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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission File number 000-24721
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LEXON Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 870502701
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 Brook Drive, Downers Grove, Illinois 60515
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 916-6196
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 5, 2000, the aggregate market value of LEXON's Common Stock
held by non-affiliates, based upon the average bid and asked price for such
common stock, was approximately $7,086,025.50.
As of April 5, 2000, there were 13,542,561 shares of Common Stock, par
value $.001 per share, outstanding.
The Index to Exhibits appears on page 49.
Documents Incorporated by Reference
The registrant's definitive 2000 Proxy Statement which will be filed
pursuant to Regulation 14A is incorporated by reference into Part III of this
Annual Report on Form 10-K.
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LEXON Technologies, Inc.
1999 Form 10-K Annual Report
TABLE OF CONTENTS
Page
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PART I
Item 1. Business......................................................................................1
Item 2. Properties....................................................................................9
Item 3. Legal Proceedings.............................................................................9
Item 4. Submissions of Matters to a Vote of Security Holders..........................................9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................10
Item 6. Selected Financial Data......................................................................19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................27
Item 8. Financial Statements and Supplementary Data..................................................28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........43
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................43
Item 11. Executive Compensation.......................................................................43
Item 12. Security Ownership of Certain Beneficial Owners and Management..............................43
Item 13. Certain Relationships and Related Transactions...............................................43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports .........................................44
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The following trademarks and service marks appear in this Annual
Report: The National Atlas of the United States of America(TM); The National
Atlas of the United States(TM); Precision Mapping(TM) Streets; Precision
Mapping(TM) Traveler; Precision Mapping(TM) Quick-Finder; MapOCX(TM) (USA);
MapOCX(TM) (Canada); MapOCX(TM) (USA); MapOCX(TM) Pro (USA); MapOCX(TM) (South
Africa); Precision Mapping(TM) Quick-Finder; Trailer Life RV Campground
Finder(TM).
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PART I
ITEM 1. BUSINESS
GENERAL
LEXON Technologies, Inc., a Delaware corporation ("LEXON" or the
"Company" ), together with its wholly- owned subsidiary, Chicago Map Corporation
("Chicago Map"), is a developer and distributor of mapping and geographic data
technologies. LEXON develops mapping software, including high-quality vector map
displays, geocoding, data compression, and other related software programs and
components. LEXON's mission is to develop advanced, state-of-the-art solutions
that aid in the rapid and cost-efficient deployment of Geographic Information
System ("GIS") products for businesses and consumers.
On July 21, 1999, LEXON, formerly known as Rexford, Inc. ("Rexford"),
acquired Chicago Map under the terms of an Agreement and Plan of Merger. In this
transaction, Rexford issued a sufficient number of its common stock so that the
former shareholders of Chicago Map gained control of Rexford. Immediately
following its acquisition of Chicago Map, Rexford amended its Articles of
Incorporation to change its name to LEXON Technologies, Inc. From 1992 through
the date of the Company's acquisition of Chicago Map, the Company had no
operations and was principally focused on identifying potential business
acquisitions or opportunities in an effort to commence business operations.
Chicago Map was incorporated in 1990 to focus principally on emerging
opportunities in the business of designing, developing, producing, licensing and
marketing geographical digital map and related technologies, including Global
Positioning System ("GPS") products and navigation systems,
Web/Intranet/Internet map displays, digital data integration and referencing,
country-wide digital map sets, professional software and mobile asset
monitoring/tracking systems.
On March 12, 1999, Chicago Map, which had previously served as the
exclusive developer and licensee of mapping software invented and owned by
Trius, Inc., a Massachusetts corporation ("Trius"), acquired Trius's mapping
application technologies in an asset purchase transaction. Trius's key assets
have been effectively integrated into the operations of LEXON and form a crucial
element of LEXON's product offerings.
BUSINESS
LEXON creates technologies and software tools which provide development
capabilities that support a myriad of customized applications. LEXON's business
model and operations have been designed to effectively integrate navigation,
mobile-asset tracking/monitoring, mass-market retail and other specialized
markets into the GPS. LEXON's operations are also designed to aid in expediting
Internet applications using its map generating engines and client-server
solutions. These online interactive maps and development tools are designed to
help businesses and consumers properly reference geographic data and navigate a
course to a specific destination.
LEXON provides four types of services and products tailored towards
each of its fundamental customer bases: (a) programs for management and
distribution of data generated by government agencies, (b) professional
development tools, (c) consumer products, and (d) products developed solely for
use on the Internet. (See "Products and Services.")
(a) PROGRAMS FOR MANAGEMENT AND DISTRIBUTION OF DATA GENERATED BY
GOVERNMENT AGENCIES.
In April, 1999, LEXON's wholly-owned subsidiary, Chicago Map, entered
into a Cooperative Research and Development Agreement, dated as of April 1, 1999
(the "Development Agreement"), with the United States Geological Survey
("USGS'), an agency of the United States Department of Interior, to manage and
develop the National Atlas of
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the United States of America project (the "National Atlas Project"). The
National Atlas Project is a collaboration between the USGS and over twenty
departments and agencies of the United States federal government to assemble,
integrate and manage a vast array of geographic, topological, environmental,
social, historic and economic data about the United States of America in an
electronic format.
Under the Development Agreement, LEXON, as the parent of Chicago Map,
will serve as the primary developer of the software used to assemble, integrate,
and manage such data. In addition, under the Development Agreement, LEXON will
work with the USGS in overseeing the following: market research, design,
development, production, marketing, support, and maintenance of various projects
for the National Atlas Project. Moreover, the Company will work with the USGS in
planning, conducting, evaluating and refining customer research, in order to
ascertain both the current and future markets of products relating to the
National Atlas. LEXON will be the owner of the software and compiled data which
LEXON believes it can license to businesses, institutions and individuals.
In order to execute its duties under the Development Agreement, LEXON
has developed and created Project JUPITER, LEXON's research and information
portal, to manage and package the data collected by USGS and its
government-agency partners in the National Atlas Project. LEXON believes that
Project JUPITER will enable businesses and entities uncomplicated access to
invaluable information.
Project JUPITER's success depends upon LEXON's continued execution of
its duties under the Development Agreement. In the event that the USGS
terminates the Development Agreement, LEXON will not be able to execute a
crucial component of its strategy and this will have a materially adverse effect
on its financial condition and results of operations.
(b) PROFESSIONAL DEVELOPMENT TOOLS.
LEXON offers products and services to businesses that use or require a
broad spectrum of mapping images or technology. LEXON develops and distributes
software and technology products which enable businesses to create detailed
street-level map displays, map rotation, point-to-point routing and mapping, and
reverse geocoding. In addition, LEXON offers software products that focus on the
geography of particular geographical territories, such as the United States,
Canada and South Africa.
(c) CONSUMER PRODUCTS.
LEXON's products and services for consumers provide easy-to-use route
planning tools which include a comprehensive database of maps for specific
geographic locations such as cities, counties and even street segments located
in the United States, as well as maps which locate specific types of
attractions, such as campgrounds and sports and recreation facilities.
(d) INTERNET PRODUCTS.
LEXON also provides tools and systems which enable web designers to
immediately integrate detailed mapping images and location applications into
their web sites as well as the ability to generate geographic maps in an
electronic format.
COMPANY STRATEGY
LEXON believes that the Development Agreement with USGS provides LEXON
with the opportunity to become the primary repository and manager of credible,
public information about the geography, topography, environment, climates,
population, and socioeconomics of the United States. Because no one has
previously collected this information in a single database or library or
compiled it in a manner which allows it to be interpreted in a meaningful,
constructive way, such information has previously been underutilized by American
businesses and citizens.
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LEXON believes that its role as the repository and data manager under the
Development Agreement will enable it to become a leader in providing and
packaging information to businesses and individuals world-wide.
The cornerstone of LEXON's business strategy is Project JUPITER,
LEXON's information portal created to manage and package the information
collected in connection with the Development Agreement. Project JUPITER is being
designed to be a robust research and information portal which will deliver and
combine the geo-referable, statistical, map, and information databases of the
more than twenty government agencies contributing data to the National Atlas
Project. LEXON believes that Project JUPITER will be the first Internet portal
which will provide access to such a vast array of information in a concise, easy
to use, centralized location, and will enable the user/subscriber to generate
numerous benefits such as enriching their learning experience and making better
informed business decisions.
It is anticipated that Project JUPITER will possess the technical
ability to combine data in pre-packaged themes, previously unavailable in any
other product or service, creating intelligent pictures. These intelligent
pictures will be generated by a proprietary expert system "on the fly,"
representing the information the user has selected and delivered in an
easy-to-understand picture rendered in real-time. Through Project JUPITER, LEXON
intends to repackage the digital information obtained from its participation
under the Development Agreement with statistical and mapping information from
outside suppliers.
A crucial component in LEXON's business strategy is to become a primary
provider of Internet based education and reference tool to schools, libraries,
and businesses. The original National Atlas of the United States was successful
as a resource for schools and libraries. LEXON believes that the millennial
National Atlas Project, given the advent of electronic and computer learning
systems, will have a vital impact on the information available to public
learning institutions and also provide students and library patrons with a fun,
easy-to-use method for learning and data gathering. LEXON, therefore, intends to
focus its marketing and distribution efforts on library and education markets
(comprising public libraries, K-12 schools, colleges and universities) as the
target for the first phase of the Project JUPITER product launch.
LEXON believes that the penetration of these library and school markets
depends on LEXON's ability to create a solid brand identity for Project JUPITER.
To build that brand identity, LEXON must bring Project JUPITER into the
classroom as well as the school library which will require LEXON to develop
Project JUPITER in conjunction with school curriculums. An important goal of
LEXON will be to promote this curriculum directly to educators and take
advantage of the potential for web-based educational curriculum, a market that
remains significantly untapped at present.
MARKETS AND COMPETITION FOR LEXON'S PRODUCTS AND SERVICES
(a) MARKETS AND COMPETITION FOR PROJECT JUPITER
LEXON believes that the most appropriate market for LEXON's Project
JUPITER will be educational and learning facilities, such as schools and
libraries. Due to LEXON's relatively short operating history and limitations on
its cash resources, LEXON has not emerged as a leader in the online information
database industry. The current leaders in the provision of electronic resources
to schools and libraries, include, but may not be limited to, the Gale Group,
Bell & Howell Information & Learning Systems, and Follett Software. Gale and
Bell & Howell Information & Learning, for example, have a combined share of the
education/library market of approximately fifty percent.
