10QSB 1 v03304_10qsb.txt 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: MARCH 31, 2004 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 [X] No [_] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of May 10, 2004: 6,539,370 shares of common stock, par value $.001 per share. INDEX ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet at March 31, 2004 (Unaudited).............1 Condensed Consolidated Statements of Operations for the Three Months And Nine Months Ended March 31, 2004 and 2003 (Unaudited)....................2 Condensed Consolidated Statement of Stockholders' Deficit for the Three Months Ended March 31, 2004 (Unaudited)................................3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2004 and 2003 (Unaudited)....................................4 Notes to Condensed Consolidated Financial Statements (Unaudited).............5-6 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations......................................7-10 Item 3. Controls and Procedures.............................................11 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................12 Item 2. Changes in Securities ..............................................12 Item 3. Defaults upon Senior Securities ....................................12 Item 4. Submission of Matters to a Vote of Security Holders.................12 Item 5. Other Information...................................................12 Item 6. Exhibits and Reports on Form 8-K....................................12 Signatures....................................................................14 ANAGRAM PLUS, INC. CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 2004 (UNAUDITED) ASSETS 2004 ------------ Current assets: Cash $ 44,861 Accounts receivable 32,233 Inventory 104,179 ------------ Total current assets 181,273 Property and equipment, net 13,987 Intangible assets, net 11,205 ------------ Total assets $ 206,465 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 35,498 Due to related parties 198,760 Accrued interest 78,489 Note payable - related party 482,737 ------------ Total current liabilities 795,484 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, 6,539,370 shares issued and outstanding 6,539 Additional paid-in-capital 225,554 Subscription receivable (19,000) Foreign currency adjustment (65,543) Accumulated deficit (736,569) ------------ Total stockholders' deficit (589,019) ------------ Total liabilities and stockholders' deficit $ 206,465 ============ See accompanying notes to condensed consolidated financial statements. -1- ANAGRAM PLUS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, --------------------------------- ----------------------------- 2004 2003 2004 2003 ---------------- --------------- ------------- ------------- Sales $ 44,405 $ 80,209 $159,418 $ 164,290 Cost of sales 28,808 32,193 117,091 84,551 ----------- ----------- ----------- ----------- Gross profit 15,597 48,016 42,327 79,739 Expenses General and administrative expenses 55,556 50,929 92,434 130,959 Sales and marketing 5,239 8,678 22,764 21,000 Amortization 954 866 2,830 2,413 Depreciation 1,112 1,128 2,776 3,144 ----------- ----------- ----------- ----------- Total expenses 62,861 61,601 120,804 157,516 ----------- ----------- ----------- ----------- Loss from operations (47,264) (13,585) (78,477) (77,777) Foreign currency exchange gain (loss) 408 (5,943) 25,040 (440) Interest expense (8,352) (6,833) (26,136) (24,025) ----------- ----------- ----------- ----------- Loss before income taxes (55,208) (26,361) (79,573) (102,242) Provision (benefit) for income taxes - - - - ----------- ----------- ----------- ----------- Net loss $ (55,208) $ (26,361) $ (79,573) $(102,242) =========== =========== =========== =========== Net loss per share (basic and diluted) $ (0.01) $ (0.00) $ (0.01) $ (0.02) =========== =========== =========== =========== Weighted average shares outstanding (basic and diluted) 6,461,784 6,394,000 6,416,430 6,366,105 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. -2- ANAGRAM PLUS, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED)
Accumulated Common Stock Additional Other ----------------------- Paid-In Subscription Comprehensive Accumulated Shares Amount Capital Receivable Income Deficit Total --------- --------- --------- --------- --------- --------- --------- Balance at December 31, 2003 6,394,000 6,394 153,014 (19,000) (64,348) (681,361) (605,301) Stock issuance for cash 115,120 115 57,445 -- -- -- 57,560 Stock issued for partial reduction of note payable 30,250 30 15,095 -- -- -- 15,125 Foreign currency adjustment -- -- -- -- (1,195) -- (1,195) Net loss for the period ended March 31, 2004 -- -- -- -- -- (55,208) (55,208) --------- --------- --------- --------- --------- --------- --------- Balance at March 31, 2004 6,539,370 $ 6,539 $ 225,554 $ (19,000) $ (65,543) $(736,569) $(589,019) ========= ========= ========= ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. -3- ANAGRAM PLUS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2004 AND 2003 Nine Months Ended March 31, -------------------------- 2004 2003 ----------- ----------- Cash flows from operating activities: Net loss $ (79,573) $ (102,242) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 5,606 