SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
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, 2000
Common Stock, $.0001 par value: 353,187,249 shares
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INDEX PAGE NUMBER
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Balance Sheets - September 30, 2000 (unaudited) and March 31, 2000 3
Statements of Operations (unaudited) for the six and three months ended
September 30, 2000 and September 30, 1999 4
Statements of Cash Flows (unaudited) for the six months ended
September 30, 2000 and September 30, 1999 5
Statement of Shareholders' Deficit (unaudited) from April 1, 2000 through
September 30, 2000 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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Trudy Corporation
Balance Sheets
September 30, March 31
2000 2000
------------- -------------
(Unaudited) (Audited)
ASSETS
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Current assets:
Cash and cash equivalents $ 19,874 $ 20,638
Accounts receivable
Net of allowance for doubtful accounts of $33,363 at
September 30, 2000 and $16,959 at March 31, 2000 662,332 533,759
Inventories, net 1,001,485 1,213,813
Prepaid expenses and other current assets 26,917 10,920
------------- -------------
Total current assets 1,710,608 1,779,130
Property and equipment, net 81,400 93,043
Pre-publication costs, royalty advances and other assets 216,220 204,530
------------- -------------
Total assets $ 2,008,228 $ 2,076,703
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 1,007,904 $ 918,431
Advances from Futech Interactive Products, Inc. 541,143 541,143
Notes payable - related parties 240,000 230,000
Notes payable to shareholders and officer 1,671,322 1,356,322
------------- -------------
Total current liabilities 3,460,369 3,045,896
Notes payable to related parties 189,124 183,305
Shareholders' deficit:
Common stock: $.0001 par value:
Authorized shares - 850,000,000
Issued and outstanding shares - 353,187,249 at
September 30, 2000 and 350,187,249 at March 31, 2000 35,319 35,019
Additional paid-in capital 4,076,470 4,073,770
Accumulated deficit (5,753,054) (5,261,287)
------------- -------------
Total shareholders' deficit (1,641,265) (1,152,498)
------------- -------------
Total liabilities and shareholders' deficit $ 2,008,228 $ 2,076,703
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See accompanying notes to financial statements.
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TRUDY CORPORATION
STATEMENTS OF OPERATIONS
Three Month Period Ended Six Month Period Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Net sales $ 329,399 $ 716,643 $ 620,734 $ 1,138,935
Cost of sales 228,772 586,312 608,619 882,296
------------- ------------- ------------- -------------
Gross profit (loss) 100,627 130,331 12,115 256,639
Operating expenses:
Selling, general and administrative 216,622 276,955 434,845 649,127
Depreciation and amortization 5,822 8,019 11,643 16,038
------------- ------------- ------------- -------------
Income (loss) from operations (121,817) (154,643) (434,373) (408,526)
Interest expense 41,448 28,847 81,836 58,260
Other income 13,742 11,956 24,442 70,325
------------- ------------- ------------- -------------
Net loss before income taxes (149,523) (171,534) (491,767) (396,461)
Income tax benefit (provision) -- -- -- --
------------- ------------- ------------- -------------
Net loss $ (149,523) $ (171,534) $ (491,767) $ (396,461)
Net income (loss) per share:
------------- ------------- ------------- -------------
Basic and diluted ($ 0.00) ($ 0.00) ($ 0.00) ($ 0.00)
============= ============= ============= =============
Weighted average shares used in computation:
------------- ------------- ------------- -------------
Basic and diluted 351,687,249 349,822,249 351,687,249 349,822,249
============= ============= ============= =============
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See accompanying summary of accounting policies and notes to financial
statements.