As part of its efforts to achieve penetration in the appropriate
learning facilities markets for Project JUPITER, LEXON intends to implement a
four-pronged marketing approach as part of the launch and marketing of Project
JUPITER.
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(1) A nation-wide high-speed public and government relations
campaign will be established to promote Project JUPITER. The
U.S. Congress and state government bodies (public libraries,
state boards of education, state offices and state reps., etc.)
will also be targeted for support of the product.
(2) LEXON will conduct a campaign to establish a solid brand
identity associated with Project JUPITER. Creating a brand (and
brand extensions) that can expand from the education market
into consumer and business-to-business markets is a crucial
element of this process. LEXON is in the process of identifying
a full-service advertising agency to conduct this prong of its
marketing campaign.
(3) A direct mail/direct marketing campaign aimed at the
educational market will commence in the Summer of 2000, and
will include print media advertising in library trade
publications. Initial mailings will b image-oriented and will
be followed by call-to-action pieces, with direct-response
mechanism built-in.
(4) LEXON will continue to conduct ongoing comprehensive market
research in support of its strategies. Information from certain
data gathering organizations, such as Market Data Retrieval
Services, JUPITER Communications, Forrester Research, Media
Metrix, Strategy Research & Action, and Waugh & Rich is being
continually evaluated.
(b) MARKETS AND COMPETITION FOR OTHER PRODUCTS AND SERVICES
In addition to the launch and marketing of Project JUPITER, LEXON
intends to continue to develop, market and distribute its smaller-scale
products and services to businesses, consumers Internet web designers and other
professionals. LEXON's retail products offer, among other things, geographical
digital maps and related technologies, GSP products, navigation systems,
Web/Intranet/Internet map displays, digital data integration and referencing
country- wide digital map sets, as well as professional software and mobile
asset monitoring/tracking systems. LEXON believes that by maintaining the high
quality associated with its products and services and by delivering such
products and services at a competitive price point, LEXON may become a leader in
its industry.
Currently, the Company's technologies are distributed to a wide variety
of markets and industries including the following:
Aerial/Satellite Imagery Motivational Marketing
Consumer Retail OEM GPS Manufacturers
Consumer Vehicle Tracking and Recovery Oil and Gas Research
Delivery Systems In-Vehicle Navigation
Demographic Analysis Pipeline Management
Direct Mail Portable Navigation Devices
Emergency Response Public Safety
Entertainment Presentation Maps
Fleet Vehicle Tracking Real Estate Property Analysis
Flood Water Analysis Surveying
Geo-Science Research Telecommunications
Hazardous Waste Management Thematic Mapping
Insurance Planning & Adjustments Topographic Determination
Integrated Phone Information Marine (Inland and Transportation
Coastal Waterways) Utility Management
Marketing Analysis and Research Weather Maps
Mobile Asset Management Web/Internet/Intranet Applications
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The Company offers a variety of geographic electronic software
products, which are used in a variety of markets and industries. These products
compete with other existing products and software companies. For instance, with
respect to LEXON's software mapping program products, there is a wide range of
mapping software products similar in features to those of the Company's product
line. Major competitors within the retail consumer market include Rand McNally,
DeLorme, and Microsoft. In addition, with respect to LEXON's professional tools
products, there are a variety of GIS companies which offer comparable services
and capabilities. The Company has sought to distinguish itself from competitors
by offering easy-to-use tools, extensive customer support, flexible licensing
and competitive pricing and by bundling a complete national map data set within
its professional products. Competitors within this product line include MapInfo,
ESRI and other smaller companies. (See "KNOWN TRENDS AND UNCERTAINTIES - New
Products and Technological Change and Competition" in "MANAGEMENT'S DISCUSSION
AND ANALYSIS").
PRODUCTS & SERVICES
(a) PROJECT JUPITER
LEXON is currently developing its premier product, Project JUPITER,
which will be a robust research and information portal delivering and combining
the geo-referable, statistical, map, and information databases of the more than
20 government agencies participating in the National Atlas Project. Project
JUPITER is being designed to contain the data gathered from the National Atlas
Project into a concise, easy to use, centralized location enabling the
user/subscriber to enrich their learning experience and make better informed
business decisions. Project JUPITER will rely on the technical ability to
combine data from these government agencies in pre-packaged themes, allowing the
user to see data in combinations unavailable in any other product or service,
creating intelligent pictures. These intelligent pictures will be generated by a
proprietary expert system "on the fly," representing the information the user
has selected to see in an easy-to-understand picture rendered in real-time. For
instance, Project JUPITER will enable users to obtain information in data sets,
which data sets will include, among other things, general reference information,
hydrological information, environmental information, information obtained by
means of the United States Census, information related to health and disease,
biological and ecological information, and other categories of information.
Currently, LEXON, with a combination of manufacturer representative
organizations and a direct sales effort, is developing Project JUPITER and plans
the Project JUPITER launch to follow the schedule set forth below.
Summer, 2000 The first phase of Project JUPITER will
be released on the Internet.
Fall, 2000 The second phase of Project JUPITER will
be available for delivery in a subscription
model for the education market.
Winter, 2001 The third phase of Project JUPITER will be
available for delivery into the education
and business markets by means of
subscriptions and licensing transactions.
Under the terms of the Development Agreement, USGS retains the rights
to terminate such agreement with thirty days prior written notice. In the event
that the USGS terminates the Development Agreement, LEXON may be foreclosed from
executing a crucial component of its operating strategy, Project JUPITER, and
this would have a materially adverse affect on LEXON's financial position and
results of operations.
(b) OTHER PRODUCTS AND SERVICES
In addition to Project JUPITER, LEXON offers additional mapping
technology products and services for professional development, consumer use and
Internet-based applications.
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PROFESSIONAL DEVELOPMENT TOOLS
LEXON's line of professional development products are designed to allow
software programmers to integrate quality map displays into third-party
applications. LEXON offers the following professional development products:
MAPOCX PRO (USA): A development toolkit for adding map displays within
any Window's visual development environment, MapOCX Pro's enhanced
features such as map rotation, Point-to-Point routing and reverse
geocoding are designed to provide tools for advanced programming needs.
In addition, this product is designed to enable developers to access
the Company's map engine to quickly generate detailed images of the
entire United States.
MAPOCX (CANADA): A software development toolkit for adding map displays
to applications, this product is designed to enable developers to
easily and quickly integrate high-quality map displays of Canadian
provinces, cities and communities within their applications.
MAPOCX (SOUTH AFRICA): A software development toolkit for adding map
displays to applications, this product is designed to enable developers
to easily and quickly integrate high-quality map displays of South
African cities and communities within their applications.
INTERNET MAPMANIA SDK (USA): A Web development tool specifically
designed to meet the requirements of programmers needing map images on
their Web sites. This product, which includes a complete street-level
database of the US, is designed to facilitate the addition of the
Company's comprehensive map data onto any commercial website.
CONSUMER RETAIL PRODUCTS
LEXON's line of consumer retail products provide consumers with tools
for travel, mapping and navigation. This line of products include the following:
PRECISION MAPPING STREETS V. 4.0A: A street-level mapping program of
the United States which is designed to provide an easy-to-use
environment for finding any location in the U.S. and creating
customized maps that are appropriate for a variety of applications.
PRECISION MAPPING STREETS/TRAVELER 4.0 COMBO: A mapping program which
is designed to enable consumers to create customized, detailed routing
instructions with its Point-to-Point route-planning feature using the
GPS technology.
PRECISION MAPPING QUICK-FINDER 3.0: A mapping application which is
designed to provide at the command of the user, virtually every street
segment, county and city in the United States and to allows users to
quickly locate specific destinations for ease of reference and adjust
the map image with the various zoom levels.
TRAILER LIFE RV CAMPGROUND FINDER V. 1.0A: An application which is
designed to provide a detailed directory of over 15,500 campgrounds, RV
parks and RV services across the United States of America. The database
is based on the Sam Good Club campground listing.
DRIVE!: A program designed to meet the sporting needs of the common
golfer, this software delivers a detailed directory listing of more
than 15,000 golf courses in the United States. Golf courses can be
searched by name, location, green fees, yardage, amenities, and number
of holes.
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INTERNET MAPPING PRODUCTS
LEXON offers a line of products distributed exclusively on the
Internet. LEXON's Internet product line includes the following:
MAPMANIA: A mapping application which is designed to enable businesses
to guide their customers to key locations or to search specific
addresses or cities in the United States via the Internet.
INTERNET MAPOCX: An internet mapping application which is designed to
enable web site programmer to design and integrate map images of the
United States, Canada, and other international geographic regions on
their own web sites.
LEXON'S SERVICES
LEXON also offers services to government agencies, businesses and
consumers which provide expertise in mapping data collection and assembly as
well as software programming and design to facilitate the creation of unique
mapping programs and displays. LEXON's service offerings include the following:
- customer programming to create, customize, and alter software
applications;
- technical consulting to assist companies in the design and
development phase of third-party applications;
- technical writing to create Help files and drafts of programming
specifications; and
- active participation in the National Atlas Project.
RESEARCH AND DEVELOPMENT
The software industry is characterized by extremely rapid changes in
technology, which require continuous expenditure on product research and
development to enhance existing products and create new products. LEXON believes
that the timely development of new products and ongoing enhancements to existing
products is essential to maintain its competitive position in the marketplace.
LEXON is committed to an open systems, standards-based product architecture to
provide software products that can be integrated into existing mainstream
business environments and be adaptable as environments change.
Most of LEXON's software products are developed internally. Internal
development allows LEXON to maintain close technical control over products in
terms of enhancements and modifications based on customer needs, and allows
LEXON to create a family of products that provides natural migration paths for
customers as their business information needs change.
INTELLECTUAL PROPERTY
LEXON regards its software and data products as proprietary and
attempts to protect them with a combination of copyright, trademark and trade
secret laws, employee and third-party non-disclosure agreements, and other
methods of protection. Despite these precautions, it may be possible for
unauthorized third parties to copy certain portions of LEXON's products or
reverse engineer or obtain and use information LEXON regards as proprietary.
While LEXON's competitive position may be affected by its ability to protect its
proprietary information, LEXON believes that the trademark and copyright
protections are less significant to LEXON's success than other factors, such as
the knowledge, ability and experience of LEXON's personnel and ongoing product
development and support.
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EMPLOYEES
As of December 31, 1999, LEXON had 26 full-time employees. LEXON's
employees are not represented by any collective bargaining organization and
LEXON has never experienced a work stoppage. LEXON believes that its relations
with its employees are good.
