FORM 10-QSB
U.S. Securities and Exchange Commission
Washington D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: JUNE 30, 2003
Commission file number: 333-58720
ANAGRAM PLUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-1045323
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2700 N. MILITARY TRAIL, SUITE 100
BOCA RATON, FL 33431
(Address of principal executive offices)
(Zip Code)
(561) 241-3621
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___ No_X_
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of January 12, 2004: 6,394,000 shares of common
stock, par value $.001 per share.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at September 30, 2003 (unaudited) ........1
Condensed Consolidated Statements of Operations for the Three Months
Ended September 30, 2003 and 2002 (unaudited) ................................2
Condensed Consolidated Statement of Stockholders' Deficit for
the Three Months Ended September 30, 2003 (unaudited) ........................3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2003 and 2002 (unaudited) ...................4
Notes to Condensed Consolidated Financial Statements (unaudited) ............5-7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations ........................7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................................11
Item 2. Changes in Securities ................................................11
Item 3. Defaults upon Senior Securities ......................................11
Item 4. Submission of Matters to a Vote of Security Holders...................11
Item 5. Other Information.....................................................11
Item 6. Exhibits and Reports on Form 8-K......................................11
Signatures....................................................................12
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ANAGRAM PLUS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
================================================================================
ASSETS
2003
---------
Current assets:
Cash $ 93,606
Accounts receivable 39,177
Inventory 35,636
---------
Total current assets 168,419
Property and equipment, net 9,722
Intangible assets, net 12,690
---------
Total assets $ 190,831
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 35,818
Due to related parties 105,587
Accrued expenses 63,137
Loan payable - related party 489,971
---------
Total current liabilities 694,513
Long-term debt, net of current portion 86,581
Commitments and Contingencies --
Stockholders' deficit:
Preferred stock, $0.01 par value; 2,000,000 shares authorized --
Common stock, $.001 par value; 20,000,000 shares
authorized, 6,349,000 shares issued and outstanding 6,394
Additional paid-in-capital 134,014
Foreign currency adjustment (43,745)
Accumulated deficit (686,926)
---------
Total stockholders' deficit (590,263)
---------
Total liabilities and stockholders' deficit $ 190,831
=========
See accompanying notes to condensed consolidated financial statements.
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ANAGRAM PLUS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
================================================================================
<Table>
<Caption>
2003 2002
----------- -----------
Sales $ 47,373 $ 28,384
Cost of sales 32,488 11,316
----------- -----------
Gross profit (loss) 14,885 17,068
Expenses
General and administrative expenses 24,955 30,486
Sales and marketing 8,697 1,897
Amortization 917 778
Depreciation 813 1,014
----------- -----------
Total expenses 35,382 34,175
----------- -----------
Loss from operations (20,497) (17,107)
Interest expense (9,433) (9,161)
----------- -----------
Loss before income taxes (29,930) (26,268)
----------- -----------
Provision (benefit) for income taxes -- --
----------- -----------
Net loss $ (29,930) $ (26,268)
=========== ===========
Net loss per share (basic and diluted) $ (0.00) $ (0.00)
=========== ===========
Weighted average shares outstanding (basic and diluted) 6,394,000 6,239,348
=========== ===========
</Table>
See accompanying notes to condensed consolidated financial statements.
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ANAGRAM PLUS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
================================================================================
<Table>
<Caption>
Accumulated
Common Stock Additional Other
--------------------------- Paid-In Comprehensive Accumulated
Shares Amount Capital Income Deficit Total
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 2003 6,394,000 6,394 134,014 (2,483) (656,996) (519,071)
Foreign currency adjustment (41,262) -- (41,262)
Net loss for the period
ended September 30, 2003 -- -- -- -- (29,930) (29,930)
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2003 6,394,000 $ 6,394 $ 134,014 $ (43,745) $ (686,926) $ (590,263)
========== ========== ========== ========== ========== ==========
</Table>
See accompanying notes to condensed consolidated financial statements.
