon Fan | 2,500 | 2,500 | 0 | * | ||||
Mui Lan Foo | 2,500 | 2,500 | 0 | * | ||||
Man Chung Fung | 2,500 | 2,500 | 0 | * | ||||
Sau Yin Fung | 2,500 | 2,500 | 0 | * | ||||
Wai Kin Fung | 5,000 | 5,000 | 0 | * | ||||
Wo Kong Fung | 2,500 | 2,500 | 0 | * |
Hui Kin Chun Heidy | 5,000 | 5,000 | 0 | * | ||||
Ricky Q Hoang | 2,500 | 2,500 | 0 | * | ||||
Victor Q. Hoang | 2,500 | 2,500 | 0 | * | ||||
Kam Moon Hui | 5,000 | 5,000 | 0 | * | ||||
Dong Joo Kim | 2,500 | 2,500 | 0 | * | ||||
Kwok Hing Lau | 2,500 | 2,500 | 0 | * | ||||
Kyun Lee | 2,500 | 2,500 | 0 | * | ||||
Leung Hing Kwan | 2,500 | 2,500 | 0 | * | ||||
Xiu Fang Li | 2,500 | 2,500 | 0 | * | ||||
Zhen Yi Li | 2,500 | 2,500 | 0 | * | ||||
Alex Lin | 2,500 | 2,500 | 0 | * | ||||
Chow Yai Ling | 2,500 | 2,500 | 0 | * | ||||
Peter Lo | 2,500 | 2,500 | 0 | * | ||||
Kevin M. McNeil | 2,500 | 2,500 | 0 | * | ||||
Sophia Movshina | 20,000 | 20,000 | 0 | * | ||||
Richard B. Mui | 5,000 | 5,000 | 0 | * | ||||
John T. Mysco | 5,000 | 5,000 | 0 | * | ||||
Kam Yuen Ngan | 25,000 | 25,000 | 0 | * | ||||
Sui Sang Ngan | 25,000 | 25,000 | 0 | * | ||||
Elizaveta Nikolaeva | 2,500 | 2,500 | 0 | * | ||||
Chak Yan Catherine Pang | 5,000 | 5,000 | 0 | * | ||||
Bardon Paschal | 12,500 | 12,500 | 0 | * | ||||
Gerard Paschal | 12,500 | 12,500 | 0 | * | ||||
Sue Peng | 5,000 | 5,000 | 0 | * | ||||
Anita Poon | 2,500 | 2,500 | 0 | * | ||||
Joseph Poon | 2,500 | 2,500 | 0 | * | ||||
Lloyd A. R. Gillespie | 2,500 | 2,500 | 0 | * | ||||
David E. Saltoun | 2,500 | 2,500 | 0 | * | ||||
Roberto E. Saltoun | 2,500 | 2,500 | 0 | * | ||||
Douglas The Huei Shih | 2,500 | 2,500 | 0 | * | ||||
Chung Han Ricky Shiu | 10,000 | 10,000 | 0 | * | ||||
Kim Pun Siu | 7,500 | 7,500 | 0 | * | ||||
Wing On Tang | 2,500 | 2,500 | 0 | * | ||||
Jimmy Leung Man Wai | 2,500 | 2,500 | 0 | * | ||||
Lai Chung Wai | 2,500 | 2,500 | 0 | * | ||||
Leung Ming Wai | 2,500 | 2,500 | 0 | * | ||||
Wong Chi Wai | 2,500 | 2,500 | 0 | * | ||||
Chi Kwong Wong | 2,500 | 2,500 | 0 | * | ||||
Chi Ping Wong | 5,000 | 5,000 | 0 | * | ||||
Kow Chai Wong | 2,500 | 2,500 | 0 | * | ||||
Man Kit Wong | 5,000 | 5,000 | 0 | * | ||||
Willie Wong | 2,500 | 2,500 | 0 | * |
Yan Hong Wu | 25,000 | 25,000 | 0 | * | ||||
Ya Jun Yan | 2,500 | 2,500 | 0 | * | ||||
Au Yin Ying | 2,500 | 2,500 | 0 | * | ||||
Chung Wah Jova Yuen | 10,000 | 10,000 | 0 | * | ||||
Chau Yat Yuk | 2,500 | 2,500 | 0 | * | ||||
Harry Yung | 2,500 | 2,500 | 0 | * | ||||
Ying Zuo | 7,500 | 7,500 | 0 | * |
(3) Our president, CEO, Treasurer and director, Elie Saltoun, owns fifty percent of Keyano Invest Inc. Accordingly, Mr. Saltoun and Keyano are deemed to be affiliates. Mr. Saltoun is deemed to be the beneficial owner of any securities owned by Keyano, and vice versa. Therefore, the 5,818,750 shares of our common stock owned by Keyano include the 500,000 shares of common stock held by Mr. Saltoun. Conversely, the 5,818,750 shares of our common stock owned by Mr. Saltoun include the 5,318,750 shares held by Keyano. Mr. Saltoun disclaims beneficial ownership of the shares held by Keyano and Keyano disclaims beneficial ownership of the shares held by Mr. Saltoun.
(4) Omar Malheiro Silva Araújo is the President, Chief Executive Officer and director of our subsidiary ATN.
(5) Manuel da Costa Fraguas is the General Manager and director of our subsidiary ATN.
(6) Mr. Nunez is our Secretary and Director.
(7) Ronald Lui exercises voting and dispositive power over the shares beneficially owned by Bemberg International, Ltd.
Except as set forth below, all the shares enumerated in the above table were acquired in a private placement of our common stock conducted from September 2001 through February 2002. These shares were issued in reliance on the exemptions provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering and Rule 506 of Regulation D promulgated thereunder, and on Regulation S promulgated under the Securities Act.
Jeffrey Nunez and Elie Saltoun acquired 3,000,000 shares of our common stock, in the aggregate, for $0.01 per share, pursuant to a subscription agreement, dated July 17, 2001, prior to our registration with the SEC. The one for four reverse stock split that we effectuated on June 28, 2005, reduced the 1,000,000 shares owned by Mr. Nunez to 250,000 shares and the 2,000,000 shares owned by Mr. Saltoun to 500,000 shares.
As disclosed elsewhere herein, Keyano acquired its shares through the Debt Conversion Agreement, dated November 22, 2005, pursuant to which we converted a $1million convertible promissory note in favor of Keyano, plus $63,750 of accrued interest into 5,318,750 shares of our common stock, a conversion rate of $0.20 per share. This issuance was made in reliance upon an exemption from registration requirements of the Securities Act afforded by Section 4(2) of the Securities Act for offers and sales of securities that do not involve a public offering. Since Mr. Saltoun, owns fifty percent of Keyano he is deemed to be the beneficial owner of these shares and vice versa, which combined with his 500,000 shares, aggregate to 5,818,750 shares of our common stock owned by Keyano.
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Omar Malheiro Silva Araújo and Manuel da Costa Fraguas acquired their shares on February 27, 2006, pursuant to our acquisition of 400,000 shares of ATN common stock, constituting 80% of ATN’s issued and outstanding capital stock, from Messrs. Araújo and Fraguas, in exchange for 2,000,000 shares our common stock. We issued these shares in reliance on the exemptions provided by Regulation S promulgated under the Securities Act.
