10-Q 1 v157829_10q.htm Unassociated Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10−Q
 
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2009
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
 
Commission File No. 0-33131
 
LEXICON UNITED INCORPORATED
 (Exact name of small business issuer as specified in its charter)

DELAWARE
06-1625312
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

 
4500 Steiner Ranch Blvd.
 
 
Suite # 1708, Austin, Texas 78732
 
 
(Address of Principal Executive Offices)
 
     
 
(512) 266-3507
 
 
(Registrant’s Telephone Number, Including Area Code)
 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every interactive Data  File  required to be submitted and posted pursuant to Rule 405 of Regulation  S-T  during  the preceding 12 months (or  for  such  shorter  period  that  the  registrant  was required to submit and post such files).  o Yes  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o 
Accelerated Filer o 
Non-Accelerated Filer o
(Do not check if a smaller
reporting company) 
Smaller Reporting Company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes ¨  No  x
 
The numbers of shares outstanding of each of the issuer’s classes of common equity, as of August1, 2009, are as follows:
 
Class of Securities
Shares Outstanding
Common Stock, $0.001 par value
8,691,134

 
  

 

TABLE OF CONTENTS
 

 
PART I - FINANCIAL INFORMATION
     
ITEM 1.
INTERIM FINANCIAL STATEMENTS
  3
ITEM 2.
MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
  13
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  21
ITEM 4A(T).
CONTROLS AND PROCEDURES
  21
     
PART II - OTHER INFORMATION
   
 
ITEM 1.
LEGAL PROCEEDINGS
  22
ITEM 1A
RISK FACTORS
  22
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
  22
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
  22
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  22
ITEM 5.
OTHER INFORMATION
  22
ITEM 6.
EXHIBITS
  22
     
SIGNATURES
 
  23

 
2

 

PART I - FINANCIAL INFORMATION

ITEM 1.        INTERIM FINANCIAL STATEMENTS

 
3

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
June 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 192,823     $ 291,453  
Accounts receivable
    324,221       342,144  
Other  receivables
    278,378       211,520  
Prepaid expenses
    1,742       163  
Total current assets
    797,164       845,280  
                 
FIXED ASSETS
               
Building, equipment, and leasehold improvements,
               
net of accumulated depreciation of $336,800 and
               
$237,570 at June 30, 2009 and December 31, 2008, respectively
    525,041       478,896  
                 
OTHER ASSETS
               
                 
Investment in receivable portfolios
    604,856       529,742  
Customer Lists,  net of amortization of $179,802 and $154,116 at June 30, 2009 and December 31, 2008, respectively
    333,931       359,617  
Tradenames, net of amortization of $77,059 and $66,050 at June 30, 2009 and December 31, 2008, respectively
    143,112       154,120  
Goodwill
    693,141       693,141  
Security deposit
    1,350       1,350  
Total other assets
    1,776,390       1,737,970  
                 
TOTAL ASSETS
  $ 3,098,595     $ 3,062,146  
                 
CURRENT LIABILITIES
               
Loans payable to banks
  $ 277,031     $ 267,039  
Current portion of long term debt
    296,725       365,782  
Bank Overdrafts
    316,159       301,282  
Note payable to an individual
    361,244       292,262  
Accounts Payable
    172,303       102,049  
Loans payable to officer
    338,967       187,605  
Accrued Expenses
    745,756       477,571  
Accrued Municipal Service Taxes
    149,342       125,017  
Accrued Payroll and related taxes
    1,178,621       984,358  
Accrued Employee Benefits
    136,163       113,919  
                 
Total Current Liabilities
    3,972,311       3,216,884  
                 
LONG TERM LIABILITIES
               
Long term debt
    135,287       167,872  
                 
Total Long Term Liabilities
    135,287       167,872  
                 
TOTAL LIABILITIES
    4,107,598       3,384,756  
                 
STOCKHOLDERS' DEFICIT
               
Preferred stock $0.001 par value, 10,000,000
               
shares authorized, none issued and outstanding
    -       -  
Common stock $0.001 par value, 40,000,000
               
shares authorized, 8,708,134 and 8,696,134 shares
         
issued and outstanding at June 30, 2009 and December 31, 2008 respectively
    8,708       8,696  
Paid in capital
    2,749,942       2,725,954  
Accumulated other comprehensive loss
    (455,496 )     (99,028 )
Accumulated deficit
    (3,279,266 )     (2,958,232 )
Total Lexicon Stockholders' Deficit
    (976,112 )     (322,610 )
                 
Non-Controlling Interest
    (32,891 )     -  
Total Deficit
    (1,009,003 )     (322,610 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 3,098,595     $ 3,062,146  

See accompanying notes to financials.

 
4

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
REVENUES
                       
Service revenue
  $ 882,569     $ 1,211,244     $ 1,662,405     $ 2,096,109  
Revenue from receivable portfolios
    47,906       -       78,215       -  
Total revenues
    930,475       1,211,244       1,740,620       2,096,109  
                                 
COST OF SERVICES
    573,022       784,879       1,063,812       1,274,936  
                                 
GROSS PROFIT
    357,453       426,365       676,808       821,173  
                                 
COSTS AND EXPENSES
                               
Selling, general and administrative
    304,185       345,469       655,086       858,373  
Depreciation
    24,978       38,670       47,402       79,439  
Amortization
    18,347       18,347       36,694       36,694  
Total costs and expenses
    347,510       402,486       739,182       974,506  
                                 
OPERATING INCOME (LOSS)
    9,943       23,879       (62,374 )     (153,333 )
                                 
OTHER INCOME (LOSS)
                               
Interest expense
    (163,376 )     (140,231 )     (326,972 )     (261,597 )
Foreign exchange and other
    45,609       (4,463 )     40,237       884  
Total Other Income(loss)
    (117,767 )     (144,694 )     (286,735 )     (260,713 )
                                 