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ANAGRAM PLUS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
================================================================================
<Table>
<Caption>
2003 2002
--------- ---------
Cash flows from operating activities:
Net loss $ (29,930) $ (26,268)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization 1,730 1,792
(Increase) decrease in:
Accounts receivable (17,951) (14,764)
Inventory 34,383 13,580
Increase (decrease) in:
Accounts payable 2,988 (5,368)
Accrued expenses 8,150 14,541
Due to related parties -- (1,795)
--------- ---------
Net cash used in operating activities (630) (18,282)
--------- ---------
Cash flows from investing activities:
Net cash used in investing activities $ -- $ --
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- 13,000
Repayments of long-term debt (1,209) (1,629)
Proceeds from loan from related parties 127,982 21,250
Repayment of loan from related party (7,242) (8,000)
--------- ---------
Net cash provided by financing activities 119,531 24,621
--------- ---------
Effect of exchange rate changes on cash (27,884) (4,050)
Net increase in cash 91,017 2,289
--------- ---------
Cash at beginning of period 2,589 51,781
--------- ---------
Cash at end of period $ 93,606 $ 54,070
========= =========
Supplementary Information:
Cash paid for:
Interest paid $ -- $ 1,271
========= =========
Non-cash disclosures of investing and financing activities:
Purchase of additional interest in subsidiary in exchange
for advance from related party $ -- $ 2,020
========= =========
</Table>
See accompanying notes to condensed consolidated financial statements.
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ANAGRAM PLUS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The accompanying unaudited condensed financial statements of Anagram Plus, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
management of the Company, the accompanying unaudited financial statements
contain all the adjustments (which are of a normal recurring nature) necessary
for a fair presentation. Operating results for the three months ended September
30, 2003 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2004. For further information, refer to the financial
statements and the footnotes thereto contained in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 2003, as filed with the Securities and
Exchange Commission.
Anagram Plus, Inc. (the Company), a subsidiary of ADC Development Corp., is a
51% owner of the Canadian company Prodijeux, Inc. (subsidiary). The accompanying
consolidated financial statements represent those of the Company and its
subsidiary.
NOTE 2 - GOING CONCERN
The accompanying condensed consolidated financial statements were prepared
assuming that the Company will continue as a going concern. This basis of
accounting contemplates the recovery of the Company's assets and the
satisfaction of its liabilities in the normal course of operations. The
Company's ultimate ability to attain profitable operations is dependent upon
obtaining additional financing or to achieve a level of sales adequate to
support its cost structure.
Accordingly, there are no assurances that the Company will be successful in
achieving the above plans, or that such plans, if consummated, will enable the
Company to obtain profitable operations or continue as a going concern.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the period ended September 30, 2003, the Company executed non-interest
bearing demand notes with an affiliate and a shareholder. The Company borrowed
$98,994 from an affiliate and $23,994 from a shareholder, respectively. The
repayments will be made as the receivables are collected. As of September 30,
2003, $7,242 repayments were made on these loans.
Under the terms of an unsecured promissory note executed between the Company and
its parent, the parent loaned the Company $4,994 during the period ended
September 30, 2003. The interest rate of this note is 6% per year and the
interest began to accrue on the unpaid balance beginning as of February 28,
2001. The unpaid principal and interest balance are due on June 30, 2004. At
September 30, 2003, the Company had an outstanding principal balance of $489,971
and $63,137 in accrued interest.
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ANAGRAM PLUS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
NOTE 4 - CURRENCY RATES
For the purpose of conversion from Canadian Dollars to U.S. Dollars, the end of
the month and three and nine month average exchange rates were used, where
applicable. The rate, as quoted in the Wall Street Journal, was $0.7391 Canadian
Dollars to 1 U.S. Dollars at September 30, 2003 and $0.6336 at September 30,
2002.
The average rates for the three months ended September 30, 2003 and 2002 were
$0.7257 and $0.6406, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts, included in or incorporated by
reference in to this Form 10-QSB, are forward-looking statements. In addition,
when used in this document, the words "anticipate," "estimate," "project" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are subject to certain risks, uncertainties and
assumptions including risks relating to our limited operating history and
operations losses; significant capital requirements; development of markets
required for successful performance by the Company as well as other risks
described in our registration statement on Form SB-2, as well as in this report
on Form 10-QSB. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Although we believe
that the expectations we include in such forward-looking statements are
reasonable, we cannot assure you that these expectations will prove to be
correct. The following discussion and analysis should be read in conjunction
with the unaudited financial statements contained in Part I, Item 1, and the
related notes.
CRITICAL ACCOUNTING POLICIES
The preparation of our condensed consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts. The
estimates and assumptions are evaluated on an on-going basis and are based on
historical experience and on various other factors that are believed to be
reasonable. Estimates and assumptions include, but are not limited to, fixed
asset lives, intangible assets, income taxes, and contingencies. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The Company believes
the following critical accounting policies affect its more significant judgments
and estimates used in the preparation of the condensed consolidated financial
statements. The Company estimated its valuation allowance for its accounts
receivable and the value of intangible assets requires Anagram to continually
assess whether such assets are impaired. The Company has evaluated its
disclosure controls and procedures within 90 days (the "Evaluation Date") prior
to this report and concluded that there were no material weaknesses in those
controls and procedures as of that date. To the best of Management's knowledge
and belief, there have been no significant changes in internal controls and
other factors subsequent to the Evaluation Date that could materially affect
internal controls and procedures.
PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements included in this
filing for the periods ended September 30, 2003 and 2002 include our accounts
and our subsidiary, Prodijeux Inc. (sometimes hereinafter referred to jointly as
the "Company"). All significant intercompany accounts and transactions have been
eliminated.
MINORITY INTEREST
Under generally accepted accounting principles when losses applicable to the
minority interest in a subsidiary exceed the minority interest in the equity
capital of the subsidiary, the excess is charged to the majority interest since
there is no obligation of the minority interest to make good on such losses. We
have, therefore, included losses applicable to the minority interest against our
interest since the minority owners have no obligation to make good on the
losses. If future earnings do materialize, we shall be credited to the extent of
such losses previously absorbed.
REVENUE RECOGNITION
Revenue is recognized on sales of products when the customer receives title to
goods and collectibility is reasonably assured, generally upon delivery.
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RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2003 and 2002
REVENUES
During the three months ended September 30, 2003, the Company made sales of
$47,373 as compared to $28,384 of sales for the three months ended September 30,
2002. This represents an increase of $18,989 or 66.9% over the same period in
the prior year. The Company sold approximately 1,941 units of WordXchange and
1,088 units of WordXchange Junior during the three months ended September 30,
2003. Anagram sold approximately 1,896 units of WordXchange and 345 units of
AnagramPlus for the comparable period in prior year. WordXchange Junior product
was introduced and sold in 2003. The majority of the products sold were shipped
to the United States and Canada, with the remainder being shipped to Europe,
Australia and Hong Kong. Sales were made to several toy and game retailers and
distributors. The Company is continuing to negotiate with different retailers
and distributors in order to increase sales space. Management believes that the
Company is increasing its effectiveness with respect to its efforts as we are
continuing to take orders for the games.
COST OF GOODS SOLD
The Company's cost of goods sold for the period ended September 30, 2003 was
$32,488 as compared to $11,316 for the period ended September 30, 2003. The
increase in costs is attributable to the increase of units sold during the three
months ended September 30, 2003 and a higher cost per unit of earlier version of
the products. The gross profit for the period ended September 30, 2003 was
$14,885 as compared to a gross profit of $17,068 for the period ended September
30, 2002. The reduction in gross profit is due to the following factors: (1) a
reduction in unit price of WordXchange of approximately 16% from prior year; (2)
a higher unit cost of earlier version of the products; and (3) large sales at
slightly above cost to promote new businesses.
OPERATING EXPENSES
The Company's salary expense decreased $7,688 or 78% to $2,177 for the three
months ended September 30, 2003 from $9,865 for the three months ended September
30, 2002. The decrease in salaries can be attributed to the fact that our
Creative Vice President is no longer receiving a salary and his services are
being used on an as needed basis. Management anticipates that if sales begin to
increase at a faster level the Company will need to hire a sales force and an
administrative staff as well as a production design staff. Those functions are
currently being performed by the President of Prodijeux and by independent sales
representatives.
The Company's expense for professional fees for the three months ended September
30, 2003 decreased $12,385 or 87% to $1,872 as compared to $14,257 for the three
months ended September 30, 2002. This increase can be directly attributed to the
inclusion of auditing fees incurred for the audit of the year ended June 30,
2002. This line item also includes legal and accounting expenses, and transfer
agent fees incurred as part of being a public company in the normal course of
business.
Advertising expense for the three months ended September 30, 2003 increased
$3,756 as compared to $-0- for the three months ended September 30, 2002.
Management is implementing its marketing efforts in promoting its products in
convention and promotion to increase its sales pace.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 2003 and 2002 was
virtually unchanged as the outstanding balances were approximately at the same
level at September 30, 2003 and 2002.
NET LOSS
As a result of the foregoing, we reported a net loss of $29,930 or $-0- per
share for the three months ended September 30, 2003 as compared to $26,268 or
$-0- per share for the three months ended September 30, 2002.
