10-Q 1 v194850_10q.htm

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, 2010

o 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). ¨ Yes No ¨

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 ¨		Accelerated Filer ¨		Non-Accelerated Filer ¨ (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 August 16, 2010, are as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	8,828,134

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1.	INTERIM FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION	11
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4A(T).	CONTROLS AND PROCEDURES	19

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	19
ITEM 1A	RISK FACTORS	19
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES	19
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	19
ITEM 4.	(REMOVED AND RESERVED)	19
ITEM 5.	OTHER INFORMATION	20
ITEM 6.	EXHIBITS	20

SIGNATURES		21

PART I - FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS

LEXICON UNITED INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30			December 31
	2010			2009
	(Unaudited)

CURRENT ASSETS
Cash and cash equivalents	$	313,146		$	136,308
Accounts receivable		316,117			387,392
Other receivables		171,366			209,728
Prepaid expenses		71,538			79,547
Total current assets		872,167			812,975

FIXED ASSETS
Building, equipment, and leasehold improvements, net of accumulated depreciation of $420,086 and $343,648 at June 30, 2010 and December 31, 2009, respectively		1,187,080			1,264,180

OTHER ASSETS

Investment in receivable portfolios		13,292			91,872
Customer Lists, net of amortization of $231,174 and $205,488 at June 30, 2010 and December 31, 2009, respectively		282,559			308,245
Tradenames, net of amortization of $99,076 and $88,067 at June 30, 2010 and December 31, 2009, respectively		121,095			132,104
Goodwill		693,141			693,141
Security deposit		-			1,350
Total other assets		1,110,087			1,226,712

TOTAL ASSETS	$	3,169,334		$	3,303,867

CURRENT LIABILITIES
Loans payable to banks	$	-		$	82,319
Current portion of long term debt		883,926			473,828
Bank Overdrafts		68,885			321,594
Current portion of notes payable to individuals		189,449			38,378
Accounts Payable		136,942			269,894
Loans payable to officer		197,208			249,863
Accrued Expenses		807,182			979,027
Accrued Municipal Service Taxes		45,254			46,791
Accrued Payroll and related taxes		392,564			405,726
Accrued Employee Benefits		55,845			57,818

Total Current Liabilities		2,777,255			2,925,238

LONG TERM LIABILITIES
Long term debt		300,355			426,322
Long term portion of notes payable to individuals		75,514			-

Total Long Term Liabilities		375,869			426,322

TOTAL LIABILITIES		3,153,124			3,351,560

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $0.001 par value, 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock $0.001 par value, 40,000,000 shares authorized, 8,828,134 and 8,708,134 shares issued and outstanding at June 30, 2010 and December 31, 2009 respectively		8,828			8,708
Paid in capital		3,107,544			3,057,664
Accumulated other comprehensive loss		(254,378	)		(293,624	)
Accumulated deficit		(3,081,473	)		(3,032,228	)
Total Lexicon Stockholders' Deficit		(219,479	)		(259,480	)

Non-Controlling Interest		235,689			211,787
Total Equity (Deficit)		16,210			(47,693	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	3,169,334		$	3,303,867

See accompanying notes to financial statements.

LEXICON UNITED INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
REVENUES
Service revenue	$	1,314,065		$	930,475		$	2,482,240		$	1,740,620
Total revenues		1,314,065			930,475			2,482,240			1,740,620

COST OF SERVICES		596,960			573,022			1,155,734			1,063,812

GROSS PROFIT		717,105			357,453			1,326,506			676,808

COSTS AND EXPENSES
Selling, general and administrative		523,266			304,185			1,000,249			655,086
Depreciation		37,001			24,978			74,199			47,402
Amortization		18,347			18,347			36,694			36,694
Total costs and expenses		578,614			347,510			1,111,142			739,182

OPERATING INCOME (LOSS)		138,491			9,943			215,364			(62,374	)