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Trudy Corporation
Statements of Cash Flows
Six Month Period Ended September 30,
------------------------------------
2000 1999
---------------- ----------------
Cash Flow from Operating Activities: (Unaudited) (Unaudited)
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NET LOSS ($ 491,767) ($ 396,461)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 11,643 16,038
Amortization of pre-publication costs and royalty advances 45,000 65,400
Provision for losses on accounts receivable 16,403 (3,168)
Provision for slow moving inventory (net) 153,175 --
Changes in operating assets and liabilities:
Accounts receivable (144,976) (112,809)
Inventories 59,153 (181,134)
Prepaid expenses and other current assets (15,997) (189,134)
Accounts payable and accrued expenses 89,473 490,328
---------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (277,893) (310,940)
------------------ ------------------
INVESTING ACTIVITIES
Purchases of property and equipment and other assets -- (2,995)
Pre-publication, royalty advances and other assets, net (56,690) (107,265)
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (56,690) (110,260)
---------------- ----------------
FINANCING ACTIVITIES
Net proceeds on short-term borrowings -- (142,754)
Proceeds from exercise of common stock grants 3,000 --
Repayment of loans - long-term -- (189,111)
Proceeds from related party 330,819 18,600
Advances from Futech Interactive Products, Inc. -- 733,841
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 333,819 420,576
---------------- ----------------
Net decrease in cash and cash equivalents (764) (624)
Cash and cash equivalents at beginning of year 20,638 624
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,874 $ --
================ ================
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See accompanying summary of accounting policies and notes to financial
statements.
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Trudy Corporation
Statements of Shareholders' Equity (Deficit)
(Unaudited)
Common Stock
---------------------------------- Additional Paid-In Accumulated Total Shareholders'
Shares Amount Capital Deficit Equity (Deficit)
---------------- --------------- ------------------- ---------------- -------------------
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Balance at April 1, 1999 331,222,249 $ 33,123 $ 4,056,636 $ (4,217,416) (127,657)
Issuance of common stock 18,965,000 1,896 17,134 -- 19,030
Net loss (unaudited) -- -- -- (1,043,871) (1,043,871)
---------------- --------------- ------------------- ---------------- -------------------
Balance at March 31, 2000 350,187,249 35,019 4,073,770 (5,261,287) (1,152,498)
Issuance of common stock -- -- -- -- --
Net loss (unaudited) -- -- -- (342,244) (342,244)
---------------- --------------- ------------------- ---------------- -------------------
Balance at June 30, 2000 350,187,249 35,019 4,073,770 (5,603,531) (1,494,742)
Issuance of common stock 3,000,000 300 2,700 -- 3,000
Net loss (unaudited) -- -- -- (149,523) (149,523)
---------------- --------------- ------------------- ---------------- -------------------
Balance at September 30, 2000 353,187,249 $ 35,319 $ 4,076,470 $ (5,753,054) $ (1,641,265)
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</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
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TRUDY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business and Basis of Presentation
Trudy Corporation (Company) designs, manufactures and markets plush stuffed
animals and publishes children's books and audiocassettes for sale to both
retail and wholesale customers, both domestically and internationally. All
Company product is sold under the trade name of Soundprints.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form
10-QSB 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 (including normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2001. 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, 2000.
The Company has incurred significant operating losses in the past three years
and has a deficiency in working capital, and a deficiency in net assets, and has
continued to experience a significant decline in revenues from $4,977,599 to
$3,390,884 to $2,476,252 in fiscal years 1998, 1999 and 2000, respectively and
reduced revenues by $518,201 for the six months ended September 30, 2000
compared to the six months ended September 30, 1999. The Company has been funded
by a principal shareholder - officer and another shareholder and had additional
funding in fiscal year 2000 by Futech Interactive Products, Inc.
The Company's ultimate ability to continue as a going concern is dependent upon
the market acceptance of its products, an increase in revenues coupled with
continuing license agreements and positive cash flow. The Company will also
require additional financial sources to provide near term operating cash to move
toward profitability. The Company believes that improvement in sales, a future
merger partner, and its ability to borrow money, albeit not at past levels, from
its shareholders will be sufficient to allow the Company to continue in
operation.
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2. Inventories
Inventories consist of the following:
September 30,
2000
-------------
Raw materials $ 49,637
Finished goods 1,610,023
-------------
Gross Inventory Value 1,659,660
Reserve for slow-moving inventory 658,175
-------------
Net Inventory Value $ 1,001,485
=============
The changes in the Company's reserve for slow-moving inventory is as follows:
Balance at April 1, 2000 $ 505,000
Reduction in reserve (5,059)
Additions 157,059
-------------
Balance at June 30, 2000 $ 657,000
Reduction in reserve (27,300)
Additions 28,300
-------------
Balance at September 30, 2000 $ 658,000
=============
3. Transactions and Balances with Futech Interactive Products Inc.
(a) The Company was a party to a global merger agreement dated June 4, 1999
with Futech Interactive Products, Inc. ("Futech") and certain other
companies and shareholders thereof. In addition to other provisions
included in the terms of the merger, Futech agreed to provide working
capital advances to the Company, additional amounts necessary to assure
that the Company was not in default under any of its loan agreements, and
to reimburse the Company for certain of its legal and accounting fees.