NET LOSS BEFORE INCOME TAX
    (107,824 )     (120,815 )     (349,109 )     (414,046 )
                                 
Income tax
    -       -               -  
                                 
NET LOSS
    (107,824 )     (120,815 )     (349,109 )     (414,046 )
                                 
Less: Net loss attributable to the noncontrolling interest
    (6,460 )             (28,077 )        
                                 
NET LOSS ATTRIBUTABLE TO LEXICON UNITED INCORPORATED
  $ (101,364 )   $ (120,815 )   $ (321,032 )     (414,046 )
                                 
NET LOSS  PER COMMON SHARE
  $ (0.01 )   $ (0.01 )   $ (0.04 )   $ (0.05 )
                                 
WEIGHTED AVERAGE COMMON SHARES
                               
OUTSTANDING
    8,708,134       8,526,633       8,706,742       8,491,636  

See accompanying notes to financials.

 
5

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

   
Six Months Ended
 
   
June 30,
 
   
2009
   
2008
 
             
CASH FLOWS FROM OPERATING ACTIVITES
           
Net loss
  $ (349,109 )   $ (414,046 )
Noncash items included in net loss
               
Depreciation
    47,402       84,731  
Amortization of intangibles
    36,694       36,694  
Accrued interest on loans to individual
    48,235       -  
Stock based compensation
    24,000       -  
Decrease (increase) in assets:
               
Accounts receivable
    (70,931 )     (83,929 )
Other receivables
    131,333       (67,633 )
Prepaid expenses
    (1,547 )     (7,868 )
Security deposit
    -       (1,350 )
Investment in receivable portfolio
    53,849       (309,856 )
Increase (decrease) in liabilities:
               
Accounts payable
    27,189       (11,390 )
Accrued expenses
    181,695       198,502  
                 
NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES
   
128,810
      (576,145 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of fixed assets
    (4,988 )     (23,677 )
                 
NET CASH USED IN  INVESTING ACTIVITIES
    (4,988 )     (23,677 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Loan from Keyano Invest, Inc
    -       1,000,000  
Loan from related party
    213,048       8,767  
Repayment of loans
    (523,595 )     (467,155 )
Proceeds of new loans
    93,527       -  
Issuance of common stock
    -       10,500  
                 
NET CASH PROVIDED BY (USED) BY  FINANCING ACTIVITIES
    (217,020 )     552,112  
                 
EFFECT OF EXCHANGE RATE OF CASH
    (5,431 )     30,340  
                 
NET INCREASE (DECREASE) IN CASH
    (98,629 )     (17,370 )
                 
CASH, beginning of period
    291,453       467,195  
                 
CASH, end of period
  $ 192,824     $ 449,825  


 
6

 

LEXICON UNITED INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

   
For the six months ended June 30,
 
   
2009
   
2008
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
           
Interest paid
  $ 278,737     $ 121,366  
                 
Non cash items
               
Purchase of furniture and equipment
  $ -     $ 41,350  
                 
Conversion of loan from Keyano  Invest, Inc to common stock
         
800,000
 
                 
Loans and accounts payable incurred for acquisition of receivable portfolio
          $ 503,438  

See accompanying notes to financials.

 
7

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2009

NOTE A – BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included.  Results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.  For further information, refer to the financial statements and footnotes thereto included in the Lexicon United Incorporated annual report on Form 10-KSB for the year ended December 31, 2008 filed April 15, 2009.

NOTE B – GOING CONCERN

As indicated in the accompanying financial statements, the Company has an accumulated deficit of $3,279,266 and negative working capital of $3,175,147 at June 30, 2009. Management’s plans include raising adequate capital through the equity markets to fund future operations and generating of revenue through its businesses. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE C– PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Lexicon United Incorporated, its 80% owned subsidiary, ATN Capital E Participacoes Ltda and its 100% owned subsidiaries Engepet Energy Enterprises, Inc. and United Oil Services, Inc.  All material intercompany transactions have been eliminated in consolidation. Engepet and United were newly founded in 2008 and their transactions were not deemed to be significant.

NOTE D – NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2009, the Company adopted Financial Accounting Standards Board’s )FASB) Statement No. 160 (FAS 160), “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51. “FAS 160 changed the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity.  FAS 160 required retrospective adoption of the presentation and disclosure requirements for existing minority interests.  All other requirements of FAS 160 will be applied prospectively.   The adoption of FAS 160 did not have a material impact on the Company’s financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.”  This FASB Staff Position amends FASB Statement NO. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FASB Staff Position also amends APB Opinion No. 28, “Interim Financial Reporting,” to require certain disclosures in summarized financial information at interim reporting periods.  This standard will be effective for the Company’s second quarter ended June 30, 2009.  The Company is in the process of determining the effects of the adoption of this standard on its consolidated financial statement disclosures.

 
8

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2009

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.”  This FASB Staff Position provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased.  It also includes guidance on identifying circumstances that indicate a transaction is not orderly.  This standard will be effective for the Company for its second quarter ended June 30, 2009.  The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements.
 
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have an impact on our financial position or results of operations. We evaluated all events or transactions that occurred after June 30, 2009 up through August 10, 2009, the date our financials were issued. During this period, we did not have any material recognizable subsequent events.
 
In June 2009, the FASB approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All existing non-SEC accounting and reporting standards will be superseded and all other accounting literature not included in the Codification will be considered nonauthoritative. The Codification is effective for interim and annual periods ending after September 15, 2009. We do not expect the adoption to have a material impact on our financial position, results of operation or cash flows.

NOTE E – FAIR VALUE MEASUREMENTS

On January 1, 2008, The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), for financial assets and liabilities.  On January 1, 2009, the Company adopted the provisions of FAS 157 for non-financial assets and non-financial liabilities that are recognized and disclosed at fair value on a nonrecurring basis.  FAS 157 defines fair-value, provides guidance for measuring fair value and requires certain disclosures.  It does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.