OTHER INCOME (EXPENSE)
Interest expense		(128,793	)		(163,376	)		(251,748	)		(326,972	)
Foreign exchange and other		3,974			45,609			18,574			40,237
Total Other Income (expense)		(124,819	)		(117,767	)		(233,174	)		(286,735	)

NET INCOME (LOSS) BEFORE INCOME TAXES		13,672			(107,824	)		(17,810	)		(349,109	)

Provision for income taxes		-			-			-			-

NET INCOME (LOSS)		13,672			(107,824	)		(17,810	)		(349,109	)

Less: Net income (loss) attributable to noncontrolling interest		27,627			(6,460	)		31,433			(28,077	)

NET LOSS ATTRIBUTABLE TO LEXICON UNITED INCORPORATED	$	(13,955	)		(101,364	)	$	(49,243	)		(321,032	)

NET LOSS PER COMMON SHARE (Basic and Diluted)	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.04	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Basic and Diluted)		8,828,134			8,708,134			8,782,388			8,706,742

See accompanying notes to financial statements.

LEXICON UNITED INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(17,810	)	$	(349,109	)
Noncash items included in net loss:
Depreciation		74,199			47,402
Amortization of intangibles		36,694			36,694
Accrued interest on loans to individual		11,367			48,235
Stock based compensation		50,000			24,000
Decrease (increase) in assets:
Accounts receivable		58,309			(70,931	)
Other receivables		31,341			131,333
Prepaid expenses		5,347			(1,547	)
Security deposit		1,350			-
Increase (decrease) in liabilities:
Accounts payable		(123,959	)		27,189
Accrued expenses		(137,746	)		181,695

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(10,908	)		74,961

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets		(1,676	)		(4,988	)
Investment in receivable portfolio		67,319			53,849
NET CASH PROVIDED BY INVESTING ACTIVITIES		65,643			48,861

CASH FLOWS FROM FINANCING ACTIVITIES
Loan from related party		3,832			213,048
Loan from an individual		266,445			-
Proceeds of new loans		575,544			93,527
Repayment of loans		(718,407	)		(523,595	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		127,414			(217,020	)

EFFECT OF EXCHANGE RATE OF CASH		(5,311	)		(5,431	)

NET INCREASE (DECREASE) IN CASH		176,838			(98,629	)

CASH, BEGINNING OF PERIOD		136,308			291,453

CASH, END OF PERIOD	$	313,146		$	192,824

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	122,955		$	278,737

Non cash items

Issuance of common stock for consulting services	$	25,000

See accompanying notes to financial statements.

LEXICON UNITED INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

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, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the financial statements and footnotes thereto included in the Lexicon United Incorporated annual report on Form 10-K for the year ended December 31, 2009 filed May 17, 2010.

NOTE B- GOING CONCERN

As indicated in the accompanying financial statements, the Company has an accumulated deficit of $3,081,473 and negative working capital of $1,905,088 at June 30, 2010. 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. (“Engepet”) and United Oil Services, Inc. (“United”). All material intercompany transactions have been eliminated in consolidation. Engepet and United were newly founded in 2008 and their transactions in 2008 were not deemed to be significant. In 2009, Engepet and United were inactive. At December 30, 2009, the minority shareholders transferred the second floor office facilities to the Company at current fair market value. The Company was also to infuse additional working capital to keep the ownership ratio intact. As of the date of this report, such infusion has not occurred.

NOTE D – RECENT ACCOUNTING PRONOUNCEMENTS

In April 2010, the Financial Accounting Standards Board issued Accounting Standards Update No. 2010-17, “Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force”. This standard provides guidance on defining a milestone and when it is appropriate to apply this standard in recognizing revenue from research and development transactions. In general, this standard permits recognition of revenue from research and development that is contingent upon achievement of one or more specified milestones defined in the research and development arrangements which meet specified criteria for such revenue recognition. This standard becomes effective for fiscal periods beginning after June 15, 2010 and early adoption is permitted. Management does not believe that adoption of this standard will have a material effect on the Company's financial statements.