We will not receive any of the proceeds from the sale of the shares by the selling stockholders. We have agreed to bear expenses incurred by the selling stockholders that relate to the registration of the shares being offered and sold by the selling stockholders, including the Commission’s registration fee and legal, accounting, printing and other expenses of this offering.
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The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.
Name | Age | Positions Held | Experience | |||
Elie Saltoun | 67 | Chairman, Chief Executive Officer, President and Treasurer since November 2004 | Elie Saltoun has served as our Chief Executive Officer, President and Treasurer, and as the Chairman of our board of directors since November 2004. Mr. Saltoun also served as our Secretary from July 2001 until he resigned to assume his current role with our Company. Since May 2005, Mr. Saltoun has also acted as a principal of Keyano Invest Inc., a corporate consulting firm based in Brazil. Mr. Saltoun is an expert at structuring complex foreign debt recoveries and debt to equity transactions. He has successfully coordinated the use and conversion of past due unpaid sovereign debt into equity in privatized Brazilian State-owned companies, and has supervised the purchase and swap of unpaid obligations from a State-owned reinsurance organization. | |||
Name | Age | Positions Held | Experience | |||
Jeffrey Nunez | 47 | Director and Secretary since November 2004 | During the period from our inception until November 4, 2004, Mr. Nunez was our director, Chief Executive Officer, President and Treasurer. He resigned from all of those positions (except he remained a director) on November 4, 2004 and on such date he was appointed as our Secretary. From September 2000 to October 2003, Jeffrey G. Nunez has served as the Senior Director of Investments and Operations at Chicago Investment Group, Inc. From October 2003 to present Mr. Nunez has been self employed acting as a consultant to public companies under the name Broad Street Capital. | |||
Omar Malheiro Silva Araújo | 52 | President, Chief Executive Officer and director of ATN since April 1997 | Mr. Araújo has been the President, Chief Executive Officer and director of our subsidiary ATN since April 1997. Mr. Araújo is the co-founder of ATN. From 1991 to 1997, Mr. Araújo served as the Chief Financial Officer and director of Cartao Unibanco Visa where he supervised the cash flow of the credit card division. Mr. Araújo has a MBA in Finance. |
Manuel da Costa Fraguas | 59 | General Manager and director of ATN since April 1997 | Mr. Fraguas has been the General Manager and director of our subsidiary ATN since its inception on April 1997. Mr. Fraguas is the co-founder of ATN. Mr. Fraguas has a master in Production Engineering. |
Title of Class | Name & Address of Beneficial Owner | Office, If Any | Amount & Nature of Beneficial Ownership1 | Percent of Class2 | |||||||||
Common Stock $0.001 par value | Omar Malheiro Silva Araújo 177 Av. Rio Branco, 7th Floor Rio de Janeiro, Brazil 20040-007 | President, Chief Executive Officer and director of ATN | 1,400,000 | 16.56 | % | ||||||||
Common Stock $0.001 par value | Manuel da Costa Fraguas 177 Av. Rio Branco, 7th Floor Rio de Janeiro, Brazil 20040-007 | General Manager and director of ATN | 600,000 | 7.10 | % | ||||||||
Common Stock $0.001 par value | Keyano Invest Inc. C/o VP Bank attention Mr. Diego Piccoli Bleicherweg 50 CH 8039 Zurich Switzerland | 5,818,750 | 3 | 68.81 | % | ||||||||
Common Stock $0.001 par value | Elie Saltoun 4500 Steiner Ranch Blvd. Suite 1708 Austin, Texas 78732 | President, CEO, Treasurer and Director | 5,818,750 | 3 | 68.81 | % | |||||||
Common Stock $0.001 par value | Jeffrey Nunez 4500 Steiner Ranch Blvd. Suite 1708 Austin, Texas 78732 | Secretary and Director | 250,000 | 2.96 | % | ||||||||
Common Stock $0.001 par value | All officers and directors as a group (2 persons named above) | 6,068,751 | 71.77 | % |
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We do not have outstanding any securities that are convertible to our common stock.
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On April 29, 2005, our stockholders approved a four for one reverse stock split which became effective on June 28, 2005.
· | increasing levels of consumer debt; |
· | increasing defaults of the underlying receivables; and |
· | increasing utilization of third-party providers to collect such receivables. |
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Our management team also includes statisticians that have developed models that guide our collection efforts and assist us in deciding the extent to which we believe we can successfully recover a charged-off or semi-performing receivable.
Collection Strategy
· | Call Centers. We maintain an inbound and outbound collection call center at ATN’s executive offices in Rio De Janeiro in Brazil. Our collections department is divided into two client teams, each team consisting of a collection manager and six or seven collection supervisors, each assigned to an individual client. Each collection supervisor is in charge of anywhere from 4 to 15 collectors. Collectors are trained to use a friendly but firm approach to assess the willingness of the customer to pay. They attempt to work with customers to evaluate sources and means of repayment to achieve a full or negotiated lump sum settlement or develop payment programs customized to the individual's ability to pay. In cases where a payment plan is developed, collectors encourage debtors to pay through automatic payment arrangements, if available. |
· | Legal Action. We generally outsource those accounts where it appears the debtor is able but unwilling to pay. We utilize lawyers that are independent from us, but who are located on our premises. These lawyers specialize in collection matters and we pay them a contingency fee on amounts collected. The name of the firm that we use is Andrada & Negreiros Associates. Prior to sending accounts to the law firm, our collectors communicate to the debtor our intention to have a lawyer evaluate the suitability of the account for litigation if payment arrangements cannot be established. |
· | Direct Mail. We have an in-house marketing team that develops mail campaigns. The mail campaigns generally offer debtors targeted discounts on their balance owed to encourage settlement of their accounts and provide us with a low cost recovery method. |
· | Removal from Restricted Lists. There are two restrictions imposed upon debtors in Brazil that fail to pay their debts when they come due. The first is called “Serasa”, which is a restriction imposed by every Brazilian bank. Such debtor’s names are put on the Serasa restricted list and no Brazilian Bank will provide them credit. The second restricted list is called “SPC”, which is a restriction imposed by Brazilian merchants. Once a debtor’s name is put on the SPC list, merchants will no longer provide the debtor with credit. Once we agree with the debtor on a payment program and the debtor makes the first installment towards such program, we notify our client that a payment has been made. The client then causes such debtor’s name to be removed from such lists. The removal of a debtor’s name from such lists is very beneficial to the debtor, who may then be able to obtain limited credit and who no longer has to suffer the other negative social effects of being on such lists. |
· | how to use the system; |
· | how to communicate with the client; |
· | scripts; and |
· | role playing. |
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The portfolios of consumer receivables that we service consist of one or more of the following types of consumer receivables:
· | charged-off receivables - accounts that have been written-off by the originators and may have been previously serviced by collection agencies; |
· | semi-performing receivables - accounts where the debtor is making partial or irregular monthly payments, but the accounts may have been written-off by the originators; and |
· | performing receivables - accounts where the debtor is making regular monthly payments that may or may not have been delinquent in the past. |
Our acquisition of ATN and its operations has had a large impact on our costs and our Management resources. Prior to our acquisition of ATN in February 2006, we were a shell company with no revenues. Accordingly, our Management dedicated only 25% of their time to our business and our general and administrative expenses were minor and related only to fulfilling our duties as a public company. Since our acquisition of ATN, our revenues have increased from $0 revenues in fiscal year 2005 to $2,512,205 in fiscal year 2006. However, our cost of sales have increased from $0 for fiscal year 2005 to $1,901,898 for fiscal year 2006, primarily due to increased expenses for salaries, telegraph and mail, and taxes, and our selling, general and administrative expenses increased from $100,026 in fiscal year 2005 to $1,447,267. We have updated our IT infrastructure and we are ready to support the acquisition and the handling up to 2,500,000 cases per month. Rather than dedicating only 25% of his time to our business, our President and Chief Executive Officer, Elie Saltoun, now dedicates 80% of his time to the management of our company. Mr. Saltoun, is an expert at structuring complex foreign debt recoveries. He has successfully coordinated the use and conversion of past due unpaid sovereign debt into equity in privatized Brazilian State-owned companies, and has supervised the purchase and swap of unpaid obligations from a State-owned reinsurance organization. His knowledge and contacts with banks, finance companies, and retail merchants are essential to our ability to acquire distressed assets as well to outsource receivables.