RECENT DEVELOPMENTS
On February 9, 2000, LEXON and Steven J. Peskaitis, LEXON's then
Chairman and Chief Executive Officer, consummated a transaction with Anthony
Perino whereby Mr. Perino acquired voting control over the majority of LEXON's
issued and outstanding common stock. See "Management's Discussion and Analysis."
Under the terms of a Stock Purchase Agreement, dated February 9, 2000,
by and among LEXON, Mr. Peskaitis and Mr. Perino, Mr. Perino acquired (i)
1,000,000 shares of LEXON common stock from LEXON in exchange for $250,000 and
(ii) 2,000,000 shares of LEXON common stock from Mr. Peskaitis in exchange for
$500. Mr. Perino used cash from personal reserves to fund his investment in
LEXON. In addition, under a Voting Trust Agreement, Mr. Peskaitis and Stanley
Peskaitis appointed Mr. Perino Voting Trustee of 2,774,600 and 1,227,100 shares,
respectively, of LEXON common stock. The Voting Trust will terminate no later
than August 9, 2001.
In addition, under the terms of the Stock Purchase Agreement, Mr.
Perino will, subject to certain conditions, purchase an additional 2,400,000
shares of LEXON common stock from LEXON and Mr. Peskaitis in exchange for a cash
payment of $100,500 on or around March 7, 2000.
Moreover, Mr. Perino received Warrants to purchase up to an additional
4,100,000 shares of LEXON common stock. The Warrants are exercisable at prices
from $0.25 per share to $0.50 per share and expire at certain times between
September 1, 2000 and August 9, 2001. If Mr. Perino exercises all of the
Warrants, LEXON will receive an additional $1,150,000 in equity capital.
Moreover, in connection with the Warrants, LEXON and Mr. Perino entered into a
Registration Rights Agreement which provides Mr. Perino with demand and
piggy-back registration rights with respect to the shares of LEXON common stock
subject to the Warrants.
In connection with these transactions, under the terms of the Stock
Purchase Agreement, Mr. Peskaitis resigned as LEXON's Chief Executive Officer
and President, and Mr. Thomas Rieck resigned as a director of the Company. Mr.
Perino, Peter Haleas and Jerome Wolowicki were appointed to the Company's Board
of Directors and Mr. Perino was elected Chairman and Chief Executive Officer.
In addition, Under a Post-Closing Agreement, dated February 9, 2000, by
and among Mr. Perino, Mr. Peskaitis and Stanley Peskaitis, the Voting Trust
Agreement described above will be amended to provide for (i) the deposit of an
additional 1,500,000 shares of the LEXON's common stock into the Voting Trust,
subject to the prior rights of the holders of certain liens with respect to such
shares and (ii) the release of shares from the Voting Trust to the extent such
released shares are not necessary for Mr. Perino to maintain voting control over
fifty-one percent (51%) of LEXON'S issued and outstanding common stock.
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ITEM 2. PROPERTIES
LEXON occupies approximately 10,000 square feet of development,
production and administrative space in Downers Grove, Illinois. The facility
lease runs from May 7, 1999 through May 31, 2004. The current annual lease rate
for the first year of this lease is approximately $95,000, which annual rate
will increase by approximately $3,000 each year of the lease term. In addition,
the lease enables LEXON to use an additional 600 square feet of warehouse space
for an additional $250.00 per month.
In addition, LEXON occupies 2,000 square feet of space in Andover,
Massachusetts under an oral sublease with Trius, Inc., pursuant to which LEXON
pays $22,459.08 in annual rental payments.
ITEM 3. 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, which appeal is pending. 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.
On July 24, 1998, Chicago Map filed a complaint against Potthast & Ring
in case captioned Chicago Map Corp. v. Potthast & Ring, No. 97 L 12157, alleging
certain malpractice claims related to legal services provided to Chicago Map by
the defendant. On March 2, 2000, the parties agreed to a settlement, release and
dismissal of all claims contained in the original complaint.
The Company is not a party to any other material litigation.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET PRICE AND DIVIDENDS OF THE COMPANY'S COMMON STOCK.
(a) MARKET INFORMATION
The Company's shares have been registered under Section 12(g) of the
Securities and Exchange Act of 1934, however, the Company has not registered the
sale of any of its shares under the 1933 Act. All sales and other issuances of
the Company's common stock have been made in transactions exempt from the
registration requirements, but no sales of shares of the Company's common stock
have previously been registered with the Securities and Exchange Commission (the
"Commission") or any state securities agency or authority. As of April 5, 2000
there were 115 holders of record of the Company's common stock. The Company's
shares are currently quoted on the OTC Bulletin Board.
The following table sets forth, for the periods indicated, the high and
low reported bid and asked quotations for shares of common stock as reported on
the OTC Bulletin Board. The high and low bid and asked quotations set forth
below reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
High Low
---- ---
Fiscal 1998
First Quarter...................... N/A N/A
Second Quarter .................... N/A N/A
Third Quarter...................... N/A N/A
Fourth Quarter..................... $0.10 $0.02
Fiscal 1999
First Quarter...................... $0.10 $0.02
Second Quarter..................... $0.09 $0.02
Third Quarter...................... $7.00 $0.02
Fourth Quarter..................... $5.25 $2.00
The Company's shares were approved for quotation on the OTC Bulletin
Board in the fourth quarter of 1998. To the best knowledge of management of the
Company, prior to September 30, 1998, there was no established public trading
market for the Company's common stock and any trading of the Company's common
stock was limited or sporadic.
Due to the current bid and ask prices of the Company's shares, the
shares are likely subject to the provisions of Section 15(g) and Rule 15g-9 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(l) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer's net tangible assets; or exempted from the definition by the Commission.
If the Company's shares are deemed to be a
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penny stock, trading in the shares will be subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse. For transactions covered by these rules, broker-dealers must
make a special suitability determination for the purchase of such securities and
must have received the purchaser's written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker- dealers to
trade and/or maintain a market in the Company's common stock and may affect the
ability of shareholders to sell their shares.
(b) HOLDERS
As of April 5, 2000, the Company had issued and outstanding 13,542,561
shares of common stock held by 115 holders of record
(c) DIVIDENDS
Chicago Map paid dividends in cash each of the fiscal years ended
December 31, 1998 and 1997 of, respectively, $62,420 or $6.24 per share, and
$60,275 or $6.03 per share. In addition, during the fiscal quarter ended March
31, 1999, Chicago Map declared a dividend of $209,774 or approximately $14.00
per share, which dividend remains unpaid.
In addition, the Company does not expect, and has no plans, to declare
or issue a dividend in the immediate future.
RECENT SALES OF UNREGISTERED SECURITIES
On September 30, 1997, the Company issued 23,024,015 shares of its
common stock, valued at approximately $0.002 per share, to Mark A. Scharmann, an
officer and director of the Company, in exchange for the conversion of $46,048
of notes and accrued interest payable by the Company.
On June 29, 1998, the Company issued an additional 17,785,406 shares of
the Company's common stock, valued at approximately $0.002 per share, to Mr.
Scharmann, in exchange for the conversion of approximately $35,571 of notes and
accrued interest payable by the Company. The securities issued in the foregoing
transactions were issued in reliance on the exemption from registration and the
prospectus delivery requirements of the Securities Act of 1933, as amended (the
'Securities Act"), set forth in section 3(b) and/or section 4(2) of the
Securities Act and the regulations promulgated thereunder.
On March 26, 1999, the Company issued warrants to purchase 100,000
shares of common stock at $2.50 per share to Mark Scharmann in connection with
an Interim Loan Agreement dated as of March 26, 1999, by and between the Company
and Mr. Scharmann. Under the March 26, 1999 Interim Loan Agreement, the Company
borrowed $100,000 at an annual interest rate of 12% with a term of three months.
In connection with the Interim Loan Agreement, Mr. Scharmann took a security
interest in the Company's accounts receivable and 250,000 shares, held in escrow
of LEXON common stock owned by an officer of LEXON. The warrant vested
immediately and is exercisable for a period of 18 months and includes piggyback
registration rights. This issuance was exempt from registration in reliance on
Section 4(2) of the Act.
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On April 29, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $2.50 per share to Steven J. Peskaitis in connection
with an Interim Loan Agreement, dated April 29, 1999, by and between the Company
and Mr. Peskaitis. Under the Interim Loan Agreement, the Company borrowed
$100,000 at an annual interest rate of 12% with a term of four months. In
connection with this Interim Loan Agreement, Mr. Peskaitis took a security
interest in assets of the Company. The warrant vested immediately and is
exercisable for a period of 18 months and includes piggyback registration
rights. This issuance was exempt from registration in reliance on Section 4(2)
of the Act.
On July 10, 1999, the Company issued a warrant to purchase 23,000
shares of common stock at $2.50 per share to Steven J. Peskaitis. This warrant
was issued in connection with an Interim Loan Agreement, by and between the
Company and the holder of this warrant. Under the Interim Loan Agreement, dated
July 10, 1999, the Company borrowed $23,000 at an annual interest rate of 12%
with a maturity date of November 10,1999. In connection with the Loan Agreement,
Peskaitis took a security interest in assets of the Company. The warrant vested
immediately and is exercisable for a period of 18 months and includes piggyback
registration rights. This sale was exempt from registration in reliance on
Section 4(2) of the Act.
On July 10, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $2.50 per share to Stanley Peskaitis. Issued in
connection with an Interim Loan Agreement by and between the Company and Mr.
Peskaitis. Under the Interim Loan Agreement, dated July 10, 1999, the Company
borrowed $100,000 at an annual interest rate of 12% with a maturity date of
November 10, 1999. In connection with the Loan Agreement, Peskaitis took a
security interest in the assets of the Company. The warrant vested immediately
and is exercisable for a period of 18 months and includes piggyback registration
rights. This sale was exempt from registration in reliance on Section 4(2) of
the Act.