NOTE E-FAIR VALUE MEASUREMENTS

On January 1, 2008, The Company adopted the provisions of ASC Topic 820 “Fair Value Measurements and Disclosures” for financial assets and liabilities. On January 1, 2009, the Company adopted the provisions of Topic 820 for non-financial assets and non-financial liabilities that are recognized and disclosed at fair value on a nonrecurring basis. Topic 820 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.

Topic 820 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	2010		2009

Cash and cash equivalents	Level 1	$	313,146	$	136,508

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 (“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 FASB ASC Subtopic 310-30 (“Subtopic 310-30”) “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. In accordance with Subtopic 310-30, The Company can account for its investments in Portfolios using either the interest method or the cost recovery method. The interest method applies an effective interest rate to the cost basis of the pool. 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. The Company used the interest method through June 30, 2009 and has determined that the amount and timing of future cash collections on the Portfolios are not reasonably predictable, and therefore, beginning July 1, 2009, commenced using the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the purchase price of the portfolio has been fully recognized.

An analysis of the portfolio activity under the cost recovery method at June 30, 2010 is as follows:

Portfolio carrying value at December 31, 2009	$	91,872
Portfolio collections for the period January 1, 2010 to June 30, 2010		(69,445	)
Change in currency rates for the period		(9,135	)

Balance, June 30, 2010	$	13,292

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, an 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 FASB ASC Subtopic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” using the cost recovery method commencing July 1, 2009 and the interest method prior to July 1, 2009. (See Note F).

NOTE I– RELATED PARTY

At various times during the year 2009 and 2010, three shareholders have advanced funds to the Company for working capital. The advances are unsecured and bear interest ranging from 1.5 - 2% per month. The loans have no stated maturity date and should either party terminate the loans, the loans are repayable within 30 days. At June 30, 2010, the balance outstanding on the loans was $197,208.

NOTE J – NOTES PAYABLE TO INDIVIDUALS

In January, 2010, the Company borrowed approximately $270,000 from several individuals for working capital. The loans are due in January, 2012 and bear interest at the rate of 18% per year. The balance of the loans at June 30, 2010 is $264,963.

NOTE K - STOCKHOLDERS’ EQUITY

On March 10, 2010, the Company has included 120,000 of its common shares as issued and outstanding for consulting fees incurred. The shares were valued at $1.25 per share. Consulting expense charged to operations as of June 30, 2010 was $50,000.

NOTE L – SUBSEQUENT ENVENTS

On August 2, 2010, the Company executed an Agreement and Plan of Merger (“Merger Agreement”) with Pathworks PCO of Florida, Inc. (“Pathworks-Florida”) and Lexicon Acquisition, Inc., a wholly-owned subsidiary of the Company, wherein the Company and Pathworks-Florida agreed to enter into a business combination transaction pursuant to which Pathworks-Florida will become a wholly-owned subsidiary of the Company.

Pathworks-Florida’s controlling shareholder, Pathworks Corporation (“Pathworks”), is engaged in the business of development, installation and operation of fiber optic telecommunications delivery systems for multi-family residential units. Pathworks is a party to a Master Agreement (the “Master Agreement”) with CenturyTel Services Group, LLC (“CenturyLink”), pursuant to which, Pathworks, has rights with respect to bulk content pricing and tariffs applicable to services to be provided in certain identified markets. Pathworks acts as agent for various homeowners associations and other residential organizations and, pursuant to the Master Agreement, has agreed to procure various bulk services and Premium Services from CenturyLink and to provide certain customer care and billing services to end users. Under the terms of the Master Agreement, Pathworks has the right to deliver services under these bulk content prices and specialized tariffs for a period of 15 years in the markets (including the State of Florida) designated in the Master Agreement. Pathworks has further committed to deploy fiber optic networks and provide content to its customer base within all markets serviced by CenturyLink.