However, management had no assurances that Futech had the financial
resources to honor this agreement. Futech also agreed to repay certain
loans and interest to the Company's president and his family. The Company
was depending upon additional financial resources it expected to receive
from Futech. Also, the merger was subject to closing conditions, including
shareholder approval.
In a letter agreement dated March 3, 1999 certain terms, detailed below,
subsequently became an integral part of the aforementioned Agreement and
Plan of Merger between Futech and the Company. These terms explained the
timetable for financing the merger and Futech's assistance with the
Company's working capital needs in the event of a delay in the closing of
the merger:
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o The proxy solicitation materials and registration statement prepared
for use in connection with Trudy's meeting of shareholders will be
filed as promptly as practical with the SEC, which filing will not be
later than April 13, 1999. Futech would retain and compensate counsel
of its own choosing to prepare these documents subject to the review
of the Company's (Trudy) counsel, compensation for which would be
pre-agreed.
o If the effective date of the merger had not occurred by June 1, 1999,
Futech would assist in providing the working capital needs of Trudy,
if needed, to maintain sales momentum until the closing and to assure
that Trudy was not in default under any of its loan agreements
including its borrowings from First Union.
Subsequently, Trudy came into default with it's loan agreements and
Futech did not rectify such defaults. As a result, the Company
replaced the First Union loans with loans from another bank. Such new
bank loans were replaced by a loan from a shareholder-officer on
February 8, 2000.
o The Global merger agreement was terminated effective December 1, 1999.
(b) In connection with the above and other transactions with Futech, the
following balances are reflected as of September 30, 2000.
Included in accounts receivable:
Trade receivables from sales of inventory to Futech at
reduced prices $ 290,642
Reimbursable expenses related to merger 235,219
----------
Total included in accounts receivable 525,861
Included in accounts payable for inventory purchases
from Futech 25,814
Advances from Futech Interactive Products, Inc. 541,143
----------
Total obligations 566,957
----------
Net $ 41,096
==========
(c) On June 22, 2000, Futech filed for protection under chapter 11 of the
Bankruptcy Code.
4. Subsequent Events
(a) On October 30, 2000, the Board of Directors of the Company approved a plan
which would provide $1,000,000 of new loans and/or equity for the Company.
Initially, the shareholder - officer and another shareholder will loan the
company $650,000. After these new loans are in place, the Company will be
indebted to related parties in the amount of $2,750,000. It is the intent
of the related parties to ask the Company to permit the conversion, at a
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later date of approximately $1,950,000 of these loans to equity in the
Company. In addition, the Company is seeking to raise an additional
$350,000 from other sources.
(b) On October 30, 2000, the Board of Directors of the Company approved the
grant of 7,000,000 shares of Common Stock to certain directors, officers,
and employees of the Company for recognition of service during the prior
fiscal year.
5. Related Party Transactions
Since April 1, 2000 William W. Burnham, the Chairman and Chief Executive Officer
of the Company, has loaned the Company $315,000 to meet immediate cash needs. On
August 23, 2000 Alice Burnham loaned the Company an additional $10,000. The
notes bear an interest rate of 8%.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Trudy Corporation's revenues of $329,399 for the three months ended September
30, 2000 were 46% of the sales for the same period last year and revenues of
$620,734 for the six months ended September 30, 2000 were 55% of the sales for
the same period last year. From June 1999 through mid-May 2000, the Company sold
its inventory to Futech Interactive Products, Inc., which acted as the Company's
distributor for the majority of its sales. As previously reported, a merger
between Futech and the Company was not completed and a subsequent agreement with
Janex International, Inc., a company related to Futech, was also not
consummated. The Company regained control of its sales and distribution function
in May 2000 and has resumed shipping its product to its traditional customer
base since then. However, relisting Soundprints as a vendor of record with major
accounts turned out to be a slow process and the Company lost sales as a result.
