SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
Commission File No. 0-16056
TRUDY CORPORATION
353 Main Avenue
Norwalk, Conn. 06851
Incorporated in the State of DELAWARE
Federal Identification No. 06-1007765
Telephone: (203) 846-2274
Trudy Corporation has filed all reports required to be filed by section 13 or 15
(d) of the Securities Act of 1934 during the preceding twelve months and has
been subject to such filing requirements for the past year.
SHARES OUTSTANDING AT
September 30, 1998
Common Stock, $.0001 par value 331,222,249 shares
<PAGE>
TRUDY CORPORATION
INDEX PAGE NUMBER
PART I. FINANCIAL INFORMATION
Unaudited Balance Sheets - June 30, and September 30, 1998 ...............2
Unaudited Statements of Income and Deficit - Three months and six
months ended September 30, 1997 and September 30, 1998 .................3
Unaudited Statements of Cash Flows - Three months ended
September 30, 1997 and September 30, 1998 ..............................4
Notes to Unaudited Financial Statements .................................5
Management's Discussion and Analysis .....................................6
PART II. OTHER INFORMATION ..............................................7
SIGNATURES ...............................................................8
<PAGE>
TRUDY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1998 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets
Cash $ 69,999 $ 3,727
Accounts receivable, net of allowance for doubtful
accounts 37,299 (September 30) 39,953 (June 30) 744,487 536,633
Inventories 1,718,561 1,760,352
Prepaid expenses and other current assets 470,555 86,212
Prepaid income taxes 14,826 21,134
Deferred income taxes 59,000 59,000
--------------- ---------------
Total current assets 3,077,428 2,467,058
Plant and equipment (net) 143,782 134,825
Pre-publication costs and royalty advances 315,579 327,148
Deferred income taxes 319,000 319,000
=============== ===============
Total assets $ 3,855,789 $ 3,248,031
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 604,709 $ 337,164
Current portion of long-term debt 37,159 52,271
Current portion of notes payable to related parties and
accrued interest 630,661 285,237
--------------- ---------------
Total current liabilities 1,272,529 674,672
Bank note payable 855,688 858,688
Long-term debt 189,111 189,111
Notes payable to related parties 166,342 163,809
--------------- ---------------
Total liabilities 2,483,670 1,886,280
--------------- ---------------
Stockholders' equity
Common stock, par value $.0001; 850,000 shares
authorized; 331,222,249 issued and outstanding 33,123 33,123
Capital in excess of par value 4,000,316 4,000,316
Accumulated deficit (2,661,320) (2,671,688)
--------------- ---------------
Total stockholders' equity 1,372,119 1,361,751
--------------- ---------------
Total liabilities and stockholders' equity $ 3,855,789 $ 3,248,031
=============== ===============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE>
<TABLE>
<CAPTION>
TRUDY CORPORATION
STATEMENTS OF INCOME AND DEFICIT
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 1,021,468 $ 1,581,553 $ 1,732,201 $ 2,257,408
------------- ------------- ------------- -------------
Operating costs & expenses:
Cost of sales 499,865 849,077 927,515 1,245,363
Selling, general and administrative 450,014 451,585 834,880 819,350
------------- ------------- ------------- -------------
949,879 1,300,662 1,762,395 2,064,713
------------- ------------- ------------- -------------
Income (loss) from operations 71,589 280,891 (30,194) 192,695
------------- ------------- ------------- -------------
Other income (expenses):
Other income 7,931 1,440 12,238 10,084
Interest expense, net (42,652) (25,182) (58,001) (38,125)
Depreciation (26,500) (2,832) (35,500) (5,639)
------------- ------------- ------------- -------------
(61,221) (26,574) (81,263) (33,680)
------------- ------------- ------------- -------------
Income (loss) before income taxes 10,368 254,317 (111,457) 159,015
Provision for income taxes 0 5,658 0 5,658
------------- ------------- ------------- -------------
Net income (loss) 10,368 248,659 (111,457) 153,357
Deficit-beginning of period (2,671,688) (2,848,718) (2,549,863) (2,753,416)
------------- ------------- ------------- -------------
Deficit-end of period $ (2,661,320) $ (2,600,059) $ (2,661,320) $ (2,600,059)
============= ============= ============= =============
Net income (loss) per share 0.0000313 0.0007664 (0.0003365) 0.0004727
============= ============= ============= =============
Weighted number of shares
outstanding 331,222,249 324,457,249 331,222,249 324,457,249
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
-3-
<PAGE>
TRUDY CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
September 30, September 30,
Cash flows from operating activities 1998 1997
------------- -------------
<S> <C> <C>
NET INCOME (LOSS) $ (111,455) $ 153,357
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of pre-publication costs 71,250 9,386
Depreciation 35,500 5,639
Provision for losses on accounts receivable 7,927 7,639
Changes in current assets and current liabilities
Accounts receivable (430,516) (1,081,402)
Inventories (143,660) (482,274)
Prepaid expenses and other current assets (379,651) (357,447)
Accounts payable and accrued expenses 286,016 529,085
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (664,589) (1,216,017)
------------- -------------
Cash flows from investing activities
Pre-publication & royalty advances (7,283) (49,507)
Additions to plant and equipment (49,513) (17,602)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (56,796) (67,109)
------------- -------------
Cash flows from financing activities
Net change in short-term borrowings 802,923 1,275,377
Proceeds of loans - long-term 0 25,365
Repayment of loans - long-term (11,539) 0
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 791,384 1,300,742
------------- -------------
Net change in cash 69,999 17,616
Cash, beginning of period 0 2,939
------------- -------------
CASH, END OF PERIOD $ 69,999 $ 20,555
============= =============
</TABLE>
See Notes to Financial Statements.