In furtherance of its performance under the Master Agreement, Pathworks has agreed to assign certain of its rights and responsibilities under the Master Agreement to Pathworks-Florida. In exchange, Pathworks-Florida intends to enter into a royalty agreement with Pathworks whereby Pathworks-Florida would pay Pathworks a royalty for the first five years of service provided to Pathworks-Florida customers and thereafter such service would continue to be provided by Pathworks-Florida on a royalty-free basis

Pursuant to the terms of the Merger Agreement, at the Closing, Pathworks shareholders will exchange all of their issued and outstanding Pathworks stock for an aggregate number of shares of the Company’s common stock equal to forty-seven percent (47%) of the pro-forma, fully-diluted shares of the Company’s common stock immediately following the Closing. The Merger Agreement further provides that the Closing of the transaction will take place within two (2) days following the satisfaction of all conditions set forth in the Merger Agreement, but not later than October 31, 2010. Completion of the merger transaction is subject to the satisfaction of certain terms and conditions including, but not limited to, Pathworks-Florida shareholder approval, board of directors approval by all transaction participants, execution of certain additional agreements between Pathworks-Florida and Pathworks, execution of an agreement with the parent of one of Pathworks-Florida’s shareholders and completion of due diligence to satisfaction of all parties.

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;

·	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.

Entry into a Material Definitive Agreement

On August 2, 2010, Lexicon United Incorporated (the “Company”) executed an Agreement and Plan of Merger (“Merger Agreement”) with Pathworks PCO of Florida, Inc. (“Pathworks-Florida”) and Lexicon Acquisition, Inc., a wholly-owned subsidiary of the Company, wherein the Company and Pathworks-Florida agreed to enter into a business combination transaction pursuant to which Pathworks-Florida will become a wholly-owned subsidiary of the Company. (See Part II, Item 5, below)

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.

Revenue from the collection of distressed debt owned by the Company is recognized based on FASB ASC Subtopic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” using the cost recovery method commencing July 1, 2009 and the interest method prior to July 1, 2009. Under the cost recovery method, revenues are only recognized after the initial investment has been recovered.

Goodwill and Intangible Impairment

The company accounts for goodwill in accordance with FASB ASC Topic 350 “Intangibles-Goodwill and Other”. As required, 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 FASB ASC Topic 350. 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. There was no impairment of assets at June 30, 2010.

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.

Uncertainties that Affect our Financial Condition

We receive the majority of our revenues and income from less than ten major clients. 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 customers were to significantly reduce their amount of service, fail to pay, or terminate their relationships with us altogether, our business could be harmed.

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 2009, 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).

The Company has adopted FASB ASC Subtopic 310-30 (“Subtopic 310-30”) “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (prior authoritative literature: AICPA Statement of Position 03-3 (“SOP 03-3”), “Accounting for Loans or Certain Securities Acquired in a Transfer”). In accordance with Subtopic 310-30, The Company can account for its investments in receivable portfolios using either the interest method or the cost recovery method. The interest method applies an effective interest rate to the cost basis of the pool. 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. The Company used the interest method through June 30, 2009 and has determined that the amount and timing of future cash collections on the receivable portfolios are not reasonably predictable, and therefore, beginning July 1, 2009, commenced using the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the purchase price of the portfolio has been fully recognized.

An analysis of the portfolio activity under the cost recovery method at June 30, 2010 is as follows:

Portfolio carrying value at December 31, 2009	$	91,872
Portfolio collections for the period January 1 to June 30, 2010		(69,445	)

Change in currency rates for the period		(9,135	)
Balance, June 30, 2010	$	13,292

Results of Operations

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009.

The following table summarizes the results of our operations during the three months ended June 30, 2010, and 2009 and provides information regarding the dollar and percentage increase or (decrease) from the three month period ended June 30, 2010 to the same period of 2009.