5,557 (Increase) decrease in: Accounts receivable (11,007) (70,192) Inventory (34,160) 6,034 Increase (decrease) in: Accounts payable 2,668 16,806 Accrued expenses 23,502 27,090 Due to related parties -- (21,795) ----------- ----------- Net cash used in operating activities (92,964) (138,742) ----------- ----------- Cash flows from investing activities: Purchase of equipment (5,333) -- ----------- ----------- Net cash used in investing activities $ (5,333) $ -- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock, net 57,560 33,000 Proceeds from loan from related parties 162,963 59,501 Repayment of loan from related party (27,090) (8,000) ----------- ----------- Net cash provided by financing activities 193,433 84,501 ----------- ----------- Effect of exchange rate changes on cash (52,864) 2,673 Net increase (decrease) in cash 42,272 (51,568) ----------- ----------- Cash at beginning of period 2,589 51,781 ----------- ----------- Cash at end of period $ 44,861 $ 213 =========== =========== Supplementary Information: Cash paid for: Interest paid $ -- $ 2,190 =========== =========== Non-cash disclosures of investing and financing activities: Purchase of additional interest in subsidiary in exchange for advance from related party $ -- $ 2,020 =========== =========== Issuance of stock to related party for partial reduction of note payable balance $ 15,125 $ 106,000 =========== =========== See accompanying notes to condensed consolidated financial statements. -4- ANAGRAM PLUS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS 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. The Company specializes in the creation and development of interactive education/entertainment products in the form of traditional family board games. The first game in this line of "edutainment" products is "WordXchange" which is available in adult and junior editions, as well as being available in the French and English languages. The games will be distributed through department stores, toy specialty stores, bookstores and the internet. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. 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 nine months ended March 31, 2004 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 - 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 4 - RELATED PARTY TRANSACTIONS During the period ended March 31, 2004, 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 March 31, 2004, repayments of $7,242 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 $39,975 during the period ended March 31, 2004. The Company repaid $27,090 in loan payments to its parent during the same period. In addition, the Company issued 30,250 shares of its common stock at $0.50 per share to its parent in exchange for a $15,125 reduction of its principal outstanding balance of the unsecured promissory note to it parent. 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 March 31, 2004, the Company had an outstanding principal balance of $482,737 and $78,489 in accrued interest. -5- NOTE 5 - COMMON STOCK During the period ended March 31, 2004, the Company sold 115,120 shares of its common stock to related parties for cash of $57, 560. Additionally, 30,250 common shares were exchanged for a partial reduction of its notes payable to its parent company, which is discussed in Note 4 - Related Party Transactions above. NOTE 6 - 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 $0.7648 Canadian Dollars to 1 U.S. Dollars at March 31, 2004 and $0.6797 at March 31, 2003. The average for the three months ended March 31, 2004 and 2003 were $0.7594 and $0.6621, respectively. The average rates for the nine months ended March 31, 2004 and 2003 were $0.7484 and $0.6465, respectively. NOTE 7 - EARNINGS PER SHARE Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. -6- 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 ESTIMATES AND 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. 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. -7- RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003 REVENUES During the nine months ended March 31, 2004, the Company had sales of $159,418 as compared to $164,290 of sales for the nine months ended March 31, 2003. This represents a slight decrease of $4,872 or 3% over the same period in the prior year. The Company sold approximately 9,712 units of WordXchange, 2,010 units of WordXchange Junior, 1,362 units of Anagram Plus, and 1,335 units of Anagram Plus Junior during the nine months ended March 31, 2004. Anagram sold approximately 5,823 units of WordXchange, 4,220 units of WordXchange Junior and 5,724 units of AnagramPlus for the comparable period in prior year. The decrease in revenues is mainly attributable to the lower number of units sold. 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 March 31, 2004 was $117,091 as compared to $84,551 for the period ended March 31, 2003. The increase in costs is attributable to units sold during the nine months ended March 31, 2004 having a higher cost per unit, and higher freight charges. Hence, the gross profit for the period ended March 31, 2004 was $42,327 as compared to a gross profit of $79,739 for the period ended March 31, 2003. 