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LIQUIDITY AND CAPITAL RESOURCES OF ANAGRAM AND PRODIJEUX COMBINED
We have incurred losses since our inception and have negative cash flows from
operations. Until Prodijeux can produce cash flow from its continuing operations
the Company's main sources of cash will continue to be its loan from its parent
corporation, ADC Development Corp. and any additional investment capital raised
through our public offering. We have raised $33,000 for the year ended June 30,
2003, and $12,000 through a public offering through September 25, 2002.
Anagram intends to satisfy Prodijeux's working capital requirements principally
through issuance of debt and equity securities. As of September 30, 2003 Anagram
had a negative working capital of $526,094.
With respect to Prodijeux's liquidity requirements for the next 12 months,
Anagram Plus believes that the cash flow generated from Prodijeux's future
operations and sales of WordXchange(R) and WordXchange(R) Junior Edition will
complement its current cash position, as supplemented by Anagram, and Anagram
further believes that it will be able to satisfy any liquidity needs that may
arise by short term financing. If the need arises, Anagram currently
contemplates seeking additional financing or conducting a public offering in
order to satisfy Prodijeux's additional cash requirements and any obligations it
may have.
Anagram has committed to loan Prodijeux up to approximately $790,000 (CDN
$1,069,000) for continuing operations. Through September 30, 2003, Anagram has
loaned Prodijeux $654,267 (CDN $885,221). Anagram may increase the amount loaned
Prodijeux, if approved by the board of directors of Anagram. During the three
months ended September 30, 2003, Prodijeux executed non-interest bearing demand
notes with an affiliate and a shareholder for approximately $99,000 and $24,000,
respectively. The notes are being repaid as the receivables are collected. As of
September 30, 2003, $7,242 repayments were made on these loans.
Currently Anagram receives its funding primarily from its parent, ADC
Development Corp. ADC Development Corp. has committed to loan Anagram up to
$750,000 pursuant to the terms of a promissory note. As of September 30, 2003
ADC Development Corp. has loaned Anagram $489,971. Depending upon the amount of
money raised through the on-going public offering, Anagram may need additional
financing for funding Prodijeux's operations during the next twelve months.
NOTES PAYABLE
Anagram and Prodijeux borrowed money under different repayment terms from a
variety of sources as discussed the notes to the respective financial
statements. Other than the bank loan and the loan owed to Anagram that are
secured by all the assets of Prodijeux, all other debt owed by Prodijeux
consists of unsecured debt with varying repayment schedules. The unsecured loan
that is owed by Anagram is payable to its parent, ADC Development Corp. The
principal and outstanding interest on this note is due on June 30, 2004. If
Anagram is not in a position to repay this note by the due date Anagram is
confident that the terms of the note can be renegotiated and an extension of
time to make any repayments will be granted.
If, for any reason, other parties demand repayment as agreed upon in the notes
payable, Prodijeux will seek additional financing from Anagram if it cannot meet
the obligations based on its cash position at the time of the demand. Prodijeux
would request financing from Anagram and, if its own funds are not available,
Anagram would request the additional funds from ADC Development Corp.
Due to the nature of the relationships between Prodijeux and its creditors,
Anagram does not anticipate a creditor will demand repayment within the next
twelve months. Although, if Prodijeux's cash position allows Prodijeux will pay
off these debts earlier than scheduled to eliminate the payment of additional
interest charges. If Prodijeux cannot make timely repayments it would request
financing from Anagram who, if it cannot meet the request from its own funds,
would seek financing from its parent
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures within the 90 days preceding the filing date of this quarterly
report. Based upon this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that material information required to be
disclosed is included in the reports that it files with the Securities and
Exchange Commission.
There were no significant changes in the Company's internal control over
financial reporting, to the knowledge of the management of the Company, or in
other factors that have materially affected or are reasonably likely to
materially affect, these internal controls over financial reporting subsequent
to the evaluation date.
Changes in internal controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders as of the date hereof.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS
(a) The following list sets forth the applicable exhibits (numbered in
accordance with Item 601 of Regulation S-K) required to be filed with this
Quarterly Report on Form 10-QSB:
(b) None
Exhibit 31.1 Certification required by Rule 13a-14 (a) (17 CFR 240.13a-14(a)) or
Rule 15d-14 (a) (17 CFR 240.15d-14(a)).
Exhibit 32.1 Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or
Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. 1350).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on January 15, 2004.
Anagram Plus, Inc.
By: /s/ Paul Michelin
----------------------------------
Paul Michelin, President, CEO
& CFO/Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacity and on the date
indicated.
/s/ Robert Michelin January 15, 2004
-------------------------------------
Robert Michelin, Secretary & Director
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