	6/30/10			6/30/09			Increase (Decrease)			Percentage Increase (Decrease)
Revenues		1,314,065			930,475			383,590			41.23
Cost of Services		596,960			573,022			23,938			4.18
Selling, General and Administrative Expense		523,266			304,185			219,081			72.02
Interest expense		128,793			163,376			(34,583	)		(21.17	)
Depreciation & amortization		55,348			43,325			12,023			27.75
Foreign Exchange & other		3,974			45,609			(41,635	)		(91.29	)
Net income (loss) –Lexicon United		(13,955	)		(101,364	)		87,409			86.24
Earnings (Loss) per common share		(.01	)		(.01	)		.00

We had revenues of $1,314,065 for the three months ended June 30, 2010, compared to revenues of $930,475 during the same period in 2009. Our revenues increased 41.23% in the three months ended June 30, 2010 primarily due to an increase in collections of receivables in addition to the effect of changes in the foreign exchange rate.

Our cost of services for the three months ended June 30, 2010 was $596,960 as compared to $573,022 during the same period in 2009. This increase of $23,938 is primarily the result of net decrease of approximately $17,856 in employee related expenses, postal and mail services and internship program expenses, offset by the effect of changes in the foreign exchange rate of approximately $41,794.

Selling, general and administrative expenses increased by $219,081 or 72.02 %, to $523,266 in the three months ended June 30, 2010 compared to $304,185 in the same period in 2009. The change is the result of a net increase of approximately $127,960 in telephone, account services and software rent offset by decreases in agreement losses and professional fees and the effect of changes in the foreign exchange rate of approximately $91,121.

Interest expense for the three months ended June 30, 2010 was $128,793 and interest expense in the same period of 2009 was $163,376. Interest expense decreased 21.17% in the three months ended June 30, 2010 due to a reduced amount of total debt which resulted in a decrease of approximately $42,483 in interest offset by the changes in the foreign exchange rate of approximately $7,900.

During the three months ended June 30, 2010 we incurred a net loss of $(13,955) compared with $(101,364) 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 FASB ASC Topic 810, which allocated $27,627 gain to the non-controlling interest.

Loss per common share for the three months ended June 30, 2010 was $(.01) as compared to a loss of $(.01) during the same period of 2009.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009.

The following table summarizes the results of our operations during the six months ended June 30, 2010, and 2009 and provides information regarding the dollar and percentage increase or (decrease) from the six month period ended June 30, 2010 to the same period of 2009.

	6/30/10			6/30/09			Increase (Decrease)			Percentage Increase (Decrease)
Revenues		2,482,240			1,740,620			741,620			42.61
Cost of Services		1,155,734			1,063,812			91,922			8.64
Selling, General and Administrative Expense		1,000,249			655,086			345,163			52.69
Interest expense		251,748			326,972			(75,224	)		(23.01	)
Depreciation & amortization		110,893			84,096			26,797			31.87
Foreign Exchange & other		18,574			40,237	)		(21,663	)		(53.84	)
Net income (loss) –Lexicon United		(49,243	)		(321,032	)		271,789			84.67
Earnings (Loss) per common share		(.01	)		(.04	)		.03			75.00

We had revenues of $2,482,240 for the six months ended June 30, 2010, compared to revenues of $1,740,620 during the same period in 2009. Our revenues increased 42.61% in the six months ended June 30, 2010 primarily due to an increase in collections of receivables in addition to the effect of changes in the foreign exchange rate.

Our cost of services for the six months ended June 30, 2010 was $1,155,734 as compared to $1,063,812 during the same period in 2009. This increase of $91,922 is primarily the result of net decrease of approximately $86,896 in employee related expenses, postal and mail services and internship program expenses, offset by the effect of changes in the foreign exchange rate of approximately $178,818.

Selling, general and administrative expenses increased by $345,163 or 52.69 %, to $1,000,249 in the six months ended June 30, 2010 compared to $655,086 in the same period in 2009. The change is the result of a net increase of approximately $241,339 in telephone, account services and software rent offset by decreases in agreement losses and professional fees and the effect of changes in the foreign exchange rate of approximately $103,824.