FAS 157 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability,  either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The Company’s financial instruments measured at fair value on a recurring basis are summarized below:
       
Fair
       
   
Fair
 
Value at
   
Fair Value at
 
   
Value
 
June 30,
   
December 31,
 
Financial Instruments
 
Hierarchy
 
2009
   
2008
 
                     
Cash and cash equivalents
 
Level 1
  $ 192,823     $ 291,453  

 
9

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2009

The Company does not have any non-financial assets or liabilities that are measured at fair value on a non-recurring basis.

NOTE F– INVESTMENT IN RECEIVABLE PORTFOLIO

The Company’s subsidiary ATN Capital e Participacoes Limitada (“ATN”) has extensive experience in the field of distressed credit card and consumer loan receivable collections.  It had previously only collected distressed debt for large credit card companies and financial institutions in Brazil, on a commission basis.  In 2008, in addition to working for the large institutions, it decided to purchase its own portfolio of distressed debt.  The portfolio was purchased for R$1,299,458 (approximately US$816,294) on June 2, 2008.  The portfolio includes past due and unpaid debt from more than 41,000 Brazilian consumers and has a face value of approximately R$500,000,000 (or US$305 million as of the purchase date).

The Company has adopted AICPA Statement of Position 03-3 (“SOP 03-3”), “Accounting for Loans or Certain Securities Acquired in a Transfer”.  In accordance with SOP 03-3, the company is required to segregate the portfolio into pools.  Accordingly, the Company has defined three distinct pools and identified the related cost allocations by pool.   SOP 3-03 addresses accounting for differences between contractual cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality.  SOP 03-3, limits accretable yield to the excess of the investor’s estimate of undiscounted cash flows over the investor’s initial investment in the loan and prohibits the recognition of the non-accretable difference.  Under SOP 3-03, subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life while any decreases in cash flows expected to be collected should be recognized as impairments.

During the six months ended December 31, 2008, the Company actually collected $169,936 which was $79,914 in excess of the amount provided in its original projections.  During the six months ended June 30, 2009, the Company actually collected $78,215 which was $35,245 less than the amount provided in its original projections on a quarterly basis.  The Company believes that its original projections are still accurate and attributes the decreased collections to a reduction in manpower used during the quarter.  Management expects to boost its efforts during the second quarter and therefore no impairment has been recognized.  The excess cash collections from 2008 combined with the decreased cash collections for the six months ended June 30, 2009 and the changes in exchange rates provided a reduction to the projected ended carrying amount of $14,729.

The following table reflects the carrying amount and cash flows expected to be collected for the quarters ending June 30 and December 31, 2009 and the years ending December 31, 2010 through 2013:
   
Beginning
   
Cash Flows
Expected
         
Reduction
     
Ending
 
Year Ended
 
Carrying
   
to be
   
Interest
   
of Carrying
   
Carrying
 
31-Dec
 
Amount
   
Collected
   
Income
   
Amount
   
Amount
 
                               
June 2009
  $ 646,585     $ 78,215     $ 51,215     $ 27,000     $ 619,585  
2009
    619,585       149,313       97,581       51,731       567,854  
2010
    567,854       234,757       134,313       100,444       467,410  
2011
    467,410       234,757       110,555       124,202       343,209  
2012
    343,209       234,757       81,401       153,356       189,852  
2013
    189,852       234,757       44,905       189,852          
                                      0  
Totals
          $ 1,166,556     $ 519,971     $ 646,585          

 
10

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2009

Accretable yield has been calculated as follows:

Cash flows expected to be collected as of 6/30/09
  $ 1,166,556  
Less: Beginning carrying amount
    646,585  
  Yield accreted June 30, 2009
    51,215  
         
Accretable Yield as of 6/30/09
  $ 468,756  

The Company financed the purchase of the portfolio with two Notes Payable totaling R$626,200.  The notes are due December 2009 and bear interest at the rate of 2.0% per month.  The notes are included in the captions loans from officer and loan from an individual on the balance sheet.  The loan from an individual is deemed to be a related party because of his affiliation with the Company. At June 30, 2009, the balance of the loan including accrued interest, from officer is $79,541 and the loan from an individual is $331,422.

Due to the strengthening US dollar, there has been a change in the value of the purchase price of the receivable portfolio from $816,294 at June, 2, 2008 to $665,842 at June 30, 2009.  The difference of $150,452 is included in accumulated other comprehensive loss.

NOTE G – USE OF ESTIMATES

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

NOTE H– REVENUE RECOGNITION

The Company derives its revenue primarily from collection of distressed debt by entering into non binding agreements with financial institutions to collect their delinquent debt.  Once an agreement is reached with the debtor of the financial institution based upon established parameters, and installment agreement is established.  The Company is then entitled to a commission on the agreed settlement.  The Company earns and records the pro rata commission for each installment, when the installment payments are received from the debtors.  Revenue from the collection of distressed debt owned by the Company is recognized based on AICPA Statement of Position 03-3 using the interest method.  The interest method applies an effective interest rate to the cost basis of each pool, which remains unchanged throughout the life of the pool unless there is an increase or decrease in subsequent cash flows.  Revenue from receivable portfolios is accrued based on each pool’s effective interest rate applied to each pool’s adjusted cost.  See Note C to Financial Statements.

NOTE I – FIXED ASSETS

During the quarter ended June 30, 2009, the Company purchased new computer equipment valued at approximately $4,988.

NOTE J – RELATED PARTY

On January 7, 2009 and June 1, 2009 the Company borrowed funds totaling approximately $30,200 and $5,000, respectively, from a shareholder.  The interest rate is 2% per month.  There is no maturity date, however, if either party decides to end the agreement, the loan must be repaid within 30 days.