ATN’s long period of operations and its demonstrated capacity to process millions of receivables, large and small, have made ATN an attractive resource for customers desiring to secure their receivables. Our success rate is measured by how long an outstanding debt is past due as well as whether such debt has been categorized as a performing, semi-performing or charged-off item. On average we recover between 2.5% and 8% of face value of our debt. Due to our level of professionalism and our successful performance we believe that we are in the top 5% of businesses in this field in Brazil.
In order to further increase our revenue base and eliminate the uncertainty of our ability to continue as a going concern, with adequate capitalization, we plan to start using ATN’s consumer database and its vast experience in collections to start buying defaulted outstanding consumer loans and other assets, which are usually discounted to their legal principal balance or appraised value. We believe that the impact on our liquidity would be highly improved and we would have the opportunity to build our own short and long-term portfolio of restructured receivables. Purchased debts for our own account would also suppress the efforts and costs of collection monitoring and reporting back to original holders to the benefit of our bottom line.
Results of Operations
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Percentage | ||||
Increase | Increase | |||
Line Item | 3/31/07 | 3/31/06 | (Decrease) | (Decrease) |
Revenues | $639,192 | $696,341 | $(57,149) | (8.2) |
Net income (loss) | (175,166) | (34,562) | (140,604) | (406.82) |
Cost of Services | 411,989 | 319,219 | 92,770 | 29.06 |
Selling, General and | ||||
Administrative Expense | 294,972 | 370,718 | (75,746) | (20.43) |
Interest Expense | 55,954 | 19,341 | 36,613 | 189.3 |
Earnings (Loss) per | (.02) | (.01) | (.01) | 100.0 |
common share |
Percentage | |||||||||||||
Increase | Increase | ||||||||||||
12/31/06 | 12/31/05 | (Decrease) | (Decrease) | ||||||||||
Revenues | 2,512,205 | 0 | 2,512,205 | 100.00 | % | ||||||||
Cost of Sales | 1,901,898 | 0 | 1,901,898 | 100.00 | % | ||||||||
Selling, General and Administrative | 1,447,267 | 100,026 | 1,347,241 | 1346.89 | % | ||||||||
Other Expenses | 472,020 | 390,134 | 81,886 | 21.00 | % | ||||||||
Interest Income | 44,404 | 26,258 | 18,146 | 69.11 | % | ||||||||
Net Income (loss) | (1,264,576 | ) | (463,902 | ) | (800,674 | ) | 172.60 | % | |||||
Earnings (loss) per common share | (0.16 | ) | (0.27 | ) | 0.11 | 40.74 | % |
Fiscal Years Ended | Dollar Increase | Percentage Increase | |||||||||||
Line Item | 12/30/05 | 12/30/04 | (Decrease) | (Decrease) | |||||||||
Revenues | $ | 2,284,611 | $ | 1,747,955 | $ | 536,656 | 30.7 | % | |||||
Net income (loss) | $ | (414,783 | ) | $ | (539,411 | ) | 124,628 | 23.1 | % | ||||
Cost of Services | $ | 1,266,622 | $ | 1,069,480 | 197,142 | 18.4 | % | ||||||
Selling, General and Administrative Expense | 1,298,667 | 1,022,061 | 276,606 | 27.1 | % | ||||||||
Interest Expense | 74,959 | 118,645 | (43,686 | ) | (36.8 | )% | |||||||
Earnings (Loss) per common share | $ | (0.83 | ) | $ | (1.08 | ) | $ | .25 | 23.1 | % |
Three Months Ended March 31, | |||||||
2007 | 2006 | ||||||
Net Cash Provided (Used) By Operating Activities | (78,731 | ) | 148,231 | ||||
Net Cash Used in Investing Activities | (27,226 | ) | (51,331 | ) | |||
Net Cash Provided (Used) by Financing Activities | 27,764 | (14,897 | ) | ||||
Net decrease in Cash and Cash Equivalents | (199,468 | ) | (25,261 | ) | |||
Effect of Exchange Rate Change on Cash | (121,275 | ) | (107,264 | ) | |||
Cash and Cash Equivalents - Beginning of Period | 896,531 | 961,171 | |||||
Cash and Cash Equivalents - End of Period | 697,063 | 935,910 |
Year Ended December 31, | |||||||
2006 | 2005 | ||||||
Net Cash Provided (Used) by Operating Activities | (202,164 | ) | (85,069 | ) | |||
Net Cash Provided (Used) by Investing Activities | (154,159 | ) | (2,843 | ) | |||
Net Cash Provided (Used) by Financing Activities | 451,004 | 24,167 | |||||
Net increase (decrease) in Cash and Cash Equivalents | (44,278 | ) | (63,745 | ) | |||
Cash and Cash Equivalents - Beginning of Period | 940,809 | 1,004,554 | |||||
Cash and Cash Equivalents - End of Period | 896,531 | 940,809 |
· | Increase in accrued municipal taxes of $590,517 |
· | Increase in accounts payable of $108,059 |
· | Loss on disposal of assets of $175,757 |
· | Non cash items included in net loss of $160,062 |
We used $154,159 in cash from our investing activities during the year ended December 31, 2006 as compared to $2,843 used in the prior year. This increase is due primarily to the purchase of property and equipment for our office.
ATN Capital E Participações Ltda Fiscal Years Ended December 31, | |||||||
2005 | 2004 | ||||||
Net Cash Provided (Used) By Operating Activities | $ | 211,170 | $ | (13,134 | ) | ||
Net Cash Used in Investing Activities | (100,414 | ) | (67,032 | ) | |||
Net Cash Provided (Used) In Financing Activities | (91,760 | ) | 73,161 | ||||
Net increase (decrease) in Cash and Cash Equivalents | 11,229 | 26,268 | |||||
Cash and Cash Equivalents - Beginning of Period | 56,958 | 30,690 | |||||
Cash and Cash Equivalents - End of Period | $ | 45,729 | $ | 56,958 |
· | Increase in our accounts payable of $80,740; |
· | Increase in accrued taxes of $539,928; |
· | Increase in accrued payroll of $66,561; and |
· | Increase in accrued employee benefits of $53,747. |
· | Net loss of $414,783; |
· | Accounts receivable of $43,222; |
· | Return of capital advances of $97,066; and |
· | Decrease in accrued expenses of $55,658. |
We believe that we will be able to pay our normal and operating expenditures during the next twelve months with our cash reserves and additional cash generated from operations, and by reducing our accrued municipal services tax liability by restructuring such debt. We do not have any material capital commitments during the next twelve months, other than repayment of debt as it comes due, and we do not anticipate the issuance of additional debt (other than to refinance existing debt). We also do not anticipate any material changes in our operations during the next twelve months. As such, we believe that our current cash position is sufficient to retire our current short term debt as it comes due and, if we are successful in adequately restructuring of municipal services tax liability, we believe that cash generated from operations will be sufficient to pay our operating expenses during the next twelve months.