Interest expense for the six months ended June 30, 2010 was $251,748 and interest expense in the same period of 2009 was $326,972. Interest expense decreased 23.01% in the six months ended June 30, 2010 due to a reduced amount of total debt which resulted in a decrease of approximately $112,084 in interest offset by the changes in the foreign exchange rate of approximately $36,860.

During the six months ended June 30, 2010 we incurred a net loss of $(49,243) compared with $(321,032) 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 FASB ASC Topic 810, which allocated $31,433 gain to the non-controlling interest.

Loss per common share for the six months ended June 30, 2010 was $(.01) as compared to a loss of $(.04) during the same period of 2009.

Cash Flow Items

The following table provides the statements of net cash flows for the six months ended June 30, 2010.

	Six Months Ended June 30,
	2010			2009
Net Cash Provided By (Used In) Operating Activities		(10,908	)		74,961
Net Cash Provided By Investing Activities		65,643			48,861
Net Cash Provided By (Used In) Financing Activities		127,414			(217,020	)
Net increase in Cash and Cash Equivalents		176,838			(98,629	)
Cash and Cash Equivalents - Beginning of Period		136,308			291,453
Cash and Cash Equivalents - End of Period		313,146			192,824

We used $10,908 of cash from our operating activities during the six months ended June 30, 2010 as compared to $74,961 cash provided during the six months ended June 30, 2009. The difference of $85,869 is mainly attributable to a decrease in net loss of $331,299 offset by decreases in accounts payable and accrued expenses of $470,589.

We provided $65,643 in cash from our investing activities during the six months ended June 30, 2010, as compared to $48,861 in the prior period ending June 30, 2009. The increase in funds is primarily due to the collections from our investment in receivable portfolio.

We provided a net of $127,414 from financing activities during the six months ended June 30, 2010 as compared to using funds of $217,020 during the six months ended June 30, 2009. The change is primarily due to an increase in borrowings from individuals and an increase in the repayment of loans.

Balance Sheet Items

The increase in total assets is primarily due the increase in fixed assets of approximately $662,039, a decrease in the investment in receivable portfolio of $591,564, a decrease in customer lists and tradenames of $73,389 and the effects of changes in the foreign exchange rates. The decrease in total liabilities is due to an increase accounts payable and accrued expenses of $444,609 offset by a decrease in accrued municipal service and payroll taxes of $680,528 and the effects of the change of the foreign exchange rates.

As of June 30, 2010, our total Stockholders’ Equity (deficit) was $16,210 as compared to $(1,009,003) at June 30, 2009.

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 and payroll tax liabilities 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 $313,146 as of June 30, 2010 and we had short-term liabilities in the amount of $2,777,255, as well as long-term liabilities in the amount of $375,869 as of June 30, 2010. 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 2009, the Company evaluated their payroll tax and related accruals and reduced amounts previously recorded by approximately $712,958. The reduction in 2009 is the result of recalculating the employee withholding taxes under Brazilian guidelines.

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, 2010, we had total current assets of $872,167 as compared to $797,164 as of June 30, 2009. Our total assets as of June 30, 2010 were $3,169,334 as compared to $3,098,595 as of June 30, 2009. We had total current liabilities of $2,777,255 as of June 30, 2010 as compared to $3,972,311 as of June 30, 2009, and we had total liabilities of $3,153,124 as of June 30, 2010 as compared to $4,107,598 as of June 30, 2009. We have a $(1,905,088) negative working capital at June 30, 2010 of which $493,663 relates to municipal taxes and payroll expenses in connection with ATN’s prior and ongoing operations.

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 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.

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 $3,500 from Officer Distribution Production. 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.

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 July, 2009, the Company borrowed approximately $42,500 from Banco Santander. The loan is payable in 18 monthly installments plus interest of 2.53% per month, commencing August, 2009. The loan is personally guaranteed by ATN’s directors.