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 $12,822 or 45% to $15,715 for the nine months ended March 31, 2004 from $28,537 for the nine months ended March 31, 2003. 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. Consulting expense for the period decreased by $9,897 or 83% to $2,095 for the nine months ended March 31, 2004 from $11,992 for nine months ended March31, 2003. This decrease is a direct result of management's decision to use a consultant who assisted with the marketing and distribution of WordXchange on as needed basis. Management has not made a decision as to the feasibility of obtaining the services of another consultant. We believe the consulting fees will remain at the same level for the foreseeable future. The Company's expense for professional fees for the period ended March 31, 2004 decreased $31,408 or 59% to $22,182 as compared to $53,590 for the period ended March 31, 2003. This decrease can be directly attributed to the legal, auditing fees and other related fees incurred for the audit of the year ended June 30, 2002 as part of becoming a public company in the first part of 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. The Company incurred additional expenses during this period as compared to the prior year of approximately $8,000 in product samples purchases for distribution to prospective customers and exhibition and convention expenses as part of marketing efforts conducted by the Company. As a result, travel related expenses were higher in this period than those of previous period. FOREIGN EXCHANGE Foreign exchange gain increased $25,480 to $25,040 for the period ended March 31, 2004 from a loss of $440 for the comparable period ended March 31, 2003. This is due primarily to the fact more than 90% of Prodijeux sales, its Canadian subsidiary, were to the United States customers, who paid in US dollars and the US dollar has suffered devaluation against the Canandian dollar during the previous nine months. INTEREST EXPENSE Interest expense increased $2,111 or 9% to $26,136 for the period ended March 31, 2004 from $24,025 for the period ended March 31, 2003. This slight increase can be attributed to the larger average outstanding note payable balance during the nine months period. NET LOSS The Company reported a net loss of $79,573 or $ (0.01) per share for the nine months ended March 31, 2004 as compared to $102,242 or $ (0.02) per share for the period ended March 31, 2003. This was a result of a number of cost control measurements implemented and a benefit of a favorable foreign exchange rate realized at its Canadian subsidiary. -8- COMPARISON OF THREE MONTHS ENDED MARCH 31, 2004 AND 2003 REVENUES During the three months ended March 31, 2004, the Company had sales of $44,405 as compared to $80,209 of sales for the three months ended March 31, 2003. This represents a decrease of $35,804 or 45% over the same period in the prior year. The Company sold approximately 1,414 units of WordXchange, 132 units of WordXchange Junior, 1,021 units of Anagram Plus, and 143 units of AnagramPlus Junior during the three months ended March 31, 2004. Anagram sold approximately 3,493 units of WordXchange, and 2,599 units of WordXchange , and 204 units of AnagramPlus for the comparable period in prior year. The decrease in revenues is mainly attributable to a large order of 4,700 units by a customer during the three months period ended March 31, 2003 for WordXChange and WordXChange Junior, which was shipped and delivered in the quarter. 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 at obtaining orders for the games. COST OF GOODS SOLD The Company's cost of goods sold for the three months period ended March 31, 2004 was $28,808 as compared to $32,193 for the same period ended March 31, 2003. Though the total cost of goods sold decreased in 2004 as compared to 2003 due to lower number of units sold during the three months ended March 31, 2004, the cost of goods sold as a percentage of sales was higher in 2004 in comparison to that of 2003 due to a higher cost per unit of certain versions of the products as sold in 2004, and higher freight charges. Hence, the gross profit for the three months period ended March 31, 2004 was $15,597 as compared to a gross profit of $48,016 for the same period ended March 31, 2003. The reduction in gross profit is attributable to the following factors: (1) a reduction in unit price of WordXchange of approximately 16% from prior year; (2) a higher unit cost of certain versions of the products; and (3) large sales at slightly above cost to promote new businesses. OPERATING EXPENSES Consulting expense for the period decreased by $4,187 or 67% to $2,095 for the three months ended March 31, 2004 from $6,282 for three months ended March 31, 2003. This decrease is a direct result of management's decision to use a consultant who assisted with the marketing and distribution of WordXchange on as needed basis. Management has not made a decision as to the feasibility of obtaining the services of another consultant. We believe the consulting fees will remain at the same level for the foreseeable future. The Company's salary expense decreased $3,840 or 36% to $6,801 for the three months ended March 31, 2004 from $10,641 for the three months ended March 31, 2003 as part of the cost containment measure in this quarter. The Company's