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 December 31, 1997
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
December 31, 1997
Common Stock, $.0001 par value 324,457,249 shares
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TRUDY CORPORATION
PAGE
INDEX NUMBER
PART I. FINANCIAL INFORMATION
Unaudited Balance Sheets - December 31, 1997 and March 31, 1997 .............2
Unaudited Statements of Operations - Three and nine months ended
December 31, 1997 and December 31, 1996 ..............................3
Unaudited Statements of Cash Flows - Nine months ended
December 31, 1997 and 1996 ...........................................4
Notes to Unaudited Financial Statements ....................................5
Management's Discussion and Analysis .......................................6
PART II. OTHER INFORMATION ...................................................7
SIGNATURES ....................................................................8
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<TABLE>
<CAPTION>
TRUDY CORPORATION
BALANCE SHEET - UNAUDITED
Dec 31, March 31,
Current assets: 1997 1997
----------- -----------
<S> <C> <C>
Cash $ 12,888 $ 2,939
Accounts receivable,
Net of allowance for doubtful accounts
(Dec 31, 69,054; Mar 31, 40,000) 479,013 173,697
Inventories 1,417,927 1,404,590
Deferred income taxes 40,000 40,000
Due from vendors 11,892 0
Prepaid expenses & other 126,437 69,490
----------- -----------
Total current assets 2,088,157 1,690,716
----------- -----------
Plant and equipment, net 101,665 65,539
Other assets:
Deferred income taxes 216,000 216,000
Pre-publication expenses 447,138 351,183
----------- -----------
Total other assets 663,138 567,183
TOTAL ASSETS $ 2,852,960 $ 2,323,438
=========== ===========
Current liabilities:
Bank note payable 257,449 145,000
Current portion of notes to related parties 379,961 368,047
Current portion of long-term debt 11,369 11,647
Accounts payable and accrued expenses 398,401 345,708
----------- -----------
Total current liabilities 1,047,180 870,402
----------- -----------
Notes payable to related parties 158,743 151,143
Long-term debt, net of current portion 46,464 29,166
----------- -----------
Total long term liabilities 205,207 180,309
TOTAL LIABILITIES 1,252,387 1,050,711
----------- -----------
Stockholders' equity:
Common stock, par value $.0001;
850,000,000 shares authorized;
324,457,249 (1997) and 318,457,249 (1996)
shares issued and outstanding. 32,446 32,446
Capital in excess of par value 3,993,698 3,993,698
Deficit (2,425,571) (2,753,417)
----------- -----------
Total stockholders' equity 1,600,573 1,272,727
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,852,960 $ 2,323,438
=========== ===========
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SEE NOTE TO FINANCIAL STATEMENTS
2
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<TABLE>
<CAPTION>
TRUDY CORPORATION
STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
Dec 31 Dec 31 Dec 31 Dec 31
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 2,108,990 $ 2,265,584 $ 4,366,399 $ 4,436,890
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of sales 811,38 1,129,706 2,108,811 2,234,620
Selling, general and administration 1,011,623 748,415 1,830,973 1,548,536
----------- ----------- --------- -----------
1,823,006 1,878,121 3,939,784 3,783,156
Profit from operations 285,984 387,463 426,615 653,734
Other income (expense):
Interest expense (25,986) (33,332) (64,110) (38,524)
Other income 4,656 9,838 14,740 10,860
Other expense (depre/amort) (2,781) (3,948) (8,421) (13,844)
Relocation expenses (0) (116,116) (0) (116,116)
----------- ----------- ----------- -----------
(24,111) (27,442) (57,721) (157,624)
Profit before tax 261,873 360,021 368,824 496,110
Provision for income tax 35,320 0 40,977 0
Net profit $ 226,553 $ 360,021 $ 327,846 $ 496,110
Deficit -- beginning of period (2,652,126) (2,969,004) (2,753,417) (3,105,093)
Deficit -- end of period $(2,425,571) $(2,608,983) $(2,425,571) $(2,608,983)
=========== =========== =========== ===========
Net income per share $ 0.000711 $ 0.001124 $ 0.001010 $ 0.001549
=========== =========== =========== ===========
Weighted average number of
shares outstanding 324,457,249 320,290,552 324,457,249 318,457,249
</TABLE>
SEE NOTE TO FINANCIAL STATEMENTS
3
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<TABLE>
<CAPTION>
TRUDY CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
------------------------
Dec 31, Dec 31,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 327,846 $ 496,110
--------- ---------
Adjustments to reconcile income to
net cash provided by operations:
Depreciation and amortization, inclusive
of amortization of pre-publication expenses 31,332 65,518
Provision for losses on accounts receivable 14,054 18,182
Loss on disposal of plant and equipment 0 116,116
Compensation via stock grants 0 12,000
Changes in current assets and current liabilities:
Accounts receivable (319,370) (54,655)
Inventories (13,337) (217,159)
Prepaid expenses and other current assets (68,839) 56,301
Accounts payable & accrued expenses 87,771 (394,278)
--------- ---------
Net cash provided by operations 59,457 98,135
CASH FLOWS FROM INVESTING ACTIVITIES:
Pre-publication and royalty advances (118,866) (87,031)
Additions to plant and equipment (44,547) (3,352)
--------- ---------
Net cash provided by investing activities (163,413) (90,383)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from loans - short term 146,424 (109,345)
Net proceeds (repayments) of loans - long term (32,519) (9,297)
--------- ---------
Net cash provided (used) by financing activities 113,905 (118,642)
Net increase (decrease) in cash 9,949 (110,890)
Cash, beginning of period 2,939 145,202
--------- ---------
Cash, end of period $ 12,888 $ 34,312
========= =========
</TABLE>
SEE NOTE TO FINANCIAL STATEMENTS
4
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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 nine months ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1998. 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, 1997.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Trudy Corporation's revenues for the first nine months of Fiscal 1998 decreased
1.6% to $ 4,366,399 compared to revenues of $ 4,436,890 in the first nine months
of Fiscal 1997. Sales for the third quarter decreased by 6.9% to $2,108,990
compared to sales of $2,265,584 in the previous fiscal year. The decrease is the
result of a general lackluster retail trade environment across all categories,
especially among specialty retail chains where purchases of Soundprints products
were significantly off from a year ago.