On July 10, 1999, the Company issued a warrant to purchase 50,000
shares of common stock at $2.50 per share to John McLean in connection with an
Interim Loan Agreement, by and between the Company and Mr. McLean. Under the
Interim Loan Agreement, dated July 10, 1999, the Company borrowed $50,000 at an
annual interest rate of 12% with a maturity date of November 10, 1999. In
connection with the Loan Agreement, McLean took a security interest in the
assets of the Company. The warrant vested immediately and is exercisable for a
period of 18 months and includes piggyback registration rights. This sale was
exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued 6,774,600 shares of its common
stock to Steven J. Peskaitis in connection with the Company's acquisition of all
of the issued and outstanding common stock of Chicago Map Corporation and in
exchange for his shares of common stock of Chicago Map. This sale was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 1,227,100 shares of its common
stock to Stanley Peskaitis in connection with the Company's acquisition of all
of the issued and outstanding common stock of Chicago Map Corporation and in
exchange for his shares of common stock of Chicago Map. This sale was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 442,400 shares of its common stock
to Mike Barnett in connection with the Company's acquisition of all of the
issued and outstanding common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 730,800 shares of its common stock
to David A. Schulz in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
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On July 21, 1999, the Company issued 77,000 shares of its common stock
to David A. Leonard in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 730,800 shares of its common stock
to Paris Karahalios in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 100,100 shares of its common stock
to Kenneth Eaken in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 149,800 shares of its common stock
to Pamela Peskaitis in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 203,000 shares of its common stock
to Douglas Morris in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 22,400 shares of its common stock
to Rieck & Crotty in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 10,500 shares of its common stock
to John M. Williams in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 10,500 shares of its common stock
to Carol A. Kopta in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 10,500 shares of its common stock
to Robin A. Hawksely-Wahl in connection with the Company's acquisition of all of
the issued and outstanding Common stock of Chicago Map Corporation and in
exchange for his shares of common stock of Chicago Map. This sale was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued 10,500 shares of its common stock
to Robert Spychalski in connection with the Company's acquisition of all of the
issued and outstanding Common stock of Chicago Map Corporation and in exchange
for his shares of common stock of Chicago Map. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On July 21, 1999, the Company issued an option to purchase 80,500
shares of common stock at $.50 per share to Steven J. Peskaitis in connection
with the Company's acquisition of all of the issued and outstanding
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Common stock of Chicago Map Corporation. In connection with the acquisition, the
Company assumed Chicago Map's obligations under all outstanding warrants and
options. As such, the Company exchanged an option to purchase one share of
Chicago Map common stock for an option to purchase 700 shares of LEXON common
stock. The warrant vested immediately and is exercisable for a period of 10
years and includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 52,500
shares of common stock at $1.25 per share to Stanley Peskaitis in connection
with the Company's acquisition of all of the issued and outstanding common stock
of Chicago Map Corporation. In connection with the acquisition, the Company
assumed Chicago Map's obligations under all outstanding warrants and options. As
such, the Company exchanged an option to purchase one share of Chicago Map
common stock for an option to purchase 700 shares of LEXON common stock. The
warrant vested immediately and is exercisable for a period of 10 years and
includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 115,500
shares of common stock at $.50 per share to Kenneth Eaken in connection with the
Company's acquisition of all of the issued and outstanding Common stock of
Chicago Map Corporation. In connection with the acquisition, the Company assumed
Chicago Map's obligations under all outstanding warrants and options. As such,
the Company exchanged an option to purchase one share of Chicago Map common
stock for an option to purchase 700 shares of LEXON common stock. The option
vested immediately and is exercisable for a period of 10 years and includes
piggyback registration rights. This issuance was exempt from registration in
reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 115,500
shares of common stock at $.50 per share to Paris Karahalios in connection with
the Company's acquisition of all of the issued and outstanding Common stock of
Chicago Map Corporation. In connection with the acquisition, the Company assumed
Chicago Map's obligations under all outstanding warrants and options. As such,
the Company exchanged an option to purchase one share of Chicago Map common
stock for an option to purchase 700 shares of LEXON common stock. The option
vested immediately and is exercisable for a period of 10 years and includes
piggyback registration rights. This issuance was exempt from registration in
reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 115,500
shares of common stock at $.50 per share to John McLean in connection with the
Company's acquisition of all of the issued and outstanding Common stock of
Chicago Map Corporation. In connection with the acquisition, the Company assumed
Chicago Map's obligations under all outstanding warrants and options. As such,
the Company exchanged an option to purchase one share of Chicago Map common
stock for an option to purchase 700 shares of LEXON common stock. The option
vested immediately and is exercisable for a period of 10 years and includes
piggyback registration rights. This issuance was exempt from registration in
reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 115,5000
shares of common stock at $.50 per share to Mike Barnett in connection with the
Company's acquisition of all of the issued and outstanding Common stock of
Chicago Map Corporation. In connection with the acquisition, the Company assumed
Chicago Map's obligations under all outstanding warrants and options. As such,
the Company exchanged an option to purchase one share of Chicago Map common
stock for an option to purchase 700 shares of LEXON common stock. The option
vested immediately and is exercisable for a period of 10 years and includes
piggyback registration rights. This issuance was exempt from registration in
reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 52,500
shares of common stock at $1.25 per share to Dave Schulz in connection with the
Company's acquisition of all of the issued and outstanding Common stock of
Chicago Map Corporation. In connection with the acquisition, the Company assumed
Chicago Map's obligations under all outstanding warrants and options. As such,
the Company exchanged an option to purchase one share of Chicago Map common
stock for an option to purchase 700 shares of LEXON common stock. The option
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vested immediately and is exercisable for a period of 10 years and includes
piggyback registration rights. This issuance was exempt from registration in
reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 376,496
shares of common stock at $2.80 per share to Steven J. Peskaitis in connection
with the optionee's employment with the Company pursuant to the terms of a Stock
Option Agreement, dated as of July 21, 1999. Although the Option is exercisable
for a period of 10 years, under the terms of the Stock Option Agreement, the
Company retains the right to purchase 75,300 shares of common stock subject to
the option until December 31, 1999, 131,773 shares of common stock subject to
the option until December 31, 2000, and 169,423 shares of common stock subject
to the options until December 31, 2001. In addition, under the Stock Option
Agreement, the optionee may not sell or pledge more than 25% of the shares of
common stock subject to the Option in any ninety day period. This issuance was
exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 627,500
shares of common stock at $2.80 per share to Kenneth Eaken in connection with
the optionee's employment with the Company pursuant to the terms of a Stock
Option Agreement, dated as of July 21, 1999. Although the Option is exercisable
for a period of 10 years, under the terms of the Stock Option Agreement, the
Company retains the right to purchase 125,500 shares of common stock subject to
the option until December 31, 1999, 219,625 shares of common stock subject to
the option until December 31, 2000, and 282,375 shares of common stock subject
to the options until December 31, 2001. In addition, under the Stock Option
Agreement, the optionee may not sell or pledge more than 25% of the shares of
common stock subject to the Option in any ninety day period. This issuance was
exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 627,500
shares of common stock at $2.80 per share to Paris Karahalios in connection with
the optionee's employment with the Company pursuant to the terms of a Stock
Option Agreement, dated as of July 21, 1999. Although the Option is exercisable
for a period of 10 years, under the terms of the Stock Option Agreement, the
Company retains the right to purchase 125,500 shares of common stock subject to
the option until December 31, 1999, 219,625 shares of common stock subject to
the option until December 31, 2000, and 282,375 shares of common stock subject
to the options until December 31, 2001. In addition, under the Stock Option
Agreement, the optionee may not sell or pledge more than 25% of the shares of
common stock subject to the Option in any ninety day period. This issuance was
exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 627,500
shares of common stock at $2.80 per share to John McLean in connection with the
optionee's employment with the Company pursuant to the terms of a Stock Option
Agreement, dated as of July 21, 1999. Although the Option is exercisable for a
period of 10 years, under the terms of the Stock Option Agreement, the Company
retains the right to purchase 125,500 shares of common stock subject to the
option until December 31, 1999, 219,625 shares of common stock subject to the
option until December 31, 2000, and 282,375 shares of common stock subject to
the options until December 31, 2001. In addition, under the Stock Option
Agreement, the optionee may not sell or pledge more than 25% of the shares of
common stock subject to the Option in any ninety day period. This issuance was
exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 275,000
shares of common stock at $2.80 per share to Stanley Peskaitis in connection
with the optionee's employment with the Company pursuant to the terms of a Stock
Option Agreement, dated as of July 21, 1999. Although the Option is exercisable
for a period of 10 years, under the terms of the Stock Option Agreement, the
Company retains the right to purchase 100,000 shares of common stock subject to
the option until December 31, 1999, 100,000 shares of common stock subject to
the option until December 31, 2000, and 75,000 shares of common stock subject to
the options until December 31, 2001. In addition, under the Stock Option
Agreement, the optionee may not sell or pledge more than 25% of the shares of
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common stock subject to the Option in any ninety day period. This issuance was
exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 285,000
shares of common stock at $2.80 per share to Dave Schulz in connection with the
optionee's employment with the Company pursuant to the terms of a Stock Option
Agreement, dated as of July 21, 1999. Although the Option is exercisable for a
period of 10 years, under the terms of the Stock Option Agreement, the Company
retains the right to purchase 95,000 shares of common stock subject to the
option until December 31, 1999, 95,000 shares of common stock subject to the
option until December 31, 2000, and 95,000 shares of common stock subject to the
options until December 31, 2001. In addition, under the Stock Option Agreement,
the optionee may not sell or pledge more than 25% of the shares of common stock
subject to the Option in any ninety day period. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 12,500
shares of common stock at $2.80 per share to Dave Leonard in connection with the
optionee's employment with the Company pursuant to the terms of a Stock Option
Agreement, dated as of July 21, 1999. Although the Option is exercisable for a
period of 10 years, under the terms of the Stock Option Agreement, the Company
retains the right to purchase 12,500 shares of common stock subject to the
option until December 31, 1999. In addition, under the Stock Option Agreement,
the optionee may not sell or pledge more than 25% of the shares of common stock
subject to the Option in any ninety day period. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 12,550
shares of common stock at $2.80 per share to Jim Rooney in connection with the
optionee's engagement as an advisor to the Company pursuant to the terms of a
Stock Option Agreement, dated as of July 21, 1999. Although the Option is
exercisable for a period of 10 years, under the terms of the Stock Option
Agreement, the Company retains the right to purchase 12,550 shares of common
stock subject to the option until December 31, 1999. In addition, under the
Stock Option Agreement, the optionee may not sell or pledge more than 25% of the
shares of common stock subject to the Option in any ninety day period. This
issuance was exempt from registration in reliance on Section 4(2) of the Act.