We had cash and cash equivalents of approximately $697,063 as of March 31, 2007 and we had short term liabilities in the amount of $3,214,247, as well as long term liabilities in the amount of $323,078 as of March 31, 2007. The Company intends to use its cash to retire current debt as it comes due as well as to pay operating expenses as necessary.
Although we had net losses of $1,264,576 and $175,166 for the year ended December 31, 2006 and the quarter ended March 31, 2007, respectively, and an accumulated deficit of $2,065,229 and negative working capital of $2,205,077 at March 31, 2007, material factors of the Company’s cumulative operating losses were (1) an increase in an accrual for municipal services taxes of $590,517 at December 31, 2006 and an additional $69,966 at March 31, 2007, and (2) a one-time non-cash charge of $340,400 taken in 2005 for the inducement of the Keyano note holders to convert their notes to stock. At December 31, 2006 and March 31, 2007, respectively, we used $202,164 and 78,731 of cash in our operations, which included the municipal service tax accruals and a one-time charge related to a disposal of fixed assets at December 31, 2006, net in the amount of $175,757.
-35-
The Company believes that all or a portion of the municipal services taxes, through negotiation, may be settled at a lower amount than is calculated in the financial statements. Such settlements may be structured in installments that may be extended over up to a ten-year period. Such a settlement and extended payment schedule would substantially improve the Company’s working capital position. However, we cannot provide assurances that such negotiations will yield a lower settlement.
If we are unable to successfully restructure our municipal services tax liability, or if we are required to make any material and unplanned expenditures during the next twelve months, the Company believes that it can raise additional capital in the equity markets through private placements in order to meet its short term cash requirements. The Company believes that such equity funding could also be used to liquidate all or a portion of the Company’s current bank loans, pay accrued municipal services taxes or pay other operating expenses. However, we can provide no assurances that we will be able to raise additional capital in the equity markets on favorable terms, if at all or on a timely basis.
Acquisition of ATN
-36-
Total loans outstanding | $ | 444,777 | ||
121,699 | ||||
Long-term portion | $ | 323,078 |
Our executive offices in the U.S.A. are located at 4500 Steiner Ranch Boulevard, Suite 1708, Austin, Texas 78732. This space is the residence of our Secretary and we utilize the space on a rent-free basis pursuant to a verbal understanding with our Secretary.
-37-
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation Earnings ($) | Non- qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
Elie Saltoun CEO | 2006 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Jeffrey Nunez Secretary | 2006 | 0 | 0 | 0 | 0 | 0 | 0 | 15,000 | (1) | 0 |
-38-
Outstanding Equity Awards at Fiscal Year End
Additional Narrative Disclosures
Page | ||
INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS OF LEXICON UNITED INCORPORATED AND SUBSIDIARY FOR THE THREE MONTHS ENDED MARCH 31, 2007 | F-2 | |
Consolidated Balance Sheet as of March 31, 2007 | F-3 | |
Consolidated Statements of Operations for the Three Months Ended March 31, 2007 | F-5 | |
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 | F-6 | |
Notes to Consolidated Financial Statements | F-8 | |
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF LEXICON UNITED INCORPORATED AND SUBSIDIARY | F-8 | |
Report of Independent Registered Public Accounting Firm | F-9 | |
Balance Sheets as of December 31, 2006 and 2005 | F-10 | |
Statements of Operations for the Years Ended December 31, 2006 and 2005 | F-11 | |
Statements of Cash Flows for the Years Ended December 31, 2006 and 2005 | F-12 | |
Statement of Stockholder’ Equity at December 31, 2006 | F-14 | |
Notes to Financial Statements | F-15 | |
AUDITED FINANCIAL STATEMENTS OF ATN CAPITAL E PARTICIPAÇÕES, LTDA. | F-23 | |
Report of Independent Registered Public Accounting Firm | F-24 | |
Balance Sheets as of December 31, 2005 and 2004 | F-25 | |
Statements of Operations for the years ended December 31, 2005 and 2004 | F-26 | |
Statements of Cash Flows for the years ended December 31, 2005 and 2004 | F-27 | |
Statement of Stockholders’ Deficit at December 31, 2005 | F-28 | |
Notes to Financial Statements | F-29 |
March 31, | December 31, | ||||||
2007 | 2006 | ||||||
(Unaudited) | |||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | 697,063 | $ | 896,531 | |||
Accounts Receivable | 207,081 | 198,236 | |||||
Other receivables | 104,114 | 95,929 | |||||
Prepaid expenses | 912 | 2,187 | |||||
Total current assets | 1,009,170 | 1,192,883 | |||||
FIXED ASSETS | |||||||
Equipment, net of accumulated depreciation of $312,529 and | |||||||
$273,845 at March 31, 2007 and December 31, 2006, | |||||||
respectively | 643,072 | 581,633 | |||||
OTHER ASSETS | |||||||
Customer Lists, net of amortization of $64,215 and $51,372 at | 449,518 | 462,361 | |||||
March 31,2007 and December 31, 2006, respectively | |||||||
Tradenames, net of amortization of $27,521 and $22,017 at | 192,650 | 198,154 | |||||
March 31,2007 and December 31, 2006, respectively | |||||||
Goodwill | 853,141 | 853,141 | |||||
Total other assets | 1,495,309 | 1,513,656 | |||||
TOTAL ASSETS | $ | 3,147,551 | $ | 3,288,172 | |||
CURRENT LIABILITIES | |||||||
Loans payable to banks | $ | 646,475 | $ | 621,052 | |||
Current portion of long term debt | 121,699 | 76,254 | |||||
Accounts Payable | 139,613 | 191,528 | |||||
Accrued Expenses | 271,582 | 235,496 | |||||
Accrued Municipal Service Taxes | 1,707,584 | 1,637,618 | |||||
Accrued Payroll | 177,907 | 170,618 | |||||
Accrued Employee Benefits | 149,387 | 143,266 | |||||
Total Current Liabilities | 3,214,247 | 3,075,832 | |||||
LONG TERM LIABILITIES | |||||||
Long term debt | 323,078 | 329,712 | |||||
Total Long Term Liabilities | 323,078 | 329,712 | |||||
TOTAL LIABILITIES | 3,537,325 | 3,405,544 | |||||
STOCKHOLDERS' EQUITY (DEFICIT) | |||||||
Preferred stock $0.001 par value, 10,000,000 | |||||||