In addition, the Company lost sales due to inventory shortages since, without a
bank credit facility, it could not purchase replacement inventory. Also,
Soundprints inventory held in Futech's warehouse was garnished by the bankruptcy
court.
A net loss of $(149,523) for the three months ended September 30, 2000 compares
to a loss of $(171,534) for the same period last year. At the gross margin
level, the Company had a profit of $100,627 or 30.5% of sales compared with a
profit of $130,331 or 18.2% of sales for the same period last year.
The Company recorded a $1,000 net write-down of its inventory for the quarter
ended September 30, 2000 versus no write down of inventory for the quarter ended
September 30, 1999. However, at March 31, 2000 the Company provided an
additional $250,000 reserve for slow moving items. As a percentage of sales,
gross profit excluding the inventory writedown, increased to 31% from 18% in the
same period last year. The increase resulted from a reduction in certain labor
and product development costs including a reduced amortization of prepublication
costs as a percent of sales and the elimination of sales to Futech at steep
preferential discounts.
Selling, general, and administrative expenses of $216,622 were reduced from
$276,955 last year, as the Company has taken measures to reduce spending in such
areas as catalog expense, salaries, and other discretionary spending. Commission
and royalty expenses also were lower as a result of lower revenues. Interest
expense increased from $28,847 to $41,448, as the Company's borrowing from the
Burnham Family has increased to cover operating costs. Other income increased
from $11,956 to $13,742 due to higher royalty income from sub-rights agreements.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to experience a severe working capital deficiency
and negative cash flow. The Company has had limited receipts from sale of its
product and is unable to fully meet its financial obligations as they become
due. As of September 30, 2000, the Company's indebtedness to its vendors was
approximately $604,000. The Company has been able to meet only critical expense
needs through funding by a principal shareholder-officer.
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The Company's ultimate ability to continue as a going concern is
dependent upon the market acceptance of its products, an increase in revenues
coupled with continuing license agreements and positive cash flow. The Company
will also require additional financial sources to provide near term operating
cash to move toward profitability. The Company believes that improvement in
sales, a future merger partner, and its ability to borrow money, albeit not at
past levels, from its shareholders will be sufficient to allow the Company to
continue in operation.
The Board of Directors of the Company has approved a plan which would
provide $1,000,000 of new loans and/or equity for the Company. Initially, the
shareholder - officer and another shareholder will loan the company $650,000.
After these new loans are in place, the Company will be indebted to related
parties in the amount of $2,750,000. It is the intent of the related parties to
ask the Company to permit the conversion, at a later date of approximately
$1,950,000 of these loans to equity in the Company. In addition, the Company is
seeking to raise an additional $350,000 from other sources.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this report that are subject to a
number of risks and uncertainties, including without limitation, those described
in our Annual Report on Form 10-KSB for the year ended March 31, 2000 and other
risks and uncertainties indicated from time to time in our filings with the SEC.
These forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include the information concerning possible or assumed future results
of operations. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
Readers should understand that the following important factors, in addition to
those discussed in the referenced SEC filings, could affect our future financial
results, and could cause actual results to differ materially from those
expressed in our forward-looking statements:
o the identification of a merger partner;
o the implementation of the Company's strategy;
o the availability of additional capital;
o variations in stock prices and interest rates; and
o fluctuations in quarterly operating results;
We make no commitment to disclose any revisions to forward-looking statements,
or any facts, events or circumstances after the date hereof that may bear upon
forward-looking statements.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On November 2, 2000 the Company issued a Form 8-K in which the Registrant
announced on November 1, 2000 that the Board of Directors approved a plan which
would provide $1 million of new loans and/or equity for the Company. In a
related move, the Board of Directors appointed an independent board member as a
committee to review the conversion of the Burnham family debt into equity. See
attached Exhibit 1.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
27. Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
None
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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.
TRUDY CORPORATION
(REGISTRANT)
Date: November 17, 2000 By: /s/ WILLIAM W. BURNHAM
----------------- ------------------------------------
William W. Burnham,
Chairman and Chief Executive Officer
Date: November 17, 2000 By: /s/ JAMES HELLMAN
----------------- ------------------------------------
James Hellman
Chief Financial Officer
(Chief Accounting Officer)