On July 21, 1999, the Company issued an option to purchase 12,550
shares of common stock at $2.80 per share to Thomas Rieck in connection with the
optionee's engagement as an advisor to the Company pursuant to the terms of a
Stock Option Agreement, dated as of July 21, 1999. Although the Option is
exercisable for a period of 10 years, under the terms of the Stock Option
Agreement, the Company retains the right to purchase 12,550 shares of common
stock subject to the option until December 31, 1999. In addition, under the
Stock Option Agreement, the optionee may not sell or pledge more than 25% of the
shares of common stock subject to the Option in any ninety day period. This
issuance was exempt from registration in reliance on Section 4(2) of the Act.
On July 26, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $2.50 per share to Mark Scharmann in connection with
the March 26, 1999 Interim Loan Agreement, between Mr. Scharmann and the
Company. The warrant vested immediately and is exercisable for a period of 18
months and includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On August 10, 1999, the Company issued a warrant to purchase 25,000
shares of common stock at $2.50 per share to Miller Capital Corporation. This
warrant was issued in connection with a Securities Purchase Agreement and a
Promissory Note, each dated as of August 10, 1999, by and among the Company and
Miller Capital Corporation, Stephen A. McConnell, Jock Patton and Dickerson
Wright. Under the Securities Purchase Agreement the Company borrowed $750,000 at
an annual interest rate of 18% with a maturity date of December 10, 1999. In
connection with the Securities Purchase Agreement and Promissory Note, the
lenders took security interests in the Company's assets and shares of stock
owned by an officer of the Company, which shares were held in escrow. The
warrant vested immediately and is exercisable for a period of 5 years and
includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
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On August 10, 1999, the Company issued a warrant to purchase 12,500
shares of common stock at $2.50 per share to Jock Patton. This warrant was
issued in connection with the August 10, 1999 Securities Purchase Agreement and
Promissory Note. The warrant vested immediately and is exercisable for a period
of 5 years and includes piggyback registration rights. This issuance was exempt
from registration in reliance on Section 4(2) of the Act.
On August 10, 1999, the Company issued a warrant to purchase 25,000
shares of Common stock at $2.50 per share to Dickerson Wright. This warrant was
issued in connection with an August 10, 1999 Securities Purchase Agreement and
Promissory Note. The warrant vested immediately and is exercisable for a period
of 5 years and includes piggyback registration rights. This issuance was exempt
from registration in reliance on Section 4(2) of the Act.
On August 10, 1999, the Company issued a warrant to purchase 12,500
shares of Common stock at $2.50 per share to Stephen A. McConnell. This warrant
was issued in connection with an August 10, 1999 Securities Purchase Agreement
and Promissory Note. The warrant vested immediately and is exercisable for a
period of 5 years and includes piggyback registration rights. This sale was
exempt from registration in reliance on Section 4(2) of the Act.
On August 19, 1999, the Company issued 2,500 shares of its common stock
to John C. Thompson in exchange for Mr. Thompson's services contributed to the
Company, which services were valued at $8,125.00 or $3.25 per share. This sale
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
On August 19, 1999, the Company issued 5,500 shares of its common stock
to Elliott N. Taylor in exchange for services contributed to the Company, which
services were valued at $17,875.00 or $3.25 per share. This sale was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
On August 29, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $2.50 per share to Steven J. Peskaitis. This warrant
was issued in connection with the extension by Mr. Peskaitis of the term of a
loan under the Interim Loan Agreement, dated April 29, 1999, by and between the
Company and Mr. Peskaitis. The warrant vested immediately and is exercisable for
a period of 18 months and includes piggyback registration rights. This issuance
was exempt from registration in reliance on Section 4(2) of the Act.
On November 10, 1999, the Company issued a warrant to purchase 23,000
shares of common stock at $0.50 per share to Steven J. Peskaitis. This warrant
was issued in connection with the extension by Mr. Peskaitis of the term of the
July 10, 1999 Interim Loan Agreement between the Company and Mr. Peskaitis. The
warrant vested immediately and is exercisable for a period of 18 months and
includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On November 10, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $0.50 per share to Stan Peskaitis. This warrant was
issued in connection with the extension by Mr. Peskaitis of the term of the July
10, 1999 Interim Loan Agreement by and between the Company and Mr. Peskaitis.
The warrant vested immediately and is exercisable for a period of 18 months and
includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On November 10, 1999, the Company issued a warrant to purchase 50,000
shares of common stock at $0.50 per share to John Mclean. This warrant was
issued in connection with the extension by Mr. McLean of the term of the July
10, 1999 Interim Loan Agreement by and between the Company and Mr. McLean. The
warrant vested immediately and is exercisable for a period of 18 months and
includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
On November 26, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $0.50 per share to Mark Scharmann in connection with
Mr. Scharmann's extension of the term of the March 26,
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1999 Interim Loan Agreement between Mr. Scharmann and the Company. The warrant
vested immediately and is exercisable for a period of 18 months and includes
piggyback registration rights. This sale was exempt from registration in
reliance on Section 4(2) of the Act.
On December 23, 1999, the Company issued 250 shares of its common stock
to Vicky R. Morcos in exchange for a cash payment of $750.00 or $3.00 per share.
This sale was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
On December 23, 1999, the Company issued 7,000 shares of its common
stock to Charles K. West, an employee of the Company, as compensation for past
employment. This sale was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
On December 23, 1999, the Company issued 1,900 shares of its common
stock to ACAP Financial in exchange for services contributed to the Company,
which services were valued at $5,000.00 or $2.63 per share. This sale was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
On December 27, 1999, the Company issued 11,000 shares of its common
stock to S&S Public Relations, Inc. in exchange for services contributed to the
Company, which services were valued at $12,286.90 or $1.12 per share. This sale
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
On December 27, 1999, the Company issued 13,300 shares of its common
stock to Rieck & Crotty in exchange for services contributed to the Company,
which services were valued at $14,995.59 or $1.00 per share. This sale was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On December 27, 1999, the Company issued 10,000 shares of its common
stock to AMC White Graphics, Inc. in exchange for services contributed to the
Company, which services were valued at $9,725.96 or $0.97 per share. This sale
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
On December 29, 1999, the Company issued a warrant to purchase 100,000
shares of common stock at $0.50 per share to Steven J. Peskaitis. This warrant
was issued in connection with the extension by Mr. Peskaitis of the term the
April 29, 1999 Interim Loan Agreement, between the Company and Mr. Peskaitis.
The warrant vested immediately and is exercisable for a period of 18 months and
includes piggyback registration rights. This issuance was exempt from
registration in reliance on Section 4(2) of the Act.
-18-
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data with respect to the Company's statements of
operations for each of the years is the three year period ended December 31,
1999 and the balance sheet data as of December 31, 1999, and 1998 are derived
from the Company's audited financial statements. The financial data for the
Company should be read in conjunction with the Company's Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere herein.
Year Ended December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands, Except Per Share Data)
Statement of Operations Data:
Net Sales $ 750 $ 1,175 $ 1,934
Cost of Sales 309 333 891
-------- -------- --------
Gross Margin 441 842 1,043
Selling general and
administrative expenses 1,454 765 1,081
-------- -------- --------
Operating income (loss) (1,013) 77 (38)
Interest expense 82 -- --
Other income (expense)
including interest income 6 (13) --
-------- -------- --------
Net income (loss) $ (1,089) $ 64 $ (38)
======== ======== ========
Basic earnings (loss) per
share $ (0.09) $ .01 $ .00
======== ======== ========
Basic weighted average shares
outstanding 11,641 11,500 11,500
======== ======== ========
Diluted earnings (loss) per
share $ (.09) $ .01 $ .00
======== ======== ========
Diluted weighted average
shares outstanding 11,641 11,500 11,500
======== ======== ========
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Year Ended December 31,
---------------------------
1999 1998 1997
--------- ------- -------
(In Thousands)
Balance Sheet Data:
Working capital $ (1,591) $164
======== ====
Total assets $ 704 $265
======== ====
Short term debt (including
current portion of long term
obligations) $ 1,142 --
======== ====
Long-term obligations
(excluding current portion) $ 82 --
======== ====
Retained Earnings
(Accumulated deficit) $ (1,103) $240
======== ====
Total stockholders' equity
(deficit) $ (1,023) $251
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
LEXON is an Internet-based provider of geo-referenceable content and
data and offers specific content solutions to institutional, governmental,
corporate and public consumers through advanced software applications.
RESULTS OF OPERATIONS FOR 1999, 1998 AND 1997
NET REVENUES
(Dollars in thousands)
1999 Change 1998 Change 1997
Net Revenues $750 (36%) $1175 (39%) $1,934
In 1999, revenues decreased $425,000 or (36%) to $750,000. This
decrease can be directly attributed to the lack of demand for LEXON's consumer
and private label based products.
In 1998, revenues decreased $759,000 or (39%) to $1,175,000. This
decrease can be directly attributed to the refocus of LEXON back to a software
business and discontinue the sale of GPS hardware products. This action took
LEXON back to profitability in 1998.
COST OF REVENUES
(Dollars in thousands)
1999 1998 1997
Cost of Revenues $309 $333 $891
Percent of Net Revenues 41% 28% 46%
Cost of revenues as a percentage of net revenues decreased from 1997 to
1998 as LEXON refocused its business back to a higher margin software business,
eliminating its GPS hardware reselling effort.
The cost of revenues as a percentage of net revenues increased from
1998 to 1999 as softened market demand for LEXON's consumer products resulted in
a combination of 1.) The increase in margins required by private label
resellers, and 2.) The increase in the costs of materials, due to the lack of
volume purchasing.
OPERATING EXPENSES
(Dollars in thousands)
1999 1998 1997
Selling & administrative expense $1,454 $765 $1,081
Percent of Net Revenues 194% 65% 56%
Selling and administrative expense decreased from 1997 to 1998 as
LEXON's expenses incurred in sales operations (outside sales personnel and
commissions) were eliminated.
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The dramatic change from 1998 to 1999 is the direct result of LEXON's
efforts to refocus its business toward Project JUPITER. 1.) Addition of
personnel, 2.) Direct costs incurred in the reverse merger with Rexford and
public reporting, 3.) Legal expenses incurred in the reverse merger with Rexford
and public reporting, 4.) Increased rents for new facilities in Downers Grove,
IL, 5.) Facilities preparation (build-out, wiring, telephone system, and related
expenses) were all heavy contributors to the dramatic increase in spending.
The operating expenses in 1999 now include an increase in development
costs now that the mapping assets of TRIUS are part of LEXON. Previously, TRIUS
was paid a 20% royalty on the net revenues of LEXON. In March 1999, the TRIUS
employees become employees of LEXON. The employees are now an operating expense
and the royalties have been removed from the cost of revenues.