shares authorized, -0- shares issued and outstanding | - | - | |||||
Common stock $0.001 par value, 40,000,000 | |||||||
shares authorized, 8,456,250 | |||||||
issued and outstanding in March 31, 2007 and | |||||||
December 31, 2006, respectively | 8,456 | 8,456 | |||||
Paid in capital | 1,903,194 | 1,903,194 | |||||
Accumulated deficit | (2,065,229 | ) | (1,890,063 | ) | |||
Accumulated other comprehensive loss | (236,195 | ) | (138,959 | ) | |||
Total Stockholders' Equity (deficit) | (389,774 | ) | (117,372 | ) | |||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 3,147,551 | $ | 3,288,172 |
See accompanying notes to financial statements |
Three Months Ended | |||||||
March 31 | |||||||
2007 | 2006 | ||||||
REVENUE | |||||||
Service revenue | $ | 639,192 | $ | 696,341 | |||
COST OF SERVICES | 411,989 | 319,219 | |||||
GROSS PROFIT | 227,203 | 377,122 | |||||
COSTS AND EXPENSES | |||||||
Selling, general and administrative | 294,972 | 370,718 | |||||
Interest expense | 55,954 | 19,341 | |||||
Depreciation | 26,296 | 17,853 | |||||
Amortization | 18,347 | - | |||||
Rental expenses | 8,826 | 13,127 | |||||
Other taxes | 9,277 | 6,219 | |||||
Total costs and expenses | 413,672 | 427,258 | |||||
OPERATING INCOME (LOSS) | (186,469 | ) | (50,136 | ) | |||
OTHER INCOME(EXPENSE) | |||||||
Interest income | 7,317 | 9,364 | |||||
Net Financial Revenue | 3,986 | 9,569 | |||||
Miscellaneous | 0 | (24 | ) | ||||
11,303 | 18,909 | ||||||
LOSS BEFORE INCOME TAX AND SOCIAL | |||||||
CONTRIBUTION | (175,166 | ) | (31,227 | ) | |||
Income tax and social contribution | 0 | 3,335 | |||||
NET LOSS | $ | (175,166 | ) | $ | (34,562 | ) | |
NET LOSS PER COMMON SHARE | $ | (0.02 | ) | $ | (0.01 | ) | |
WEIGHTED AVERAGE COMMON SHARES | |||||||
OUTSTANDING | 8,456,250 | 8,456,250 |
See accompanying notes to financial statements |
Three Months Ended | |||||||
March 31 | |||||||
2007 | 2006 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net loss | $ | (175,166 | ) | $ | (34,562 | ) | |
Noncash items included in net loss | |||||||
Depreciation and amortization | 26,296 | 33,873 | |||||
Amortization of intangibles | 18,347 | - | |||||
Decrease (increase) in assets: | |||||||
Accounts receivable | (8,845 | ) | 93,332 | ||||
Other receivables | (8,185 | ) | 41,511 | ||||
Prepaid expenses | 1,275 | 4,876 | |||||
Increase (decrease) in liabilities: | |||||||
Accounts payable | (51,915 | ) | 40,541 | ||||
Accrued expenses | 36,086 | (31,340 | ) | ||||
Accrued municipal service taxes | 69,966 | - | |||||
Accrued payroll | 7,289 | - | |||||
Accrued employee benefits | 6,121 | - | |||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (78,731 | ) | 148,231 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Purchase of fixed assets | (27,226 | ) | (49,809 | ) | |||
Short-term investments | - | (1,522 | ) | ||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (27,226 | ) | (51,331 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Repayment of loans | (15,656 | ) | (14,897 | ) | |||
Proceeds from new loans | 43,420 | ||||||
- | |||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 27,764 | (14,897 | ) | ||||
EFFECT OF EXCHANGE RATE OF CASH | (121,275 | ) | (107,264 | ) | |||
NET DECREASE IN CASH | (199,468 | ) | (25,261 | ) | |||
CASH, beginning of period | 896,531 | 961,171 | |||||
CASH, end of period | $ | 697,063 | $ | 935,910 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||
Interest paid | $ | 55,954 | $ | 19,341 | |||
NON-CASH ACTIVITIES | |||||||
Notes payable incurred for purchase of fixed assets | $ | 36,470 | $ | - |
See accompanying notes to financial statements |
NOTE E – ADOPTION OF FIN 48
During the quarter ended March 31, 2007, the Company adopted the provisions of FIN 48, "Accounting for Income Tax Uncertainties" with no material impact.
December 31, | |||||||
2006 | 2005 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 896,531 | $ | 940,809 | |||
Accounts receivable | 198,236 | ||||||
Other receivables | 95,929 | ||||||
Prepaid expenses | 2,187 | ||||||
Total Current Assets | 1,192,883 | 940,809 | |||||
FIXED ASSETS, net of accumulated depreciation | |||||||
of $273,845 and $284 in 2006 and 2005, respectively | 581,633 | 2,559 | |||||
OTHER ASSETS | |||||||
Customer lists, net of amortization of $51,372 | 462,361 | ||||||
Trade names, net of amortization of $22,017 | 198,154 | ||||||
Goodwill | 853,141 | ||||||
Total Other Assets | 1,513,656 | ||||||
TOTAL ASSETS | $ | 3,288,172 | $ | 943,368 | |||
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT) | |||||||
CURRENT LIABILITIES | |||||||
Loans payable to banks | $ | 621,052 | |||||
Current portion of long term debt | 76,254 | ||||||
Accounts payable | 191,528 | ||||||
Loans payable to officer | $ | 55,467 | |||||
Accrued expenses | 235,496 | 1,738 | |||||
Accrued municipal service taxes | 1,637,618 | ||||||
Accrued payroll | 170,618 | ||||||
Accrued employee benefits | 143,266 | ||||||
Total Current Liabilities | 3,075,832 | 57,205 | |||||
LONG TERM LIABILITIES | |||||||
Long term debt | 329,712 | ||||||
Total Long Term Liabilities | 329,712 | ||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
Preferred stock $0.001 par value, 10,000,000 Shares authorized, none issued and outstanding | |||||||
Common stock, $0.001 par value 40,000,000 shares authorized, 8,456,250 and 6,456,250 issued and outstanding at December 31, 2006 and 2005, respectively | 8,456 | 6,456 | |||||
Paid in capital | 1,903,194 | 1,505,194 | |||||
Accumulated deficit | (1,890,063 | ) | (625,487 | ) | |||
Accumulated other comprehensive loss | (138,959 | ) | |||||
Total Stockholders’ Equity (Deficit) | (117,372 | ) | 886,163 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
(DEFICIT) | $ | 3,288,172 | $ | 943,368 |
LEXICON UNITED INCORPORATED AND SUBSIDIARY
For the year Ended | |||||||
December 31, | |||||||
2006 | 2005 | ||||||
(Restated) | |||||||
REVENUE | |||||||
Service revenues | $ | 2,512,205 | |||||
Total Revenue | $ | 2,512,205 | |||||
COST OF SERVICES | 1,901,898 | ||||||
GROSS PROFIT | 610,307 | ||||||
COSTS AND EXPENSES | |||||||
Debt conversion expense | $ | 340,400 | |||||
Selling, general and administrative | 1,447,267 | 100,026 | |||||
Interest expense | 108,893 | 44,450 | |||||
Stock based compensation | 5,000 | ||||||
Loss on disposal of fixed assets | 203,065 | ||||||
Depreciation | 86,673 | 284 | |||||