The order backlog totaled $ 59,610 at December 31, 1997, compared to a backlog
of $ 50,007 as of December 31, 1996. This small increase in order backlog is not
significant in the course of the business and has little impact on the overall
business conducted over the course of the full year.
As noted in previous quarters, the Soundprints product continues to find favor
with independent retailers who make a strong commitment behind the line. For
these retailers the orders are larger and the sell-through appears to be solid,
prompting re-orders. Additionally, in the fall of 1997 the direct mail catalog
was increased in circulation and this had a proportionate increase in total
sales.
PROFIT AND LOSSES
The gross profit of $ 1,297,607 for the third quarter of Fiscal 1998 compares to
a gross profit of $ 1,140,378 for the third quarter of Fiscal 1997, an increase
of 13.8%. For the nine months ending December 31, 1997, the gross profit was
$2,257,588, up 1.9% compared to a nine month gross profit of $2,215,770 in the
previous year. Cost of sales fell to 38.5% for the third quarter of fiscal 1998
compared to 49.7% for the third quarter of fiscal 1997. For the nine month
period, cost of sales at 48.3% improved from last year when the cost of sales
was 50.1%.
Profit from Operations for the third quarter totaled $ 285,984, down from $
387,463 in the quarter ending December 31, 1996. Operating profits for the first
nine months of Fiscal 1998 totaled $426,615, a decrease of 34.7% compared to
$653,734 in the prior fiscal year. Both the fixed cost of administration was up
as well as selling costs, in particular the costs of producing more mail order
catalogs. Operating profits as a percent of sales were 13.6% and 9.8% for the
latest three and nine month periods, respectively, of the current fiscal year.
Interest expense is up somewhat for the third quarter, though the interest
expense is up
6
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sharply for the nine month period. This is due to greater borrowings in the
season, matching the slightly later ordering pattern of our customers as well as
a growing need for more inventory to support an expanded number of new titles.
Other income of $4,656 for the quarter and $14,740 for the nine months reflects
a growing business in sub-licensing of the Company's books by other publishers
for distribution in foreign translations or in book clubs. As discussed in last
years 10-Q Report, the relocation expense of $116,116 in the nine month figures
of fiscal 1997 reflects the write-off of leasehold improvements at the Company's
previous location and is a non-recurring event.
Net profit after tax of $ 226,553 for the third quarter compares with a net
profit of $ 360,021 for the third quarter of the previous fiscal year, a decline
of 37.1%. For the nine months, net profits are down by 33.9% to $ 327,846 as
compared to $ 496,110 for the prior year. Sales revenues declined slightly from
the prior year as selling and administrative costs grew. This increase in
expenses is the direct result of Company efforts to stimulate future revenue
growth through greater catalog mailings and higher quality artists whose
publication fees are higher.
Accounts receivable totaled $479,013 as of December 31, 1997, up from $173,697
on March 31, 1997. In both cases the amounts owed were collected shortly
thereafter. The March Quarter is traditionally a low sales period compared to
the December period which is impacted by large holiday sales. Inventory totaled
$1,417,927 at December 31, 1997 compared to $1,404,590 on March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Given the continuing high rate of growth in working capital, the Company's
credit facility continues to play a major role in the Company's business plan.
The local bank has been supportive of the Company's efforts and a good dialogue
continues; the Company remains within all the guidelines set by the bank. As of
December 31, 1997 the balance owing on direct officer loans totaled $379,961
while bank loans secured by corporate collateral and personal guarantees totaled
$257,449. The bank loan was used to finance inventory and accounts receivable.
At this point, the Company does not anticipate any new significant sources of
cash in Fiscal 1998. There are no developments, either favorable or unfavorable,
which are apparent as yet and which would affect the Company's future success.
PART II
OTHER INFORMATION
Items 1-6. Not Applicable.
7
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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 MARCH 27, 1998 By /s/ WILLIAM W. BURNHAM
----------------------
William W. Burnham,
President
8
<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> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,888
<SECURITIES> 0
<RECEIVABLES> 479,013 <F1>
<ALLOWANCES> 0
<INVENTORY> 1,417,927
<CURRENT-ASSETS> 2,088,157
<PP&E> 101,665 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,852,960
<CURRENT-LIABILITIES> 2,674,865
<BONDS> 205,207
0
0
<COMMON> 32,446
<OTHER-SE> 1,568,127
<TOTAL-LIABILITY-AND-EQUITY> 2,852,960
<SALES> 4,366,399
<TOTAL-REVENUES> 4,366,399
<CGS> 2,108,811
<TOTAL-COSTS> 3,939,784
<OTHER-EXPENSES> (6,319)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,110
<INCOME-PRETAX> 368,824
<INCOME-TAX> 40,977
<INCOME-CONTINUING> 327,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327,846
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
<FN>
<F1> The values for Receivables and PP&E represent net amounts.
</FN>
</TABLE>