FINANCIAL CONDITION
LEXON's cash and short-term investments totaled $20,892 at December 31,
1999, and represented 3% of total assets.
LEXON has incurred a substantial operating loss in 1999 and used
substantial amounts of cash in operating activities. This loss was primarily
financed through bridge loan agreements between LEXON and five (5) private
investors during 1999. The aggregate total of these loans amounted to $1.123M.
In February 2000, a principal payment of $150K was made reducing the loan
amounts to $973K. The major lender is still owed $600K and favorable repayment
terms have been negotiated. The remaining $323K is being renegotiated for more
favorable terms to LEXON.
To secure additional operating capital to continue operations, on
February 9, 2000, LEXON and Steven J. Peskaitis, LEXON's then Chairman and Chief
Executive Officer, consummated a transaction with Anthony Perino whereby Mr.
Perino acquired voting control over the majority of LEXON's issued and
outstanding common stock.
Under the terms of a Stock Purchase Agreement, dated February 9, 2000,
by and among LEXON, Mr. Peskaitis and Mr. Perino, Mr. Perino acquired (i)
1,000,000 shares of LEXON common stock from LEXON in exchange for $250,000 and
(ii) 2,000,000 shares of LEXON common stock from Mr. Peskaitis in exchange for
$500. Mr. Perino used cash from personal reserves to fund his investment in
LEXON. In addition, under a Voting Trust Agreement, Mr. Peskaitis and Stanley
Peskaitis appointed Mr. Perino Voting Trustee of 2,774,600 and 1,227,100 shares,
respectively, of LEXON common stock. The Voting Trust will terminate no later
than August 9, 2001.
As of February 9, 2000, LEXON had 12,541,561 shares of common stock
issued and outstanding. Prior to the transactions described above, Mr. Peskaitis
owned 6,774,600 shares of LEXON common stock, which was fifty- four percent
(54%) of LEXON's issued and outstanding common stock. At the close of these
transactions, Mr. Perino beneficially owned, directly or indirectly, 7,001,700
shares of LEXON's common stock or fifty-two percent (52%) of LEXON's issued and
outstanding common stock.
In addition, under the terms of the Stock Purchase Agreement, Mr.
Perino will, subject to certain conditions, purchase an additional 2,400,000
shares of LEXON common stock from LEXON and Mr. Peskaitis in exchange for cash
payment of $100,500 on or around March 7, 2000.
Moreover, Mr. Perino received Warrants to purchase up to an additional
4,100,000 shares of LEXON common stock. The Warrants are exercisable at prices
from $0.25 per share to $0.50 per share and expire at certain times between
September 1, 2000 and August 9, 2001. If Mr. Perino exercises all of the
Warrants, LEXON will receive an additional $1,150,000 in equity capital.
Moreover, in connection with the Warrants, LEXON and Mr. Perino entered into a
Registration Rights Agreement, which provides Mr. Perino with demand, and
piggyback registration rights with respect to the shares of LEXON common stock
subject to the Warrants.
In connection with these transactions, under the terms of the Stock
Purchase Agreement, Mr. Peskaitis resigned as LEXON's Chief Executive Officer
and President; Mr. James Rooney and Mr. Thomas Rieck resigned as directors of
the Company. Mr. Perino, Peter Haleas and Jerome Wolowicki were appointed to the
Company's Board
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of Directors and Mr. Perino was elected Chairman and Chief Executive Officer.
Kenneth J. Eaken was elected President and Chief Operating Officer. Jerome
Wolowicki was elected Chief Financial Officer and Treasurer. Steven Peskaitis
was elected Secretary.
During the months of February and March 2000, substantial changes have
been made to eliminate unnecessary expenses and refocus the corporation on the
primary objective of completing Project JUPITER. The staff of LEXON has been
reduced 53% reducing the total number of employees to 12 from the high of 26 in
1999 resulting in savings of over $680K annually. Negotiations are under way to
lease the Downers Grove facility to a new tenant; reducing property expenses 75%
saving over $70K a year.
Management believes existing cash and short-term financing together
with funds generated from operations should be sufficient to meet LEXON's
operating requirements for the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1999 the primary source of liquidity
was cash provided by short-term notes and income from operations. The net cash
used in operations was $648,289 for the year ended December 31, 1999 compared to
net cash provided by operations of $112,290 for the same period in the prior
year.
Net cash used in investing activities was $587,473, which was mainly
due to capital expenditures of $100,405, payment of computer software costs of
$330,966 and other costs associated with procuring short and long- term capital.
For the same period in the prior year net cash used in investing activities was
$56,580.
Net cash provided by financing activities was $1,185,128 for the year
ended December 31, 1999 compared to $60,275 used in the prior year.
In April, the Company entered into a Cooperative Research and
Development Agreement with the U.S. Geological Survey agency to produce the next
National Atlas of the United States of America. The Company views this product
to be a high gross margin business, sold on a subscription basis, with an 80%
level of recurring revenue. Although the project is consistent with the
company's technological capabilities, the development and distribution of a
product of this significance (initially to be sold to all schools and libraries
in the United States) will require significant external financing. The Company
has engaged the services of a financial advisory firm to assist in addressing
its capital requirements and is currently conducting discussions with several
potential sources.
Five short-term notes have been executed in favor of affiliated
individuals with varying terms and amounts, from March 26, 1999 through July 10,
1999, totaling $373,000 in principal. On August 10, 1999, the Company obtained
additional financing through short-term loans totaling $750,000 in principal due
December 10, 1999. In all cases, warrants to purchase the Company's common stock
at $2.50 per share were granted as part of these loan agreements. It is
anticipated that these loans will be either extended for a similar time period
or repaid entirely when permanent financing is obtained.
YEAR 2000 COMPLIANCE
(a) BACKGROUND
Many currently installed computer systems are not capable of correctly
processing 21st century dates. As a result, computer systems, software and other
computer controlled processes used by many companies in a wide variety of
applications will experience operating difficulties unless they are modified or
upgraded to adequately process information involving, related to, or dependent
upon the century change. Significant uncertainty exists concerning the scope and
magnitude of problems associated with the century change.
-23-
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(b) WHAT THE COMPANY IS DOING
LEXON recognizes the need to take appropriate action so that its
operations will not be adversely impacted by Year 2000 computer failures and has
established a project team, consisting of specifically assigned employees, to
address Year 2000 risks. The assessment for internal systems is complete and the
remediation and testing is complete.
(c) STATUS OF COMPANY PRODUCTS
LEXON's saleable products rely on software applications. LEXON believes
that such products are Year 2000 compliant. It should be noted that despite
these efforts, there can be no assurances that LEXON's current products do not
contain undetected errors or defects associated with Year 2000 date functions
that may result in additional costs to LEXON.
(d) STATUS OF INTERNAL SYSTEMS
LEXON has completed the process of conducting a company-wide assessment
of its internal computer systems and operations infrastructure to identify
computer hardware, software, and process control systems that are not Year 2000
compliant. Based on this assessment, LEXON believes that its order processing,
principal accounting and production systems are Year 2000 compliant.
Others systems, such as personal computers and office productivity
software, have been remediated specifically for Year 2000 issues, in many cases
through low cost or free upgrades provided by the product vendors. LEXON
believes that the majority of its business-critical computer systems are
presently Year 2000 compliant
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements,
including statements as to the sufficiency of funds to meet operating
requirements for the next 12 months and statements as to the Year 2000
assessment. The following important factors, among others, could cause actual
results to differ materially from those indicated by forward-looking statements
made in this Annual Report on Form 10-K and presented elsewhere by management
from time to time. In addition to the Other information in this Annual Report on
Form 10-K, the following issues and risks, among others, should be considered in
evaluating LEXON's outlook and future.
KNOWN TRENDS AND UNCERTAINTIES
(a) NEW PRODUCTS AND TECHNOLOGICAL CHANGE
LEXON believes that the Development Agreement with USGS provides LEXON
with an opportunity to become the primary repository and manager of credible,
public information about the geography, topography, environment, climates,
population, and socioeconomics of the United States that, due to the inability
to collect this information in a single database or library or the problems
associated with attempting to interpret this data in a meaningful, constructive
way, has previously been underutilized. LEXON believes that its role as the
repository and data manager under the Development Agreement will enable it to
become a leader in providing and packaging information to businesses and
individuals world-wide.
The cornerstone of LEXON's business strategy is Project JUPITER,
LEXON's information portal created to manage and package the information
collected and integrated in connection with the Development Agreement and the
National Atlas Project. Project JUPITER, currently in development, is designed
to be a robust research and information portal delivering and combining the
geo-referable, statistical, map, and information databases of the more
-24-
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than twenty government agencies contributing data to the National Atlas Project
into a concise, easy to use, centralized location enabling the user/subscriber
to enrich their learning experience and make better informed business decisions.
The marketable value of Project JUPITER will rely on the technical
ability to combine data from these government agencies in pre-packaged themes,
allowing the user to see data in combinations previously unavailable in any
other product or service, creating intelligent pictures. These intelligent
pictures will be generated by a proprietary expert system "on the fly,"
representing the information the user has selected and delivered in an easy-to-
understand picture rendered in real-time. Through Project JUPITER, LEXON intends
to repackage the digital information obtained from its participation under the
Development Agreement in combination with statistical and mapping information
from outside suppliers. LEXON believes that by seizing opportunities arising
from the public's interest in Internet map usage and by establishing a powerful
brand identity associated with its Project JUPITER, LEXON can empower a
generation of Americans with information about their country, its people and its
resources and significantly improve its financial condition and results of
operations.
A crucial component in LEXON's business strategy is to become a primary
provider of Internet based education and reference tool to schools, libraries,
and businesses. The original National Atlas of the United States was successful
as a resource for schools and libraries. LEXON Technologies believes that the
millennial National Atlas Project, given the advent of electronic and computer
learning systems, will have a vital impact on the information available to
public learning institutions and also provide students and library patrons with
a fun, easy-to-use method for learning and data gathering. LEXON, therefore,
intends to focus its marketing and distribution efforts on library and education
markets (comprising public libraries, K-12 schools, colleges and universities)
as the target for the first phase of the Project JUPITER product launch.
The software and information business is characterized by extremely
rapid technological change, evolving industry standards, and frequent new
product introductions. These conditions require continuous expenditures on
product research and development to enhance existing products and to create new
products. LEXON believes that the timely development of new products and
continuing enhancements to existing products is essential to maintain its
competitive position in the marketplace. LEXON's future success depends, in
part, upon customer and market acceptance of these new products. Any failure to
achieve acceptance of these and other new product offerings could have a
material adverse effect on LEXON's business and results of operations.