Amortization | 73,389 | ||||||
TOTAL COSTS AND EXPENSES | 1,919,287 | 490,160 | |||||
OTHER INCOME (EXPENSE) | |||||||
Interest income and other | 44,404 | 26,258 | |||||
Total Other Income (Expense) | 44,404 | 26,258 | |||||
NET LOSS | $ | (1,264,576 | ) | $ | (463,902 | ) | |
NET LOSS PER COMMON SHARE | $ | (0.16 | ) | $ | (0.27 | ) | |
WEIGHTED AVERAGE COMMON SHARES | |||||||
OUTSTANDING | 8,143,921 | 1,695,445 |
For the year Ended | |||||||
December 31, | |||||||
2006 | 2005 | ||||||
(Restated) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | $ | (1,264,576 | ) | $ | (463,902 | ) | |
Net loss | |||||||
Noncash items included in net loss: | |||||||
Depreciation | 86,673 | 284 | |||||
Stock based compensation | 5,000 | ||||||
Debt conversion expense | 340,400 | ||||||
Disposal of fixed assets, net | 175,757 | ||||||
Amortization of intangibles | 73,389 | ||||||
Decrease (increase) in assets and liabilities: | |||||||
Accounts receivable | 215 | ||||||
Other receivables | (21,487 | ) | |||||
Prepaid expenses | 10,643 | ||||||
Increase (decrease) in liabilities: | |||||||
Accounts payable | 108,059 | (10,957 | ) | ||||
Accrued expenses | (50,371 | ) | (19,644 | ) | |||
Accrued municipal service taxes | 590,517 | ||||||
Accrued interest | 63,750 | ||||||
Accrued payroll | 41,968 | ||||||
Accrued employee benefits | 47,049 | ||||||
Capital advances to be returned | |||||||
Net Cash Provided (Used) by Operating Activities | (202,164 | ) | (85,069 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Cash received in acquisition | 45,729 | ||||||
Purchase of fixed assets | (199,888 | ) | (2,843 | ) | |||
Net Cash Provided (Used) by Investing Activities | (154,159 | ) | (2,843 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Loans payable (repayments) to officer | (55,467 | ) | 43,467 | ||||
Interest payable to officer | (19,300 | ) | |||||
Repayment of long term debt | (18,961 | ) | |||||
Loans from financial institutions | 525,432 | ||||||
Net Cash Provided (Used) in Financing Activities | 451,004 | 24,167 | |||||
EFFECT OF EXCHANGE RATE OF CASH | (138,959 | ) | |||||
Net Decrease in Cash | (44,278 | ) | (63,745 | ) | |||
CASH, beginning of period | 940,809 | 1,004,554 | |||||
CASH, end of period | $ | 896,531 | $ | 940,809 |
Interest paid | $ | 108,893 | $ | 119,409 | |||
Non cash items | |||||||
Conversion of promissory notes | 1,000,000 | ||||||
Purchase of furniture and equipment | 150,556 | ||||||
Purchase of office facility | 176,489 | ||||||
Assets acquired and liabilities assumed in | |||||||
acquisition of subsidiary | |||||||
Cash | $ | 45,729 | |||||
Clients | 198,451 | ||||||
Accounts receivable | 1,215,985 | ||||||
Equipment | 539,651 | ||||||
Accumulated depreciation | (224,802 | ) | |||||
Taxes recoverable | 66,218 | ||||||
Prepaid expenses | 12,830 | ||||||
Other assets | 8,224 | ||||||
Customer lists | 513,733 | ||||||
Tradenames | 220,171 | ||||||
Goodwill | 853,141 | ||||||
Agreements payable | 1,272,396 | ||||||
Accounts payable | 83,469 | ||||||
Accrued expenses | 149,839 | ||||||
Loans payable | 193,780 | ||||||
Taxes payable | 1,349,847 | ||||||
Issuance of common stock | 400,000 |
Common Stock | Additional Contributed | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||
Shares | Amount | Capital | Deficit | Income (Loss) | Total | ||||||||||||||
Balance, December 31, 2004 | 1,112,500 | $ | 1,112 | $ | 101,388 | $ | (161,585 | ) | $ | (59,085 | ) | ||||||||
Conversion of promissory note (effective November 22, 2005) | 5,318,750 | 5,319 | 1,398,831 | 1,404,150 | |||||||||||||||
Stock based compensation(effective October 31, 2005) | 25,000 | 25 | 4,975 | 5,000 | |||||||||||||||
Net loss for year ended December 31, 2005 | (463,902 | ) | (463,902 | ) | |||||||||||||||
Balance, December 31, 2005 | 6,456,250 | 6,456 | 1,505,194 | (625,487 | ) | 886,163 | |||||||||||||
Issuance of common stock for purchase of | |||||||||||||||||||
ATN Capital E Participacoes Ltda | 2,000,000 | 2,000 | 398,000 | 400,000 | |||||||||||||||
Net loss for the year ended December 31, 2006 | (1,264,576 | ) | (1,264,576 | ) | |||||||||||||||
Adjustments from exchange rate changes | $ | (138,959 | ) | (138,959 | ) | ||||||||||||||
Balance, December 31, 2006 | 8,456,250 | $ | 8,456 | $ | 1,903,194 | $ | (1,890,063 | ) | $ | (138,959 | ) | $ | (117,372 | ) |
As Reported | As Restated | ||||||
Consolidated Statement of Operations | |||||||
Costs and expenses: | |||||||
Loss on disposal of fixed assets | $ | 203,065 | (A) | ||||
Cash Flow Statement | |||||||
Purchase of fixed assets | $ | 526,655 | 199,888 | (B) | |||
Loans payable (repayments) to officer | 55,467 | (B) | |||||
Repayment of long term debt | 18,961 | (B) | |||||
Loans from financial institutions | 777,771 | 525,432 | (B) | ||||
Non-cash items: | |||||||
Purchase of furniture and equipment | 150,278 | (B) | |||||
Purchase of office equipment | 176,489 | (B) |
(B) | Certain purchases of fixed assets considered non-cash transactions and gross-up of borrowings and repayments. |
Cash | $ | 45,729 | ||
Accounts receivable | 198,451 | |||
Other receivables | 74,442 | |||
Prepaid expenses | 12,830 | |||
Fixed assets | 314,849 | |||
Customer lists | 513,733 | |||
Tradenames | 220,171 | |||
Liabilities assumed | (1,833,346 | ) | ||
$ | (453,141) | |||
80% acquisition | $ | 362,513 | ||
Purchase price | 400,000 | |||
Goodwill | 762,513 | |||
20% negative minority interest in | ||||
common stock of ATN | 90,628 | |||
Net Goodwill | $ | 853,141 |
Lexicon | ATN | Combined | ||||||||
Revenue | $ | 2,284,611 | $ | 2,284,611 | ||||||
Cost of services | 1,266,622 | 1,266,622 | ||||||||
Gross profit | 1,017,989 | 1,017,989 | ||||||||
Cost and expenses | $ | 490,160 | 1,432,772 | 1,922,932 | ||||||
Other income | 26,258 | 26,258 | ||||||||
Net loss | $ | (463,902 | ) | $ | (414,783 | ) | $ | (878,685 | ) | |
Net loss per common share | $ | (0.27 | ) | $ | (0. 24 | ) | ||||
Weighted average shares outstanding | 1,695,445 | 3,695,445 | * |
December 31 | Estimated Useful Life | |||||||||
2006 | 2005 | |||||||||
Building | $ | 210,477 | 25 years | |||||||
Office furniture and equipment | 561,896 | $ | 2,843 | 10 years | ||||||
Leasehold improvements | 83,104 | 25 years | ||||||||
855,477 | 2,843 | |||||||||
Less accumulated depreciation | 273,844 | 284 | ||||||||