 
11

 

LEXICON UNITED INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2009

During the quarter ended September 30, 2008, the Company borrowed approximately $352,000 from two related parties to finance the purchase of a receivable portfolio.  The notes are due December 2009 and bear interest at the rate of 2.0% per month.  The notes are included in the caption loans from officer and loan from an individual on the balance sheet.  The loan from this individual is deemed to be a related party because of his affiliation with the Company. At June 30, 2009, the balance of the loan from officer is $79,541 and the loan from this individual is $331,422.

On a periodic basis the Company borrows funds from shareholders for working capital.  At June 30, 2009 these borrowings total $220,819.

NOTE K - STOCKHOLDERS’ EQUITY

As of January 1, 2008, the Company has included 5,000 of its common shares as issued and outstanding for professional fees incurred.  The shares were valued at $2.50 per share.  Consulting expense charged to operations as of December 31, 2008 was $12,500.  These shares are included as outstanding but have not yet been issued.

On January 22, 2009, the Company has included 12,000 of its common shares as issued and outstanding for consulting fees incurred. The shares were valued at $2.00 per share.  Consulting expense charged to operations as of June 30, 2009 was $24,000.  These shares are included as outstanding but have not yet been issued.

 
12

 

ITEM 2.
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction with our financial statements and the notes thereto.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND USE OF TERMS
 
This annual report contains forward-looking statements, which reflect our views with respect to future events and financial performance.  These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements.  These forward-looking statements are identified by, among other things, the words “anticipates”, “believes”, “estimates”, to expects”, “plans”, “projects”, “targets” and similar expressions.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Important factors that may cause actual results to differ from those projected include the following factors:
 
 
·
our potential inability to raise additional capital;

 
·
our potential inability to obtain the right to develop our target markets or to exploit the rights currently held by us;

 
·
our potential inability to compete with other finance companies that may be more experienced and better capitalized than us;

 
·
changes in domestic and foreign laws, regulations and taxes;

 
·
changes in economic conditions;

 
·
lack of resources compared to our competitors;

 
·
uncertainties and risks related to the legal systems and economics in our target markets, including Brazil’s legal system and economic, political and social events in Brazil and other target markets;

 
·
fluctuations in currency exchange rates;

 
·
the effects of any applicable currency restrictions, including any restrictions on the repatriation of funds back to the United States;

 
·
a general economic downturn or a downturn in the securities markets;

 
·
Regulations of the Commission which affect trading in the securities of “penny stocks;” and

 
·
other risks and uncertainties.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Except as otherwise indicated by the context, references in this report to:
 
 
·
“Lexicon,” “we,” “us,” “our,” or the “Company,” are references to Lexicon United Incorporated, and its consolidated subsidiary, including, after February 27, 2006, ATN;

 
·
“ATN” are to ATN Capital E Participações Ltda.

 
·
“Brazil” are to the Federative Republic of Brazil;

 
·
“U.S. dollar,” “$” and “US$” are to the legal currency of the United States;

 
·
“Real,” “R$,” and “Reais” are to the legal currency of Brazil;

 
·
the “SEC” or the “Commission” are to the United States Securities and Exchange Commission;

 
13

 

 
·
the “Securities Act” are to Securities Act of 1933, as amended; and

 
·
the “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
 
Overview

Our Background and History

Our corporate name is Lexicon United Incorporated. We were incorporated on July 17, 2001 in the state of Delaware. We were a “blank check” company and had no operations other than organizational matters and conducting a search for an appropriate acquisition target until February 27, 2006 when we completed an acquisition transaction with ATN, a Brazilian limited company that had commenced business in April 1997. ATN is engaged in the business of managing and servicing accounts receivables for large financial institutions in Brazil.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with US generally accepted accounting principles and our discussion and analysis of our financial condition and results of operations require our management to make judgments, assumptions, and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Management believes our critical accounting policies and estimates are those related to revenue recognition and the valuation of goodwill and intangible assets. Management believes these policies to be critical because they are both important to the portrayal of our financial condition and results, and they require management to make judgments and estimates about matters that are inherently uncertain.

Revenue Recognition

We derive our revenues primarily from collection of distressed debt by entering into non-binding agreements with financial institutions to collect their debt. Once an agreement is reached with the debtor of the financial institution based upon established parameters, an installment agreement is established. We are then entitled to a commission on the agreed settlement. We earn and record the pro rata commission for each installment, when the installment payments are received from the debtors. Our average fee was approximately 15% during the fiscal years ended December 31, 2007 and 2006.

Revenue from the collection of distressed debt owned by the Company is recognized based on AICPA Statement of Position 03-3 using the interest method.  The interest method applies an effective interest rate to the cost basis of each pool, which remains unchanged throughout the life of the pool unless there is an increase or decrease in subsequent cash glows.  Revenue from receivable portfolios is accrued based on each pool’s effective interest rate applied to each pool’s adjusted cost.  The cost basis of each pool is increased by revenue earned and decreased by gross collections and impairments.

Goodwill and Intangible Impairment

The company accounts for goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.  As required by SFAS No. 142, the Company tests for impairment of goodwill annually (at year-end) or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  The required two-step approach uses accounting judgments and estimates of future operating results.  Changes in estimates or the application of alternative assumptions could produce significantly different results.  Impairment testing is done at a reporting unit level.  The company performs this testing for its Brazilian operating segment which is considered a reporting unit under SFAS No. 142. An impairment loss generally is recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.  The fair value of the company’s reporting unit was estimated using the expected present value of future cash flows using estimates, judgments and  assumptions that management believes were appropriate in the circumstances.  The estimates and judgments that most significantly affect the fair value calculation are assumptions related to revenue growth, collection processes, and the discount rate.