-4-
<PAGE>
TRUDY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation:
The accompanying unaudited financial statements 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 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 for a fair presentation have been included.
Operating results for the three months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended March 31, 1998.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Trudy Corporation's revenues for the six months ended September 30,1998 were
$1,732,201 - a decrease of $525,207 compared with the same period last year.
Sales to warehouse clubs, the largest market segment, were down $171,367 to
$869,755 due to inventory carryover from the prior year and the clubs' decision
to purchase more conservatively. Sales to bookstores and specialty retailers
were also below last year as the number of independent bookstores continues to
decline and specialty stores have become more selective in their purchases.
Sales to schools and education wholesalers were improved as a result of the
Company's decision to target this growing market segment.
Sales for the three months ended September 30, 1998 were $1,021,468 - a decrease
of $560,085 compared with the same period of last year. The decreases cited for
the first six months primarily occurred in this quarter.
PROFIT AND LOSSES
A net loss of $111,457 for the first six months of fiscal 1999 compares to a
profit of $153,357 for the same period last year. This decline in profitability
is primarily the result of the lower sales volume. Income was below last year
also because of higher expenses associated with the amortization of book design
costs, higher depreciation expense, and higher interest expense. Product
procurement costs have been reduced as a result of improved pricing from Asian
manufacturing sources. Selling, general, and administrative expenses were in
line with last year's levels. Interest expense increased as a result of higher
borrowing needed to fund working capital requirements. Depreciation expense was
also higher than last year due to the acquisition of a new computer system and
software. Early in the second quarter, having determined that the new software
was inadequately serving its needs, the Company decided to purchase an
alternative software package.
Net income for the three months ended September 30 was $10,368. The Company
reported a profit of $248,659 for the same quarter last year. The reasons for
this decrease are the same as those cited for the first six months.
LIQUIDITY AND CAPITAL RESOURCES
Accounts receivable were $744,487 on September 30, 1998 compared with $536,633
on June 30, 1998. This increase is due entirely to increased sales activity
especially to warehouse clubs which have extended payment terms. Inventory
levels were $1,718,561 on September 30 compared with $1,760,352 on June 30.
Inventory levels have been maintained to fill holiday retail and direct mail
orders in the third quarter. As of September 30, 1998, the
-6-
<PAGE>
balance owed on bank loans was $1,081,958 compared with $1,100,070 on June 30,
while loans to the president of the Company and his family totaled $797,003
compared with $449,046 on June 30. The president loaned the Company an
additional $338,900 in the second quarter of this year to fund working capital
needs and the second computer system conversion.
PART II
OTHER INFORMATION - Items 1-6. Not Applicable.
-7-
<PAGE>
SIGNATURES
As required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the
President being duly authorized, has signed this report on behalf of TRUDY
CORPORATION.
Date: December 8, 1998 By /s/ WILLIAM W. BURNHAM
------------------------
William W. Burnham,
President
-8-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations
(unaudited).
</LEGEND>
<CIK> 0000815098
<NAME> Trudy Corporation
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 69,999
<SECURITIES> 0
<RECEIVABLES> 744,487 <F1>
<ALLOWANCES> 0
<INVENTORY> 1,718,561
<CURRENT-ASSETS> 3,077,428
<PP&E> 143,782 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,855,789
<CURRENT-LIABILITIES> 1,272,529
<BONDS> 1,211,141
0
0
<COMMON> 33,123
<OTHER-SE> 1,338,996
<TOTAL-LIABILITY-AND-EQUITY> 3,855,789
<SALES> 1,732,201
<TOTAL-REVENUES> 1,732,201
<CGS> 927,515
<TOTAL-COSTS> 1,762,395
<OTHER-EXPENSES> 23,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,001
<INCOME-PRETAX> (111,457)
<INCOME-TAX> 0
<INCOME-CONTINUING> (111,457)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (111,457)
<EPS-PRIMARY> (.0003)
<EPS-DILUTED> (.0003)
<FN>
<F1> The values for Receivables and PP&E represent net amounts.
</FN>
</TABLE>
