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 June 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
June 30, 2000
Common Stock, $.0001 par value: 350,187,249 shares
<PAGE>
INDEX PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (unaudited) and March 31, 2000 3
Statements of Operations (unaudited) for the three months ended
June 30, 2000 and June 30, 1999 4
Statements of Cash Flows (unaudited) for the three months ended
June 30, 2000 and June 30, 1999 5
Statement of Shareholders' Deficit from April 1, 2000 through
June 30, 2000 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis 10
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
2
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<TABLE>
<CAPTION>
Trudy Corporation
Balance Sheets
June 30, March 31,
2000 2000
-------------- --------------
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 24,878 $ 20,638
Accounts receivable, net of allowance for
doubtful accounts of *$16,959* 656,971 533,759
and $30,000 at March 31 and June 30, 2000
respectively
Inventories, net 1,028,706 1,213,813
Prepaid expenses and other current assets 38,260 10,920
------------ ------------
Total current assets 1,748,815 1,779,130
Equipment, net 87,222 93,043
Pre-publication costs and royalty advances 205,479 204,530
------------ ------------
Total assets $ 2,041,516 $ 2,076,703
============ ============
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses 907,592 918,431
Advances from Futech Interactive Products, Inc. 541,143 541,143
Notes payable to shareholder - officer 1,671,323 1,356,322
Notes payable - related party 230,000 230,000
------------ ------------
Total current liabilities 3,350,058 3,045,896
Notes payable to related parties 186,200 183,305
Shareholders' equity (deficit):
Common stock: $.0001 par value:
Authorized shares - 850,000,000
Issued and outstanding shares -
350,187,249 at March 31 and June 30, 2000 35,019 35,019
Additional paid-in capital 4,073,772 4,073,772
Accumulated deficit (5,603,533) (5,261,289)
------------ ------------
Total shareholders' equity (deficit) (1,494,742) (1,152,498)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 2,041,516 $ 2,076,703
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
3
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Trudy Corporation
Statements of Operations
Three Month Period Ended June 30,
-----------------------------------
2000 1999
--------------- -----------------
(Unaudited) (Unaudited)
Net sales $ 291,335 $ 422,292
Cost of sales 227,847 295,984
Inventory writedown 152,000 --
------------- -------------
Gross profit (loss) (88,512) 126,308
Operating expenses:
Selling, general and administrative 218,223 372,172
Depreciation and amortization 5,821 8,019
------------- -------------
Income (loss) from operations (312,556) (253,883)
Other income (expense):
Interest expense (40,388) (29,413)
Other income 10,700 58,369
------------- -------------
Net loss before income taxes (342,244) (224,928)
Income tax benefit (provision) -- --
------------- -------------
------------- -------------
Net loss $ (342,244) $ (224,928)
============= =============
Net loss per share:
------------- -------------
Basic and diluted $ (0.00) $ (0.00)
============= =============
Weighted average shares used in computation:
------------- -------------
Basic and diluted 350,187,249 331,222,249
============= =============
See accompanying summary of accounting policies and notes to financial
statements.
4
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Trudy Corporation
Statements of Cash Flows
Three Month Period Ended June 30,
---------------------------------
2000 1999
-------------- ------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss (342,244) ($224,928)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 5,821 8,019
Amortization of pre-publication costs 22,500 32,700
Loss on write down of pre-publication costs
and royalty advances -- --
Provision for losses on accounts receivable 13,023 3,500
Provision for slow moving inventory 152,000 --
Changes in operating assets and liabilities:
Accounts receivable (136,235) 72,993
Inventories 33,107 31,366
Prepaid expenses and other current assets (27,340) (102,516)
Accounts payable and accrued expenses (10,839) 226,309
--------- ---------
Net cash (used in)/provided by operating
activities (290,207) 47,443
INVESTING ACTIVITIES
Purchases of property and equipment -- (1,770)
Pre-publication and royalty advances, net (23,449) (62,211)
--------- ---------
Net cash used in investing activities (23,449) (63,981)
FINANCING ACTIVITIES
Net proceeds on short-term borrowings -- 140,000
Proceeds from issuance of loans - long-term 2,895 --
Repayment of loans - long-term -- (84,481)
Proceeds from loans by shareholder - officer 315,001 --
Advances from Futech Interactive Products, Inc. -- 10,000
--------- ---------
Net cash provided by financing activities 317,896 65,519
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,240 48,981
Cash and cash equivalents at beginning of period 20,638 624
--------- ---------
Cash and cash equivalents at end of period $ 24,878 $ 49,605
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
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<TABLE>
<CAPTION>
Trudy Corporation
Statement of Shareholders' Deficit
Common Stock Additional Total
-------------------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 350,187,249 $ 35,019 $ 4,073,772 $(5,261,289) $(1,152,498)
Net loss (unaudited) -- -- -- (342,244) $ (342,244)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 350,187,249 35,019 4,073,772 (5,603,533) (1,494,742)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
6
<PAGE>
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 three months
ended June 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 in
1998 to $3,390,884 in 1999 and $2,476,252 in 2000. The Company has been funded
by a principal shareholder - officer and another shareholder and had been funded
in 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 and, or a
future merger partner and its ability to borrow money, albeit maybe not at the
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:
June 30,
2000
------------------
Raw materials $ 53,501
Finished goods 1,632,205
----------
1,685,706
Reserve for slow-moving inventory 657,000
----------
$1,028,706
==========
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 146,941
---------
Balance at June 30, 2000 $ 657,000
=========
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 payable to the Company's president and his family. The
merger was subject to closing conditions, including shareholder approval.