$ | 581,633 | $ | 2,559 |
Total loans outstanding | $ | 405,966 | ||
Less: current portion | 76,254 | |||
Long-term portion | $ | 329,712 |
2008 | $ | 96,708 | ||
2009 | 72,471 | |||
2010 | 50,100 | |||
2011 | 43,074 | |||
2012 and thereafter | 67,359 | |||
Total | $ | 329,712 |
MEYLER & COMPANY, LLC
ATN CAPITAL E PARTICIPAÇÕES, LTDA. | |||||
BALANCE SHEETS |
December 31, | |||||||
2005 | 2004 | ||||||
(restated) | |||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | 45,729 | $ | 56,958 | |||
Accounts Receivable | 198,451 | 155,229 | |||||
Other receivables | 74,442 | 98,562 | |||||
Prepaid expenses | 12,830 | 10,487 | |||||
Total current assets | 331,452 | 321,236 | |||||
FIXED ASSETS | |||||||
Equipment, net of accumulated depreciation | |||||||
of $223,690 and $164,544, respectively | 314,849 | 273,581 | |||||
TOTAL ASSETS | $ | 646,301 | $ | 594,817 | |||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
CURRENT LIABILITIES | |||||||
Current portion loans payable to banks | $ | 173,574 | $ | 241,252 | |||
Accounts Payable | 83,469 | 2,729 | |||||
Accrued Expenses | 284,129 | 339,787 | |||||
Accrued Municipal Service Taxes | 1,047,101 | 507,173 | |||||
Accrued Payroll | 128,650 | 62,089 | |||||
Accrued Employee Benefits | 96,217 | 42,470 | |||||
Capital advances to be returned | - | 97,066 | |||||
Total current liabilities | 1,813,140 | 1,292,566 | |||||
LONG TERM PORTION OF LOANS PAYABLE TO BANKS | 20,206 | 44,288 | |||||
TOTAL LIABILITIES | 1,833,346 | 1,336,854 | |||||
STOCKHOLDERS' DEFICIT | |||||||
Common Stock, par value R$1.00 per share, | |||||||
500,000 shares authorized and outstanding | 382,919 | 382,919 | |||||
Accumulated deficit | (1,285,108 | ) | (870,325 | ) | |||
Accumulated other comprehensive loss | (284,856 | ) | (254,631 | ) | |||
TOTAL STOCKHOLDERS' DEFICIT | (1,187,045 | ) | (742,037 | ) | |||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 646,301 | $ | 594,817 |
ATN CAPITAL E PARTICIPAÇÕES, LTDA. | ||||
STATEMENTS OF OPERATIONS |
For the Years Ended | |||||||
December 31, | |||||||
2005 | 2004 | ||||||
(restated) | |||||||
SERVICE REVENUE | $ | 2,284,611 | $ | 1,747,955 | |||
COST OF SERVICES | 1,266,622 | 1,069,480 | |||||
GROSS PROFIT | 1,017,989 | 678,475 | |||||
COSTS AND EXPENSES | |||||||
Selling, general and administrative | 1,298,667 | 1,022,061 | |||||
Interest expense | 74,959 | 118,645 | |||||
Depreciation | 59,146 | 77,180 | |||||
Total costs and expenses | 1,432,772 | 1,217,886 | |||||
NET LOSS | $ | (414,783 | ) | $ | (539,411 | ) | |
NET LOSS PER COMMON SHARE | $ | (0.83 | ) | $ | (1.08 | ) | |
WEIGHTED AVERAGE COMMON SHARES | |||||||
OUTSTANDING | 500,000 | 500,000 |
ATN CAPITAL E PARTICIPAÇÕES, LTDA. | ||||
STATEMENTS OF CASH FLOWS |
For the Years Ended | |||||||
December 31, | |||||||
2005 | 2004 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | (restated) | ||||||
Net loss | $ | (414,783 | ) | $ | (539,411 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) | |||||||
operating activities | |||||||
Depreciation | 59,146 | 77,180 | |||||
Decrease (increase) in assets: | |||||||
Accounts receivable | (43,222 | ) | (79,481 | ) | |||
Other receivables | 24,120 | (7,003 | ) | ||||
Prepaid expenses | (2,343 | ) | 7,058 | ||||
Increase (decrease) in liabilities: | |||||||
Accounts payable | 80,740 | 1,753 | |||||
Accrued expenses | (55,658 | ) | 174,291 | ||||
Accrued Taxes | 539,928 | 420,128 | |||||
Accrued Payroll | 66,561 | - | |||||
Accrued Employee Benefits | 53,747 | - | |||||
Capital advances to be returned | (97,066 | ) | (41,381 | ) | |||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 211,170 | 13,134 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Purchase of fixed assets | (100,414 | ) | (67,032 | ) | |||
NET CASH USED IN INVESTING ACTIVITIES | (100,414 | ) | (67,032 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Loans from financial institutions, net of repayments | (91,760 | ) | 73,161 | ||||
NET CASH (USED IN) PROVIDED BY FINANCING | |||||||
ACTIVITIES | (91,760 | ) | 73,161 | ||||
EFFECT OF EXCHANGE RATE ON CASH | (30,225 | ) | 7,005 | ||||
NET (DECREASE) INCREASE IN CASH | (11,229 | ) | 26,268 | ||||
CASH, beginning of year | 56,958 | 30,690 | |||||
CASH, end of year | $ | 45,729 | $ | 56,958 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||
Interest paid | $ | 74,959 | $ | 118,645 |
ATN CAPITAL E PARTICIPAÇÕES, LTDA. | ||||
STATEMENT OF STOCKHOLDERS’ DEFICIT | ||||
DECEMBER 31, 2005 |
Common | Accumulated | Comprehensive | |||||||||||
Stock | Deficit | Loss | Total | ||||||||||
Balance, December 31, 2003 | $ | 382,919 | $ | (330,914 | ) | $ | (261,636 | ) | $ | (209,631 | ) | ||
Net loss for the year ended December 31, 2004 | (539,411 | ) | (539,411 | ) | |||||||||
Change in comprehensive loss | 7,005 | 7,005 | |||||||||||
Balance, December 31, 2004 | 382,919 | (870,325 | ) | (254,631 | ) | (742,037 | ) | ||||||
Net loss for the year ended December 31, 2005 | (414,783 | ) | (414,783 | ) | |||||||||
Change in comprehensive loss | (30,225 | ) | (30,225 | ) | |||||||||
Balance, December 31, 2005 | $ | 382,919 | $ | (1,285,108 | ) | $ | (284,856 | ) | $ | (1,187,045 | ) |
December 31, 2004 | ||||||||||
As Reported | As Restated | |||||||||
Accrued expenses | $ | 159,782 | $ | 339,787 | (A) | |||||
Accrued municipal tax | 507,173 | (A) | ||||||||
Accrued payroll | 62,089 | (A) | ||||||||
Accrued employee benefits | 42,470 | |||||||||
Accrued payable to credit | ||||||||||
card companies | 180,000 | (A) | ||||||||
Accrued contingent capital | 187,000 | (A) | ||||||||
Accumulated deficit | 449,294 | 870,325 | (A)(B)(C) |
Year End December 31, 2004 | ||||||||||
As Reported | As Restated | |||||||||
Revenues | $ | 1,633,964 | $ | 1,747,955 | (B) | |||||
Cost of services | 881,512 | 1,069,480 | (A) | |||||||
General and administrative | 940,251 | 1,022,061 | (A) | |||||||
Interest expense | 17,132 | 118,645 | (C) | |||||||
Depreciation | 53,157 | 77,180 | (C) |
(A) | The company in reviewing the municipal service tax accruals realized that in 2004 and 2003, the Company had understated the accruals and in 2005 adjusted its financial statements. The municipal service tax is the local tax paid to municipalities. In 2004 and 2003, the Company allocated too much revenue to a jurisdiction with a significantly lower tax rate. Accordingly, the affected payroll taxes and benefits for the employees associated with the respective offices and had to be adjusted. |