 
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Industry Wide Factors that are Relevant to Our Business

We are in the business of managing the recovery of credit accounts receivable in Brazil for our third-party clients who are either credit card issuers or transferees of credit accounts receivable. Our business, therefore, depends on the growth of the credit card sector in Brazil.

The credit card sector in Brazil became the third largest issuer worldwide after the United States and China, and according to the projections of major sources such as the Brazilian Association of Credit Cards Issuers (ABECS), the Brazilian Institute of Statistics (IBGE), the Brazilian Banks Federation (FERBABAN) and Citibank, this sector is poised to continue its double-digit growth.

During the last decade the volume of transactions has soared from 1.36 billion in 2004 to over 2 billion in 2006, with the number of plastic credit and debit cards dramatically increasing from 17 million in 1996 to 80 million in 2006. This trend reflects the inclusion of low-income consumers where at 32% of the GDP in Brazil, it is still well below the Chileans who are at 63% and the Bolivians who are at 42%.

This economic growth of the commercial credit sector is following the same pattern with the same projections. New bank accounts increased from 31.4 million in the year 2000 to 95.1 million in 2005 where consumers view the credit card as a financial instrument to be used in lieu of the check. The number of checks used dropped 27% from 1999 to 2005 while credit card payments increased by 240%. According to data from the Brazilian Central Bank, in 2005, payments by credit cards surpassed payments made by check.

Uncertainties that Affect our Financial Condition

We have approximately eighteen clients, but we currently rely on six major clients for a significant portion of our revenue.  None of these major clients are contractually obligated to continue use of our services at historic levels or at all, subject only to notice periods for termination.  If any of these clients were to significantly reduce their amount of service, fail to pay, or terminate their relationships with us altogether, our business could be harmed.  The number of major clients on whom we rely has increased from fiscal years 2007 to 2008.  During fiscal year 2008, no one customer has been responsible for more than 20% of our revenues.

The portfolios of consumer receivables that we service consist of one or more of the following types of consumer receivables:

 
·
charged-off receivables - accounts that have been written-off by the originators and may have been previously serviced by collection agencies;
 
·
semi-performing receivables - accounts where the debtor is making partial or irregular monthly payments, but the accounts may have been written-off by the originators; and
 
·
performing receivables - accounts where the debtor is making regular monthly payments that may or may not have been delinquent in the past.

Charged-off receivables accounted for more approximately 99% of our business in 2008, while semi-performing and performing receivables each accounted for less than 1% of our business in the period.  ATN’s long period of operations and its demonstrated capacity to process millions of receivables, large and small, have made ATN an attractive resource for customers desiring to secure their receivables.  Our success rate is measured by how long an outstanding debt is past due as well as whether such debt has been categorized as a performing, semi-performing or charged-off item.  On average we recover between 2.5% and 8% of face value of our debt. Due to our level of professionalism and our successful performance we believe that we are in the top 5% of businesses in this field in Brazil.  
 
In order to further increase our revenue base and eliminate the uncertainty of our ability to continue as a going concern, with adequate capitalization, we plan to start using ATN’s consumer database and its vast experience in collections to start buying defaulted outstanding consumer loans and other assets, which are usually discounted to their legal principal balance or appraised value. We believe that the impact on our liquidity would be highly improved and we would have the opportunity to build our own short and long-term portfolio of restructured receivables.  Purchased debts for our own account would also suppress the efforts and costs of collection monitoring and reporting back to original holders to the benefit of our bottom line.
 
Investment in Receivable Portfolio

The Company’s subsidiary ATN Capital e Participacoes Limitada (“ATN”) has extensive experience in the field of distressed credit card and consumer loan receivable collections.  It had previously only collected distressed debt for large credit card companies and financial institutions in Brazil, on a commission basis.  In 2008, in addition to working for the large institutions, it decided to purchase its own portfolio of distressed debt.  The portfolio was purchased for R$1,299,458 (approximately US$816,294) on June 2, 2008.  The portfolio includes past due and unpaid debt from more than 41,000 Brazilian consumers and has a face value of approximately R$500,000,000 (or US$305 million as of the purchase date).

 
15

 

The Company has adopted AICPA Statement of Position 03-3 (“SOP 03-3”), “Accounting for Loans or Certain Securities Acquired in a Transfer”.  In accordance with SOP 03-3, the company is required to segregate the portfolio into pools.  Accordingly, the Company has defined three distinct pools and identified the related cost allocations by pool.   SOP 3-03 addresses accounting for differences between contractual cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality.  SOP 03-3, limits accretable yield to the excess of the investor’s estimate of undiscounted cash flows over the investor’s initial investment in the loan and prohibits the recognition of the non-accretable difference.  Under SOP 3-03, subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life while any decreases in cash flows expected to be collected should be recognized as impairments.

During the six months ended December 31, 2008, the Company actually collected $169,936 which was $79,914 in excess of the amount provided in its original projections.  During the six months ended June 30, 2009, the Company actually collected $78,215 which was $35,245 less than the amount provided in its original projections on a quarterly basis.  The Company believes that its original projections are still accurate and attributes the decreased collections to a reduction in manpower used during the quarter.  Management expects to boost its efforts during the second quarter and therefore no impairment has been recognized.  The excess cash collections from 2008 combined with the decreased cash collections for the six months ended June 30, 2009 and the changes in exchange rates provided a reduction to the projected ended carrying amount of $14,729.