The Company was depending upon additional financial resources that it
expected to receive from Futech.
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:
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
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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 it is not in default under any of its loan
agreements including its borrowings from First Union.
Subsequently, Trudy replaced the First Union loan with another bank. Such new
bank loan was replaced by the 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 June 30, 2000.
Included in accounts receivable:
Trade receivables from sales of inventory to Futech at
reduced prices $268,953
Reimbursable expenses related to merger 235,219
--------
Total included in accounts receivable 504,172
Included in accounts payable for inventory purchases
from Futech 27,069
Advances from Futech Interactive Products, Inc. 541,143
--------
Total obligations 568,212
========
--------
Net $ 64,040
========
(c) On June 22, 2000, Futech filed for protection under chapter 11 of the
Bankruptcy Code.
4. Engagement of Financial Advisors
As previously announced, the Company retained Financial Technology Research
Corporation ("FINTEK") to perform certain financial services, including
assisting with the development of a business plan, designing and implementing an
investor relations program, and improving the Company's access to capital
markets. The Company agreed to grant to FINTEK upon the signing of the agreement
5,252,809 shares, or 1.5%, of the Company's outstanding Common Stock and
warrants to purchase additional shares of Common Stock at subsequent dates. This
agreement was subsequently voided without any transfer of shares or warrants.
Also, as previously report, on June 19, 2000, the Company paid $10,000 and
agreed with a third party to provide introductions to investment bankers, and
other third party professionals for the purpose of permitting Trudy to assess
whether it wishes to enter into a long-term relationship with the third party.
This relationship is continuing without further obligation to the Company.
9
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5. Related Party Transaction
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.
The notes bear an interest rate of 8% and are due on October 1, 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Trudy Corporation's revenues of $291,335 for the first three months were
$130,957 below sales for the same period last year. From June 1999 through
mid-May 2000, the Company sold its products 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
in late 1999 and a subsequent agreement with Janex International, Inc., a
company related to Futech, was also not consummated in April 2000. The Company
regained control of its sales and distribution function in May and has resumed
shipping its product to its traditional customer base since then.
A net loss of $342,244 for the first three months of the year compares to a loss
of $224,928 for the same period last year. At the gross margin level, the
Company experienced a loss of $88,512 compared with a profit of $126,308 for the
same period last year. The Company recorded a $152,000 write-down of its
inventory for the quarter ended June 30, 2000 versus no write down of inventory
for the quarter ended June 30, 1999. However, at March 31, 2000 the Company
provided an additional $250,000 reserve for slow moving items. As a percentage
of sales, cost of sales, net of the inventory writedown, increased to 78% from
70% in the same period last year. The increase resulted from certain labor and
product development costs not being reduced in proportion to the decline in
sales.
Selling, general, and administrative expenses of $218,223 were reduced from
$372,172 last year, as the Company has taken measures to reduce spending in such
areas catalog expense, salaries, and other discretionary spending. Commission
and royalty expenses also were lower as a result of lower revenues. Interest
expense increased from $29,413 to $40,388, as the Company's borrowing from the
Burnham Family has increased to cover operating costs. Other income decreased
from $58,369 to $10,700 due to lower royalty income from the granting of
sub-rights.
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 July 31, 2000, the Company's
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indebtedness to its vendors was approximately $635,000. The Company has been
funded by a principal shareholder-officer.
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.
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.
11
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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
None
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: August 10, 2000 By: /s/ WILLIAM W. BURNHAM
--------------- ------------------------------------
William W. Burnham,
Chairman and Chief Executive Officer
Date: August 10, 2000 By: /s/ WILLIAM T. CARNEY
--------------- -------------------------------------
William T. Carney
Chief Financial Officer and Secretary
(Chief Accounting Officer)