expense for professional fees for the three months ended December 31, 2003 increased $2,086 or 13% to $17,682 as compared to $15,598 for the three months ended March 31, 2003. This increase is attributed to the legal fees and other related fees incurred for the patent related work and filings. Travel expense for the three months ended March 31, 2004 increased $2,377 to $3,026 as compared to $649 for the three months ended March 31, 2003. These travel expenses are related to the Company's plan to promote its business through exhibitions and trade conventions. The Company incurred additional expenses during this period as compared to the prior year of approximately $8,000 in product samples purchases for distribution to prospective customers and exhibition and convention expenses as part of marketing efforts conducted by the Company. Advertising expenses decreased $3,439 or 40% from $8,678 in the three months period ended March 31, 2004 to $5,239 for the same period in 2003. The decrease reflected the Company's cost containment program. Sales commission expenses decrease $7,620 or 93% in the three months period ended March 31, 2004 to $603 for the comparable period in 2003. The decrease was resulted from a 45% lower sales during the period in 2004 and an utilization of more in house sales efforts. FOREIGN EXCHANGE Foreign exchange gain increased $6,351 or 107% to $408 for the period ended March 31, 2004 from a foreign exchange loss of $5,943 for the comparable period ended March 31, 2003. This is primarily due to the fact more than 90% of Prodijeux sales during the three months period ended March 31, 2004, its Canadian subsidiary, were to the United States customers, who paid in US dollars and the US dollars have been weaker against the Canadian dollars in the last nine months. -9- INTEREST EXPENSE Interest expense for the three months ended March 31, 2004 increased $1,519 or 22% to $8,352 from $6,833 for the same period in prior year as a result a larger average outstanding loan balance during the period. NET LOSS The Company reported a net loss of $55,208 or $ (0.01) per share for the three months ended March 31, 2004 as compared to a net loss of $26,361 or $ -0- per share for the three months ended March 31, 2003. This was mainly attributable to lower sales, lower prices, and higher unit costs of older version offset by better cost containment measures, and additional cost incurred couple with a favorable foreign currency exchange rate on more than 90% sales from its Canadian subsidiary. -10- LIQUIDITY AND CAPITAL RESOURCES OF ANAGRAM AND PRODIJEUX COMBINED GOING CONCERN QUALIFICATION The Company's condensed financial statements have been prepared assuming that the Company will continue as a going concern. During the nine months ended March 31, 2004, the Company sustained a net loss of $79,573 and has a working capital deficit of $524,619. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continuation is dependent upon its ability to control costs and attain a satisfactory level of profitability with sufficient financing capabilities or equity investment. The financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The Company has 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. The Company has raised $57,560 for the nine months ended March 31, 2004, $33,000 for the year ended June 30, 2003, and $12,000 through a public offering through September 25, 2002. The Company intends to satisfy Prodijeux's working capital requirements principally through issuance of debt and equity securities. As of March 31, 2004, the Company had a negative working capital of $524,619. 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 $1,023,000) for continuing operations. Through March 31, 2004, Anagram has loaned Prodijeux approximately $596,569 (CDN $780,033). Anagram may increase the amount loaned Prodijeux, if approved by the board of directors of Anagram. During the nine months ended March 31, 2004, 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 March 31, 2004, $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 March 31, 2004 ADC Development Corp. has loaned Anagram $482,737, which included the $39,975 additional loan made during the nine months ended March 31, 2004, and a repayment of $27,090 in cash during the same period. 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 in 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. -11- There were no significant changes in the Company's internal control over financial reporting, 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. -12- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES During the period ended March 31, 2004, the Company sold 145,370 shares of its common shares to related parties, of which 115,120 common shares were in exchange for cash. The 30,250 common shares were in exchange for a partial reduction of its note payable to its parent company. In addition, the 115,120 shares were issued to an affiliate, whose officer is also the President of this Company. 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). -13- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 12, 2004. Anagram Plus, Inc. By: /s/ Paul Michelin ------------------------- Paul Michelin,President, CEO & CFO/Principal Accounting Officer -14-