(B) | As a result of reviewing the municipal service tax accruals, certain commission revenues were included in cost of service. Accordingly, the revenues were reclassified. |
(C) | Reclassified from general and administrative expenses. |
December 31, | |||||||||||||
2005 | 2004 | ||||||||||||
Office equipment, primarily computers | $ | 299,778 | $ | 230,118 | |||||||||
Leasehold improvements | 238,761 | 208,007 | |||||||||||
538,539 | 438,125 | ||||||||||||
Less accumulated depreciation | 223,690 | 164,544 | |||||||||||
$ | 314,849 | $ | 273,581 |
December 31, | |||||||||||||
2005 | 2004 | ||||||||||||
Total loans outstanding | $ | 193,780 | $ | 285,540 | |||||||||
Less:current portion | 173,574 | 241,252 | |||||||||||
Long-term portion | $ | 20,206 | $ | 44,288 |
Amount to be | ||||
Paid | ||||
SEC Registration Fee | $ | 154 | ||
Printing Fees and Expenses | 4,500 | |||
Legal Fees and Expenses | 80,000 | |||
Accounting Fees and Expenses | 60,000 | |||
Miscellaneous | 3,000 | |||
Total | $ | 147,654 |
Exhibit No. | Description | |
2.1 | Share Exchange Agreement, dated December 12, 2005, among the registrant, ATN Capital E Participações Ltda, Omar Malheiro Silva Araújo and Manuel da Costa Fraguas (incorporated by reference to Exhibit 10.1 in the registrant’s current report on Form 8-K filed on December 16, 2005) | |
2.2 | Amendment No. 1 to Share Exchange Agreement, dated January 18, 2006, among the registrant, ATN Capital E Participações Ltda, Omar Malheiro Silva Araújo and Manuel da Costa Fraguas (incorporated by reference to Exhibit 10.1 in the registrant’s current report on Form 8-K filed on January 23, 2006) | |
3.1 | Certificate of Incorporation of the registrant as filed with the Secretary of State of the State of Delaware on July 17, 2001 (incorporated by reference to Exhibit 2.1 in the registrant’s Form 10-SB filed on August 28, 2001) | |
3.2 | Bylaws of the registrant adopted on July 17, 2001 (incorporated by reference to Exhibit 2.2 in the registrant’s Form 10-SB filed on August 28, 2001) | |
5* | Opinion of Thelen Reid Brown Raysman & Steiner LLP as to the legality of the shares | |
10.1 | Debt Conversion Agreement, dated November 22, 2005, between the registrant and Keyano Invest Inc. (incorporated by reference to Exhibit 10.1 in the registrant’s current report on Form 8-K filed on November 28, 2005) | |
10.2 | Lease Agreement between the Company and Santa Casa da Misericórdia do Rio de Janeiro dated May 2, 2005 (incorporated by reference to Exhibit 10.2 in the registrant’s current report on Form 8-K filed on February 27, 2006) | |
14 | Code of Ethics (incorporated by reference to Exhibit 14 in the registrant’s annual report for the fiscal year of 2003 filed on February 15, 2005) | |
21* | List of Subsidiaries of the Registrant | |
23.1* | Consent of Meyler & Company, LLC, certified public accountants, Middletown, New Jersey re Lexicon United Incorporated | |
23.2* | Consent of Meyler & Company, LLC, certified public accountants, Middletown, New Jersey re ATN Capital E Participações Ltda. | |
23.3 | Consent of Thelen Reid Brown Raysman & Steiner LLP, included in exhibit 5 |
* | Indicates that an Exhibit is being filed with this amended registration statement. |
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: |
(i) | include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
(ii) | reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
(iii) | include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; |
(2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
LEXICON UNITED INCORPORATED | ||
| | |
By: | /s/ Elie Saltoun | |
Elie Saltoun Chief Executive Officer, President and Treasurer | ||
Signature | Title | Date | ||
/s/ Elie Saltoun | Chief Executive Officer, President, Treasurer | June 29, 2007 | ||
Elie Saltoun | and Director (Principal Executive Officer and Principal | |||
Accounting and Financial Officer) | ||||
/s/ Jeffrey G. Nunez | Secretary and Director | June 29, 2007 | ||
Jeffrey G. Nunez |
Exhibit No. | Description |
2.1 | Share Exchange Agreement, dated December 12, 2005, among the registrant, ATN Capital E Participações Ltda, Omar Malheiro Silva Araújo and Manuel da Costa Fraguas (incorporated by reference to Exhibit 10.1 in the registrant’s current report on Form 8-K filed on December 16, 2005) |
2.2 | Amendment No. 1 to Share Exchange Agreement, dated January 18, 2006, among the registrant, ATN Capital E Participações Ltda, Omar Malheiro Silva Araújo and Manuel da Costa Fraguas (incorporated by reference to Exhibit 10.1 in the registrant’s current report on Form 8-K filed on January 23, 2006) |
3.1 | Certificate of Incorporation of the registrant as filed with the Secretary of State of the State of Delaware on July 17, 2001 (incorporated by reference to Exhibit 2.1 in the registrant’s Form 10-SB filed on August 28, 2001) |
3.2 | Bylaws of the registrant adopted on July 17, 2001 (incorporated by reference to Exhibit 2.2 in the registrant’s Form 10-SB filed on August 28, 2001) |
5* | Opinion of Thelen Reid Brown Raysman & Steiner LLP as to the legality of the shares |
10.1 | Debt Conversion Agreement, dated November 22, 2005, between the registrant and Keyano Invest Inc. (incorporated by reference to Exhibit 10.1 in the registrant’s current report on Form 8-K filed on November 28, 2005) |
10.2 | Lease Agreement between the Company and Santa Casa da Misericórdia do Rio de Janeiro dated May 2, 2005 (incorporated by reference to Exhibit 10.2 in the registrant’s current report on Form 8-K filed on February 27, 2006) |
14 | Code of Ethics (incorporated by reference to Exhibit 14 in the registrant’s annual report for the fiscal year of 2003 filed on February 15, 2005) |
21* | List of Subsidiaries of the Registrant |
23.1* | Consent of Meyler & Company, LLC, certified public accountants, Middletown, New Jersey re Lexicon United Incorporated |
23.2* | Consent of Meyler & Company, LLC, certified public accountants, Middletown, New Jersey re ATN Capital E Participações Ltda. |
23.3 | Consent of Thelen Reid Brown Raysman & Steiner LLP, included in exhibit 5 |
* | Indicates that an Exhibit is being filed with this amended registration statement. |