In October, 2009, the Company borrowed approximately $432,000 from BNP Banco Brasil. The loan is payable in 46 monthly installments plus interest of 2.00% per month, commencing December, 2009. The loan is personally guaranteed by ATN’s directors.

In October, 2009, the Company borrowed approximately $81,000 from Banco Bradesco. The loan is payable in 12 monthly installments plus interest of 2.30% per month, commencing December, 2009. The loan is personally guaranteed by ATN’s directors.

In December, 2009, the Company borrowed approximately $87,450 from Banco Real. The loan is payable in 24 monthly installments plus interest of 2.00% per month, commencing January, 2010. The loan is personally guaranteed by ATN’s directors.

In December, 2009, the Company borrowed approximately $33,000 from HSBC Capital. The loan is payable in 12 monthly installments plus interest of 2.00% per month, commencing January, 2010. The loan is personally guaranteed by ATN’s directors.

In December, 2009 the Company assumed the note payable related to the contribution of the 9th floor office space by the minority shareholders. The loan is payable at $4,129 per month which includes interest which is adjustable annually.

In January, 2010, the Company borrowed approximately $63,000 from Caixa Economica. The loan is payable in 24 monthly installments plus interest of 1.43% per month, commencing February, 2010. The loan is personally guaranteed by ATN’s directors.

In April, 2010, the Company borrowed approximately $95,000 from Bradesco Capital. The loan is payable in 12 monthly installments plus interest at 1.95% per month, commencing May, 2010. The loan is personally guaranteed by ATN’s directors.

In April, 2010, the Company purchased new computer equipment from DELL Brazio. The equipment valued at approximately $31,000 is financed over 36 months at an interest rate of 1.11% per month. The loan is secured by the computer equipment.

In June, 2010, the Company borrowed approximately $95,000 from Banco Real. The loan is payable in 12 monthly installments plus interest at 1.65% per month, commencing June, 2010. The loan is personally guaranteed by ATN’s directors.

In June, 2010, the Company borrowed approximately $330,000 from Mercantil Do Brasil. The loan is payable in 12 monthly installments plus interest at 1.0% per month, commencing July, 2010. The loan is personally guaranteed by ATN’s directors.

In June, 2010, the Company purchased communication equipment from Khomp Ind. The equipment valued at approximately $5,900 is financed over 18 months at an interest rate of 1.01% per month. The loan is secured by the equipment.

An analysis of the current and long-term portion at June 30, 2010 is as follows:

Total loans outstanding	$	1,184,281
Less: current portion		883,926

Long-term portion	$	300,355

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

Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), Elie Saltoun, and Vice President and Secretary, Jeffrey Nunez, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report (June 30, 2010). Based on such evaluation, our CEO, CFO and Vice President have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s CEO, CFO and Vice President, as appropriate to allow timely decisions regarding required disclosure. The material weakness identified by the Company is its inability to produce financial statements in a timely manner in order to facilitate a timely filing of its required reports to the U.S. Securities and Exchange Commission. Additionally, the Company has only two directors; no outside directors and no audit committee. The Company is undertaking to resolve these issues in a manner which will permit timely disclosure and filing of required reports in the future.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the fiscal quarter ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, 2010 that were not previously disclosed in a report that was filed during that period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION.

At the Closing, James A. Grimwade, a shareholder of Pathworks-Florida, will be appointed to the board of directors of the Company. In addition, at the Closing, the Company will enter into new employment contracts with Joshua M. Henschell and David A. Nickerson, who are currently affiliated with Pathworks-Florida on terms to be determined.

ITEM 6. EXHIBITS

Exhibit
Number		Description

31.1.		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2.		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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 23, 2010

LEXICON UNITED INCORPORATED

By:	/s/ Elie Saltoun
	Elie Saltoun
	Chief Executive Officer,

EXHIBIT LIST

31.1.		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2.		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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