There can be no assurance that LEXON will successfully complete the
development of new or enhanced products or successfully manage transitions from
one product release to the next. In addition, if the USGS terminates the
Development Agreement, such a termination would have a materially adverse effect
on LEXON's financial condition and results of operations.
(b) COMPETITION
LEXON encounters significant competition in the market for an online
information and research portal on the Internet. Some of LEXON's competition may
have significant name recognition, as well as substantially greater capital
resources, marketing experience, research and development staffs and production
facilities than LEXON. Increased competition may lead to pricing pressures that
could adversely affect the LEXON's results of operations and financial
condition.
(c) USE OF THIRD PARTIES
LEXON relies in part on data supplied by the United States government
and strategic partners in the data reprocessing business. Failure by the United
States government to provide such data, or changes in the contractual
arrangements with such strategic partners could have a material adverse effect
on the LEXON's business and results of operations.
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(d) PRICES
Future prices LEXON will be able to obtain for its products may
decrease from previous levels depending upon market or competitive pressures or
distribution channel factors. Any decrease could have a material adverse effect
on LEXON's business and results of operations.
(e) INTELLECTUAL PROPERTY RIGHTS
LEXON regards its software as proprietary and attempts to protect it
with a combination of copyright, trademark and trade secret laws, employee and
third-party non-disclosure agreements, and other methods of protection. Despite
these precautions, it may be possible for unauthorized third parties to copy
certain portions of LEXON's products, reverse engineer or obtain and use
information LEXON regards as proprietary. Also, the laws of some foreign
countries do not protect LEXON's proprietary rights to the same extent as do the
laws of the United States. Any misappropriation of LEXON's intellectual property
could have a material adverse effect on LEXON's business and results of
operations. Furthermore, there can be no assurance that third parties will not
assert infringement claims against LEXON in the future with respect to current
or future products. Any such assertion could require LEXON to enter into royalty
arrangements or result in costly litigation.
(f) COST OF REVENUES
Cost of revenues varies with the mix of technology development and
subscription fees, product revenues, as well as with the distribution channel
mix. Changes in the revenue mix, as well as the distribution model, may affect
cost of revenues as a percentage of net revenues in the future.
(g) EXPANSION TO INTERNET MARKET
LEXON has historically marketed its products primarily in the direct
and retail market. LEXON has recently expanded its product offerings beyond this
market to the development of Project JUPITER in the Internet/intranet markets.
Sales to the Internet/intranet markets are directed to different decision-makers
within customer organizations and require different selling and marketing
programs than are used in the direct and retail market. The failure of these
products to achieve market acceptance could have a material adverse effect on
the LEXON's business and results of operations.
(h) VARIABILITY OF QUARTERLY OPERATING RESULTS
LEXON's quarterly operating results may vary significantly from quarter
to quarter, depending upon factors such as the introduction and market
acceptance of Project JUPITER, the ability to reduce expenses, and the
activities of competitors. Because a high percentage of LEXON's expenses are
directly related to the expansion of the business, this can cause significant
variations in quarterly operating results. LEXON operates with little or no
backlog and has yet to establish long-term contracts. Accordingly, LEXON's
ability to accurately forecast future revenues and income for any period is
necessarily limited.
(i) POTENTIAL VOLATILITY OF STOCK PRICE
There has been, and will likely continue to be, significant volatility
in the market price of securities of technology companies. Factors such as
announcements of new products by LEXON or its competitors, quarterly
fluctuations in LEXON's financial results or other software companies' financial
results, shortfalls in LEXON's actual financial results compared to results
previously forecasted by stock market analysts, and general conditions in the
software industry and conditions in the financial markets could cause the market
price of the Common Stock to fluctuate substantially. These market fluctuations
may adversely affect the price of LEXON's Common Stock.
(j) RISKS ASSOCIATED WITH DISTRIBUTION CHANNELS
LEXON will primarily market and distribute its products in North
America through LEXON's telesales, outside sales force and through manufacturer
representatives. LEXON has limited control over representatives that are not
employees of LEXON.
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There can be no assurance that LEXON will be able to retain its current
representatives, that its representatives will perform to LEXON's expectations,
or that LEXON will be able to expand its distribution channels by entering into
arrangements with new representatives in LEXON's current markets or in new
markets.
(k) ATTRACTING AND RETAINING KEY EMPLOYEES
LEXON's continued success will depend in large part on its ability to
attract and retain highly qualified technical, managerial, sales and marketing
and other personnel. Competition for such personnel is intense. There can be no
assurance that LEXON will be able to continue to attract or retain such
personnel.
(l) NEED FOR ADDITIONAL CAPITAL
If the Company's current cash reserves become inadequate, it may need
to seek additional funds through bank facilities, or public or private debt or
equity offerings. There can be no assurance that the Company will be able to
obtain additional capital on favorable terms, or at all, if and when it becomes
necessary. The terms on which the Company obtains any necessary capital in the
future could have an adverse impact on the rights of holders of LEXON common
stock. In addition, if the Company is unable to raise additional capital if and
when necessary, it may be unable to successfully complete its business strategy
or continue its operations on a going forward basis.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LEXON does not currently possess a significant or material investment
portfolio due to limitations on its cash resources. To the extent that LEXON's
cash resources are invested in interest bearing or investment-type accounts,
LEXON's investment portfolio is 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 lattered 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. LEXON uses forward currency
exchange contracts to hedge foreign currency exposures for a certain supplier.
The contracts mature on various dates and may have maturities up to one year.
Such contracts are executed by a major financial institution whereby risk of
credit loss is minimized.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-28-
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LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
REPORT ON EXAMINATION
YEARS ENDED DECEMBER 31, 1999 AND 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LEXON Technologies, Inc.
We have audited the accompanying consolidated balance sheets of
LEXON Technologies, Inc. and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of income (loss), changes in stockholders'
equity (deficit), and cash flows for each of the three years ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of LEXON
Technologies, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Hutton, Nelson & McDonald LLP
Oakbrook Terrace, Illinois
February 18, 2000, except for
Note 17 to the consolidated
financial statements as to
which the date is March 6, 2000
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LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-------------------
1999 1998
Current assets
Cash $ 20,892 $ 71,526
Accounts receivable, less allowance for doubtful
accounts of $2,500 and $25,000 18,153 98,175
Inventories 1,656 8,013
Prepaid expenses 12,570
-------- --------
Total current assets 53,271 177,714
-------- --------
Property and equipment
Leasehold improvements 29,744 3,971
Furniture and equipment 178,452 107,791
Capital leases 105,458
-------- --------
313,654 111,762
Accumulated depreciation 116,631 79,625
-------- --------
197,023 32,137
Deferred charges and other assets
Computer software costs, net of accumulated
amortization of $76,875 in 1999 and $16,343
in 1998 325,279 54,845
Unamortized debt issue costs 38,442
Deferred charges 72,440
Deposits 17,762
-------- --------
453,923 54,845
-------- --------
$704,217 $264,696
======== ========
The accompanying notes are an integral
part of these financial statements.
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LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
--------------------------
1999 1998
----------- -----------
Current liabilities
Current maturities of long-term debt $ 19,286 $
Notes payable 1,123,000
Accounts payable 217,618 5,740
Accrued liabilities
Salaries 51,600
Payroll taxes 7,731
Interest 23,219
Distributions 209,774
----------- -----------
Total current liabilities 1,644,497 13,471
----------- -----------
Long-term debt 82,499
-----------
Stockholders' equity (deficit)
Common stock, par value $.001 per share;
authorized 100,000,000 shares; issued and
outstanding 12,441,561 and 11,500,081
shares 12,442 11,500
Additional paid-in capital 68,119
Retained earnings (deficit) (1,103,340) 239,725
----------- -----------
(1,022,779) 251,225
----------- -----------
$ 704,217 $ 264,696
=========== ===========
The accompanying notes are an integral
part of these financial statements.
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LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
Sales $ 749,793 $ 1,175,295 $ 1,934,433
Cost of sales 309,159 333,357 890,586
------------ ------------ ------------
Gross profit 440,634 841,938 1,043,847
Selling and administrative expense 1,454,008 765,202 1,081,036
------------ ------------ ------------
Income (loss) from operations (1,013,374) 76,736 (37,189)
Other income (expense)
Interest income 3,246
Interest expense (82,427)
Loss on disposition of assets (3,338) (13,100)
Miscellaneous 6,411
------------ ------------ ------------
Income (loss) before income taxes (1,089,482) 63,636 (37,189)
Income taxes 927
------------ ------------ ------------
Net income (loss) $ (1,089,482) $ 63,636 $ (38,116)
============ ============ ============
Weighted average common shares outstanding 11,640,886 11,500,081 11,500,081
============ ============ ============
Basic and diluted earnings (loss) per common
share $ (.09) $ .01 $ (.00)
============ ============ ============
The accompanying notes are an integral
part of these financial statements.
-32-
35
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional Retained Total
--------------------------- Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity (Deficit)
----------- ------------ ---------- ------------ ---------------
Balance, January 1, 1997 70,000,000 $ 70,000 $ $ 347,400 $ 417,400
Effect of one-for-seventy reverse
stock split (68,999,919) (69,000) (69,000)
Restatement for reverse acquisition
of Rexford, Inc. by Chicago Map
Corporation 10,500,000 10,500 (10,500)
Net loss (38,116) (38,116)
Cash distributions (62,420) (62,420)
---------- ----------- ---------- ---------- ----------
Balance, December 31, 1997 11,500,081 11,500 236,364 247,864
Net income 63,636 63,636
Cash distributions (60,275) (60,275)
---------- ----------- ---------- ---------- ----------
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)
========== =========== ========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
-33-
36
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $(1,089,482) $ 63,636 $ (38,116)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 37,639 13,890 13,222
Amortization 87,990 16,343 17
Loss on disposition of assets 3,338 13,100
Change in assets (increase) decrease 73,809 6,400 (23,738)
Change in liabilities increase (decrease) 238,417 (1,079) (37,651)
----------- ----------- -----------
Net cash provided by (used in)
operating activities (648,289) 112,290 (86,266)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment 425
Capital expenditures (100,405) (7,847) (17,880)
Payment of computer software costs (330,966) (49,158) (22,030)
Payment of debt issue costs (65,900)
Payment of deferred charges (72,440)
Payment of deposits (17,762)
----------- ----------- -----------
Net cash used in investing activities (587,473) (56,580) (39,910)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 1,123,000
Principal payments under capital lease obligations (3,673)
Proceeds from issuance of common stock 69,561
Cash distributions paid to stockholders (3,760) (60,275) (62,420)
----------- ----------- -----------
Net cash provided by (used in) financing
activities 1,185,128 (60,275) (62,420)
----------- ----------- -----------
Net decrease in cash (50,634) (4,565) (188,596)
Cash at beginning of year 71,526 76,091 264,687
----------- ----------- -----------
Cash at end of year $ 20,892 $ 71,526 $ 76,091
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 62,958 $ 927 $ 1,728
Income taxes
Noncash investing and financing activities:
Net liabilities assumed in reverse acquisition of
Rexford, Inc. 40,549
Capital lease obligations incurred when Company
entered into leases for new equipment 105,458
The accompanying notes are an integral
part of these financial statements.