The following table reflects the carrying amount and cash flows expected to be collected for the quarters ending June 30 and December 31, 2009 and the years ending December 31, 2010 through 2013:

   
 
Beginning
   
Cash Flows 
Expected
   
  
   
Reduction
   
Ending
 
Year Ended
 
Carrying
   
to be
   
Interest
   
of Carrying
   
Carrying
 
31-Dec
 
Amount
   
Collected
   
Income
   
Amount
   
Amount
 
                               
June 2009
  $ 646,585     $ 78,215     $ 51,215     $ 27,000     $ 619,585  
2009
    619,585       149,313       97,581       51,731       567,854  
2010
    567,854       234,757       134,313       100,444       467,410  
2011
    467,410       234,757       110,555       124,202       343,209  
2012
    343,209       234,757       81,401       153,356       189,852  
2013
    189,852       234,757       44,905       189,852          
                                      0  
Totals
          $ 1,166,556     $ 519,971     $ 646,585          

Accretable yield has been calculated as follows:

Cash flows expected to be collected as of 6/30/09
  $ 1,166,556  
Less: Beginning carrying amount
    646,585  
Yield accreted June 30, 2009
    51,215  
         
Accretable Yield as of 6/30/09
  $ 468,756  

The Company financed the purchase of the portfolio with two Notes Payable totaling R$626,200.  The notes are due December 2009 and bear interest at the rate of 2.0% per month.  The notes are included in the captions loans from officer and loan from an individual on the balance sheet.  The loan from an individual is deemed to be a related party because of his affiliation with the Company. At June 30, 2009, the balance of the loan including accrued interest, from officer is $79,541 and the loan from an individual is $331,422.

Due to the strengthening US dollar, there has been a change in the value of the purchase price of the receivable portfolio from $816,294 at June 2, 2008 to $665,842 at June 30, 2009.  The difference of $150,452 is included in accumulated other comprehensive loss.

 
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Results of Operations 
 
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008.
 
The following table summarizes the results of our operations during the three month period ended June 30, 2009, and 2008 and provides information regarding the dollar and percentage increase or (decrease) from the three month period ended June 30, 2009 to the same period of 2008.
 
   
6/30/09
   
6/30/08
   
Increase 
(Decrease)
   
Percentage 
Increase 
(Decrease)
 
                         
Revenues
    930,475       1,211,244       (280,769 )     (23.18 )
Cost of Services
    573,022       784,879       (211,857 )     (26.99 )
Selling, General and Administrative Expense
    304,185       345,469       (41,284 )     (11.95 )
Interest expense
    163,376       140,231       23,145       16.50  
Depreciation & amortization
    43,325       57,017       (13,692 )     (24.01 )
Foreign Exchange & other
    45,609       (4,463 )     50,072       (1,121.94 )
Net income (loss) –Lexicon United
    (101,364 )     (120,815 )     19,451       16.10  
Earnings (Loss) per common share
    (.01 )     (.01 )     0       0  
 
We had revenues of $930,475 for the three month period ended June 30, 2009, compared to revenues of $1,211,244 during the same period in 2008.  Our revenues decreased 23.18% in the three-month period ended June 30, 2009 primarily due to the inactivity of Engepet Energy Enterprises and an increase in collections of receivables offset by the effect of changes in the foreign exchange rate.
  
Our cost of services for the three-month period ended June 30, 2009 was $573,022 as compared to $784,879 during the same period in 2008.  This decrease of $211,857 is primarily the result of inactivity in Engepet Energy Enterprises and the changes in the foreign exchange rate.

Selling, general and administrative expenses decreased by $41,284 or 11.95%, to $304,185 in the three-month period ended June 30, 2009 compared to $345,469 in the same period in 2008.  The change is the result of decreases in bank fees, and consultants and the changes in the foreign exchange rate.

Interest expense for the three-month period ended June 30, 2009 was $163,376 and interest expense in the same period of 2008 was $140,231.  Interest expense increased 16.50% in the three month period ended June 30, 2009 due to the increase of new borrowings over the past year and was offset by the changes in the foreign exchange rate.
 
During the three-month period ended June 30, 2009 we incurred a net loss of $(101,364) compared with $(120,815) for the same period in the prior year.  The decrease in our loss is primarily due to the decrease in expenses and foreign exchange rates as described above offset by decreased revenues in addition to the adoption of FAS 160, which allocated ($6,460) loss to the non-controlling interest.

Loss per common share for the three month period ended June 30, 2009 was $(.01) as compared to a loss of $(.01) during the same period of 2008.  
 
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008.
 
The following table summarizes the results of our operations during the six-month period ended June 30, 2009, and 2008 and provides information regarding the dollar and percentage increase or (decrease) from the six month period ended June 30, 2009 to the same period of 2008.

 
17

 
 
   
6/30/09
   
6/30/08
   
Increase 
(Decrease)
   
Percentage 
Increase 
(Decrease)
 
                         
Revenues
    1,740,620       2,096,109       (355,489 )     (16.96 )
Cost of Services
    1,063,812       1,274,936       (211,124 )     (16.56 )
Selling, General and Administrative Expense
    655,086       858,373       (203,287 )     (23.68 )
Interest expense
    326,972       261,597       65,375       24.99  
Depreciation & amortization
    84,096       116,133       (32,037 )     (27.59 )
Foreign Exchange & other
    40,237       884       39,353       4,451.70  
Net income (loss) –Lexicon United
    (321,032 )     (414,046 )     93,014       22.46  
Earnings (Loss) per common share
    (.04 )     (.05 )     .01       20.00  

We had revenues of $1,740,620 for the six month period ended June 30, 2009, compared to revenues of $2,096,109 during the same period in 2008.  Our revenues decreased 16.96% in the six month period ended June 30, 2009 primarily due to inactivity of Engepet Energy Enterprises and an increase in collections of receivables offset by the effect of changes in the foreign exchange rate.
  
Our cost of services for the six-month period ended June 30, 2009 was $1,063,812 as compared to $1,274,936 during the same period in 2008.  This decrease of $211,124 is primarily the result of increased postal and mail services, increase in employees offset by a decrease in internship program expenses, inactivity of Engepet Energy Enterprises and the effect of changes in the foreign exchange rate.