-34-
37
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial
statements include the accounts of LEXON Technologies, Inc. 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 $60,532 and
$16,343 in 1999 and 1998, respectively. No amortization was charged to income in
1997. 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 $27,458 in 1999. No
amortization was charged to income in 1998 and 1997.
Deferred Charges - Deferred charges consist of incremental costs
incurred in connection with a proposed offering of securities. The costs will be
charged against the proceeds of the offering. If the offering is rescinded, the
costs will be expensed immediately.
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 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.
-35-
38
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 1,955,418 in
1999 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 1998 and 1997.
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
statements of income (loss) include operations of Chicago Map for each of the
three years ended December 31, 1999 and operations of Rexford from July 21, 1999
(date of acquisition) through December 31, 1999. The consolidated financial
statements assume that the acquisition of Rexford by Chicago Map occurred on
January 1, 1997.
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.
-36-
39
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
7. DEPRECIATION
Depreciation was charged to income, based on the estimated useful
lives of the assets, in the following amounts:
Estimated
1999 1998 1997 Life - Years
--------- --------- --------- ------------
Leasehold improvements $ 1,085 $ 260 $ 428 5 - 39
Furniture and equipment 21,489 13,630 12,794 3 - 7
Capital leases 15,065 7
------ --------- ---------
$37,639 $ 13,890 $ 13,222
====== ========= =========
8. NOTES PAYABLE
Notes payable at December 31, 1999 consist of the following:
Promissory notes due on August 1, 2000 with interest
payable monthly at 18%. Effective February 1, 2000,
the interest rate was adjusted to 12% $ 750,000
Promissory note due on March 26, 2000 with interest
payable at maturity at 12% 100,000
Promissory notes with stockholders and employees due
on various dates through April 29, 2000. Interest at
12% is payable at maturity 273,000
----------
$1,123,000
==========
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 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 March 26, 2000 and through April 29,
2000 are secured by the accounts receivable of Chicago Map Corporation.
-37-
40
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
Obligation under capital lease payable in monthly installments
of $1,556, including interest, through September 2003 $ 52,836
Obligation under capital lease payable in monthly installments
of $1,205, including interest, through September 2004 48,949
--------
101,785
Current maturities 19,286
--------
$ 82,499
=========
Scheduled maturity requirements of long-term debt are as follows:
Year ending December 31,
------------------------
2000 $ 19,286
2001 21,837
2002 25,480
2003 25,002
2004 10,180
--------
$101,785
========
10. LEASE COMMITMENTS
The Company leases office facilities under an operating lease
expiring on May 31, 2004. Under terms of the lease, the Company is responsible
for insurance, utilities, repairs and maintenance, and a prorata share of any
increase in real estate taxes. Future minimum lease commitments under all
noncancelable leases in effect at December 31, 1999 are as follows:
Leases
-----------------------
Year ending December 31, Operating Capital
------------------------ --------- ---------
2000 $ 96,664 $ 34,343
2001 99,563 33,139
2002 102,549 33,139
2003 105,625 28,469
2004 44,551 10,846
-------- --------
Net minimum lease payments $448,952 139,936
=======
Less amount representing interest 38,151
--------
Present value of net minimum lease payments $101,785
=======
-38-
41
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. LEASE COMMITMENTS (Continued)
The present value of minimum future obligations under capital
leases is based on interest rates determined to be applicable at the inception
of the leases.
The capital lease obligations are secured by equipment with a
carrying value of $90,393 at December 31, 1999.
Total lease related expenses for the capital leases in 1999 were
as follows:
Depreciation expense $15,065
Interest expense 1,584
-------
$16,649
=======
Rent expense for all operating leases charged to income for the
years ended December 31, 1999, 1998 and 1997 approximated $84,000, $46,000 and
$59,000, respectively.
11. 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.
12. 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 1999, the Company issued 3,504,096 stock options, all of
which were outstanding and exercisable at December 31, 1999. 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 was $2.40
per share in 1999. The weighted average life of the options outstanding at
December 31, 1999 was 9.55 years.
-39-
42
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. STOCK-BASED COMPENSATION (Continued)
Pro forma information regarding 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 1999 follows:
Pro Forma As Reported
--------- -----------
Net loss $(3,241,927) $(1,089,482)
Loss per common share
Basic (0.28) (0.09)
Diluted (0.28) (0.09)
These pro forma amounts may not be representative of the effects
of such disclosures in future years.
13. STOCK PURCHASE WARRANTS
In connection with the issuance of notes payable during 1999, the
Company issued stock purchase warrants to note holders 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 December
31, 1999 consist of the following:
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 $.50
per share with expiration dates ranging from
May 2001 to June 2001 373,000
---------
1,021,000
=========
14. 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.
-40-
43
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. INCOME TAXES
The provision for income taxes of $927 for the year ended
December 31, 1997 was due to state income taxes. Since Chicago Map Corporation
had elected S corporation status, no provision was made for federal income
taxes. Chicago Map Corporation terminated its S corporation election on July 21,
1999 upon its acquisition by Rexford, Inc.
The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial reporting 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 December 31, 1999 consist
of the following:
Deferred tax assets
Allowance for doubtful accounts $ 969
Accrued expenses 9,692
Net operating loss carryforwards 397,368
--------
Gross deferred tax assets 408,029
Valuation allowance (398,682)
--------
9,347
Deferred tax liabilities
Depreciation 5,782
Capital leases 2,129
Amortization of computer software costs 1,436
----------
9,347
$ --
==========
At December 31, 1999, the Company had net operating loss
carryforwards for tax purposes of $1,025,764 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
----------
$1,025,764
==========
-41-
44
LEXON TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. TRANSACTION WITH RELATED PARTY
During 1999, 1998 and 1997, 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 $12,000 in 1999, $36,000 in
1998 and $36,000 in 1997.
17. SUBSEQUENT 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. Currently, the Company is pursuing the transfer of its lease
obligations to a third party and the reissuance of its office lease 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.
The Company incurred a net loss of $1,089,482 in 1999 and used
substantial amounts of working capital in its operations. At December 31, 1999,
current liabilities exceeded current assets by $1,591,226 and total liabilities
exceeded total assets by $1,022,779. However, management believes that the
changes that have been implemented since December 31, 1999 and the initiatives
that are being pursued will provide the Company with the opportunity to continue
as a going concern.
-42-
45
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section of the Company's 2000 Proxy Statement entitled "Directors and
Executive Officers of the Company" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section of the 2000 Proxy Statement entitled "Executive Compensation"
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section of the 2000 Proxy Statement entitled "Security Ownership of
Certain Beneficial Owners and Management" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section of the 2000 Proxy Statement entitled "Certain Relationships
and Related Transactions" is incorporated herein by reference.
-43-
46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
Page Incorporation
Exhibit Number (if by Reference (if
Number Description of Documents applicable) applicable)
- ------ ------------------------ ----------- ----------------
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...................................
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...............
-44-
47
Page Incorporation
Exhibit Number (if by Reference (if
Number Description of Documents applicable) applicable)
- ------ ------------------------ ----------- ----------------
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..............................................
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......................
11.1 Statement Re: Computation of Per Share Earnings .....................
21 List of LEXON Technologies, Inc. Subsidiaries ......................
23.1 Consent of Auditor...................................................
-45-
48
Page Incorporation
Exhibit Number (if by Reference (if
Number Description of Documents applicable) applicable)
- ------ ------------------------ ----------- ----------------
24 Power of Attorney (contained in the signature page hereto)..........
27 Financial Data Schedule.............................................
+ 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.
(b) CURRENT REPORTS ON FORM 8-K
None.
-46-
49
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) 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.
/s/ Anthony Perino
-------------------------------------------
Anthony Perino, Chairman of the Board and
Chief Executive Officer
/s/ Kenneth J. Eaken
-------------------------------------------
Kenneth J. Eaken, President and Chief
Operating Officer
/s/ Jerome J. Wolowicki
-------------------------------------------
Jerome J. Wolowicki, Director, Chief
Financial Officer and Treasurer
/s/ Steven J. Peskaitis
-------------------------------------------
Steven J. Peskaitis, Director and Senior
Vice President of Business Development and
Secretary
/s/ Paris Karahalios
-------------------------------------------
Paris Karahalios, Director and Senior Vice
President of Product Development
/s/ Peter J. Haleas
-------------------------------------------
Peter J. Haleas, Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitute
and appoint Anthony Perino and Jerome J. Wolowicki their true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for them and in their name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Anthony Perino
-------------------------------------------
Anthony Perino, Chairman of the Board and
Chief Executive Officer
-47-
50
/s/ Kenneth J. Eaken
-------------------------------------------
Kenneth J. Eaken, President and Chief
Operating Officer
/s/ Jerome J. Wolowicki
-------------------------------------------
Jerome J. Wolowicki, Director, Chief
Financial Officer and Treasurer
/s/ Steven J. Peskaitis
-------------------------------------------
Steven J. Peskaitis, Director and Senior
Vice President of Business Development and
Secretary
/s/ Paris Karahalios
-------------------------------------------
Paris Karahalios, Director and Senior Vice
President of Product Development
/s/ Peter J. Haleas
-------------------------------------------
Peter J. Haleas, Director
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LEXON TECHNOLOGIES, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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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.
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
4.15 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.
10.2 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.
10.4 Employment Agreement, dated as of March 12, 1999, by and
between Chicago Map Corporation and Paris Karahalios
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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
11.1 Statement Re: Computation of Per Share Earnings
21 List of LEXON Technologies, Inc. Subsidiaries
23.1 Consent of Auditor
24 Power of Attorney (contained in the signature page hereto)
27 Financial Data Schedule
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