Selling, general and administrative expenses decreased by $203,287 or 23.68 %, to $655,086 in the six-month period ended June 30, 2009 compared to $858,373 in the same period in 2008.  The change is the result of decreases in consultant, bank fees and telephone expenses, increase in agreement losses and the effect of changes in the foreign exchange rate.

Interest expense for the six-month period ended June 30, 2009 was $326,972 and interest expense in the same period of 2008 was $261,597.  Interest expense increased 24.99% in the six month period ended June 30, 2009 due to an increase of new borrowings over the past year and was offset by the changes in the foreign exchange rate.

During the six-month period ended June 30, 2009 we incurred a net loss of $(321,032) compared with $(414,046) for the same period in the prior year.  The decrease in our loss is primarily due to the changes in expenses and revenues as described above, the effect of the change in the foreign exchange rate in addition to the adoption of FAS 160, which allocated ($28,077) loss to the non-controlling interest.

Loss per common share for the six month period ended June 30, 2009 was $(.04) as compared to a loss of $(.05) during the same period of 2008.  

Cash Flow Items

The following table provides the statements of net cash flows for the six-month period ended June 30, 2009.

   
Six Months Ended June
30,
 
   
2009
   
2008
 
Net Cash Provided By (Used in) Operating Activities
    128,810       (576,145 )
Net Cash Used in Investing Activities
    (4,988 )     (23,677 )
Net Cash Provided By (Used In) Financing Activities
    (217,020 )     552,112  
Net Increase (decrease) in Cash and Cash Equivalents
    (98,629 )     (17,370 )
Cash and Cash Equivalents - Beginning of Period
    291,453       467,195  
Cash and Cash Equivalents - End of Period
    192,824       449,825  

We provided $128,810 of cash from our operating activities during the six month period ended June 30, 2009 as compared to $576,145 cash used during the six-month period ended June 30, 2008.  The difference of $704,955 is mainly attributable to a decrease in net loss of $64,937 and to changes in other receivables of $198,966 and investment in receivable portfolio of $363,705.

 
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We used $4,988 in cash from our investing activities during the six month period ended June 30, 2009, as compared to $23,677 used in the prior period ending June 30, 2008.  These funds were used for the purchase of fixed assets.  
 
We used a net of $217,020 from financing activities during the six-month period ended June 30, 2009 as compared to providing funds of $552,112 during the six month period ended June 30, 2008.  The change is primarily due to a decrease in related party borrowings for the six months ended June 30, 2009.

Balance Sheet Items
 
As of June 30, 2009, we had total current assets of $797,164, as compared to $1,157,273 as of June 30, 2008.  Our total assets as of June 30, 2009 were $3,098,595 as compared to $4,025,307 as of June 30, 2008.  We had total current liabilities of $3,972,311 as of June 30, 2009 as compared to $4,437,848 as of June 30, 2008, and we had total liabilities of $4,017,598 as of June 30, 2009 as compared to $4,821,051 as of June 30, 2008.
 
The decrease in total assets is primarily due to a decrease in cash of $257,002, a decrease in receivables of $95,669 a decrease in the investment in receivable portfolio of $211,438, and a decrease in fixed assets of $281,778. The decrease in total liabilities is due to an increase in borrowings offset by the effects of the change of the foreign exchange rates.
 
As of June 30, 2009, our total Stockholders’ Equity (deficit) was $(976,112) as compared to $(795,744) at June 30, 2008.  This change was due to an increase in capital stock and paid in capital of $36,500 offset by operating losses and gains due to foreign exchange rates.
 
Liquidity and Capital Resources   
 
We believe that we will be able to pay our normal and operating expenditures during the next twelve months with our cash reserves and additional cash generated from operations, and by reducing our accrued municipal services tax liability by restructuring such debt.  We do not have any material capital commitments during the next twelve months, other than repayment of debt as it comes due, and we do not anticipate the issuance of additional debt (other than to refinance existing debt).  We also do not anticipate any material changes in our operations during the next twelve months.  As such, we believe that our current cash position is sufficient to retire our current short-term debt as it comes due and, if we are successful in adequately restructuring our municipal services tax liability, we believe that cash generated from operations will be sufficient to pay our operating expenses during the next twelve months.  We had cash and cash equivalents of approximately $192,823 as of June 30, 2009 and we had short-term liabilities in the amount of $3,972,311, as well as long-term liabilities in the amount of $135,287 as of June 30, 2009.  The Company intends to use its cash to retire current debt as it comes due as well as to pay operating expenses as necessary. During 2007, the Company successfully negotiated with Brazilian authorities to favorably settle previously recorded municipal service taxes of $730,000.  In addition, the company further evaluated related payroll tax provisions and reduced the same by approximately $200,000.

If we are required to make any material and unplanned expenditures during the next twelve months, the company believes that it can raise additional capital in the equity markets through private placements in order to meet its short-term cash requirements.  The company believes that such equity funding could also be used to liquidate all or a portion of the Company’s current bank loans or pay other operating expenses.  However, we can provide no assurances that we will be able to raise additional capital in the equity markets on favorable terms, if at all or on a timely basis.

As of June 30, 2009, we had cash assets of $192,823 and total assets of $3,098,595 as compared to cash assets of $449,825 and total assets of $4,025,307 as of June 30, 2008. The decrease in total assets is primarily due to a decrease in cash of $257,002, a decrease in receivables of $95,669 a decrease in the investment in receivable portfolio of $211,438 and a decrase in fixed assets of $281,778.   We have a $(3,175,147) negative working capital at June 30, 2009, of which $1,464,126 relates to municipal taxes and payroll expenses in connection with ATN’s prior and ongoing operations.
     
Loans Payable to Banks
 
The Company has several loans with various Brazilian banks and financial institutions.  The loans are secured by personal guarantees of the Company’s principal shareholders.  The loans mature at various months throughout the year and are generally renewed at maturity.  The interest rates are fixed and bear interest at rates ranging from 26% to 42% per year.  The balance of the loans at June 30, 2009 was $277,031.   

 
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Long-Term Debt

On April 17, 2006, the Company closed on a Real Estate transaction to purchase the 8th floor of an executive office building for ATN Capital E Participacoes, Ltda.’s executive offices. The purchase price of approximately $176,489 was funded with a 20% down payment payable over four months and an 8 year adjustable rate mortgage currently at 13.29%.

In August 2006, the Company purchased new computer equipment from DELL Brazio. The equipment valued at approximately $38,395 is financed over a three year period at 14.4% per year.

In September 2006, the Company purchased new furniture.  The furniture valued at approximately $112,161 is financed over a five-year period at 5.69% per year plus the inflation index.  The loan is payable in 48 monthly installments commencing October 8, 2007.  The loan is secured by the furniture.

In June, 2007, the Company borrowed two working capital loans from Caixa Economica Federal. The loans are valued at approximately $113,000 and are payable in 24 monthly installments plus interest of 2.73% per month, commencing July, 2007. The loans are personally guaranteed by ATN’s directors.

In June, 2007, the Company borrowed a working capital loan from Banco Bradesco. The loan is valued at approximately $207,400 and is payable in 24 monthly installments plus interest of 2.60% per month, commencing July, 2007. The loan is personally guaranteed by ATN’s directors.

During the year ended December 31, 2007, the Company purchased new computer equipment from DELL Brazio. The equipment valued at approximately $189,500 is financed over a three year period plus interest at rates ranging from 12% to 12.84% per year. The loan is secured by the computer equipment..

In January 2008, the Company purchased new air conditioning equipment.  The equipment valued at approximately $28,000 is being financed over a three year period at 12% per year.

In July, 2008, the Company borrowed approximately $77,000 from Banco ITAU. The loan is payable in 18 monthly installments plus interest of 2.28% per month, commencing August, 2008. The loan is personally guaranteed by ATN’s directors..

In July, 2008, the Company borrowed approximately $3,500 from Officer Distrib. The loan is payable in 36 monthly installments plus interest of 1.15% per month, commencing August, 2008. The loan is personally guaranteed by ATN’s directors.

In October, 2008, the Company borrowed approximately $60,000 from Banco ITAU. The loan is payable in 9 monthly installments plus interest of 2.88% per month, commencing August, 2009. The loan is personally guaranteed by ATN’s directors..

In November, 2008, the Company borrowed approximately $43,000 from Banco Bradesco. The loan is payable in 12 monthly installments plus interest of 3.3% per month, commencing November, 2008. The loan is personally guaranteed by ATN’s directors.

In November, 2008, the Company borrowed approximately $52,000 from Unibanco-Capital De Giro. The loan is payable in 12 monthly installments plus interest of 3.3% per month, commencing November, 2008. The loan is personally guaranteed by ATN’s directors..

During the year ended December 31, 2008, the Company purchased new computer equipment from DELL Brazio. The equipment valued at approximately $15,500 is financed over a three year period plus interest at rates ranging from 11.4% to 13.8% per year. The loan is secured by the computer equipment..

In December, 2008, the Company borrowed approximately $30,000 from Banco Real. The loan is payable in 12 monthly installments plus interest of 3.2% per month, commencing December, 2008. The loan is personally guaranteed by ATN’s directors..

In June, 2009, the Company borrowed approximately $16,000 from Banco Real.  The loan is payable in 12 monthly installments plus interest of 2.8% per month, commencing July, 2009.  The loan is personally guaranteed by ATN’s directors.

In June, 2009, the Company borrowed approximately $25,000 from Banco Mercantile do Brasil.  The loan is payable in 12 monthly installments plus interest of 3.2% per month, commencing July, 2009.  The loan is personally guaranteed by ATN’s directors.

 
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 In June, 2009, the Company borrowed approximately $51,000 from Banco Bradesco.  The loan is payable in 12 monthly installments plus interest of 2.05% per month, commencing July, 2009.  The loan is personally guaranteed by ATN’s directors.

An analysis of the current and long-term portion of the debt at June 30, 2009 is as follows:
 
Total loans outstanding
  $ 432,012  
         
Less:  current portion
  $ 296,725  
         
Long-term portion
  $ 135,287  
 
Our financial statements have been prepared on the basis that we will continue as a going concern, which contemplates the realization and satisfaction of our liabilities and commitments in the normal course of business.
 
We believe that our increased revenues and our cash on hand will be sufficient to sustain our operations at our current levels for the next twelve months.

Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Seasonality
 
Our operating results are not affected by seasonality.
 
Inflation
 
Our business and operating results are not affected in any material way by inflation.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 4A(T). CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures 
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2009. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Controls Over Financial Reporting
 
During the quarter ended June 30, 2009, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II – OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS.
 
There are no legal proceedings which are pending or have been threatened against us or any officer, director or control person of which management is aware.

ITEM 1A.
RISK FACTORS.

As a "smaller  reporting  company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 2.
UNREGISTERED SHARES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
We have not sold any equity securities during the fiscal quarter ended June 30, 2009 that were not previously disclosed in a report that was filed during that period.  
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.  
 
Not applicable.
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  
 
No matters were submitted during the second quarter of fiscal year 2009 to a vote of security holders, through the solicitation of proxies or otherwise.
 
ITEM 5.
OTHER INFORMATION.  
 
None

ITEM 6.
EXHIBITS.
 
31.1  Certification of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1  Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
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SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
DATED:  August 14, 2009
 
 
LEXICON UNITED INCORPORATED
     
 
By:
/s/ Elie Saltoun
   
Elie Saltoun
   
Chief Executive Officer,

 
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EXHIBIT INDEX
 
Exhibit
Number
Description

31.1
Certification of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1
Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
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