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 December 31, 1999
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, 1999
Common Stock, $.0001 par value 349,822,249 shares
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TRUDY CORPORATION
INDEX PAGE NUMBER
- ----- -----------
PART I. FINANCIAL INFORMATION
Balance Sheets - December 31, 1999 (unaudited) and March 31, 1999 2
Statements of Operations (unaudited) for the nine and
three months ended December 31, 1999 and December 31, 1998 3
Statements of Cash Flows (unaudited) for the nine months
ended December 31, 1999 and December 31, 1998 4
Notes to Financial Statements (unaudited) 5
Management's Discussion and Analysis 6
PART II. OTHER INFORMATION 8
SIGNATURES 9
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<TABLE>
<CAPTION>
Trudy Corporation
Balance Sheets
December 31, March 31,
1999 1999
------------ -----------
(unaudited)
ASSETS
<S> <C> <C>
Current assets: $ 67,204 $ 624
Cash and cash equivalents
Account receivable
Net of allowance for doubtful accounts of $52,576
at December 31, 1999 and $50,044 at March 31, 1999 601,499 246,049
Inventories, net 1,510,328 1,501,204
Prepaid expenses and other current assets 170,466 50,842
----------- -----------
Total current assets 2,349,497 1,798,719
Property and equipment, net 93,084 114,185
Pre-publication costs and royalty advances 222,081 205,212
----------- -----------
Total assets $ 2,664,662 $ 2,118,116
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 967,723 $ 477,696
Advances from potential merger partner 541,143 --
Line of credit in default -- 770,000
Long-term debt in default -- 200,349
Current portion of notes payable - related parties 856,322 626,322
----------- -----------
Total current liabilities $ 2,365,188 $ 2,074,367
Bank demand note 650,319 --
Notes payable to related parties 179,697 171,408
Shareholders' equity (deficit):
Common stock: $.0001 par value:
Authorized shares - 850,000,000
Issued and outstanding shares - 349,822,249 at December 31, 1999 and
331,222,249 at March 31, 1999 34,982 33,123
Additional paid-in capital 4,073,376 4,000,316
Accumulated deficit (4,638,900) (4,161,098)
----------- -----------
Total shareholders' equity (deficit) (530,542) (127,659)
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 2,664,662 $ 2,118,116
=========== ===========
See accompanying notes
</TABLE>
2
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<TABLE>
<CAPTION>
Trudy Corporation
Statements of Operations
Three Month Period Ended Dec. 31, Nine Month Period Ended Dec. 31,
--------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,140,172 $ 1,272,486 $ 2,279,107 $ 3,004,687
Cost of sales 600,369 509,331 1,482,665 1,436,846
------------- ------------- ------------- -------------
Gross profit 539,803 763,155 796,442 1,567,841
Operating expenses:
Selling, general and administrative 553,969 976,514 1,203,096 1,811,394
Depreciation and amortization 8,019 18,000 24,057 53,500
------------- ------------- ------------- -------------
Income (loss) from operations (22,185) (231,359) (430,711) (297,053)
Other income (expense):
Interest expense (31,626) (30,891) (89,886) (86,913)
Other income 28,789 (12,371) 99,114 (2,112)
------------- ------------- ------------- -------------
Net loss before income taxes (25,022) (274,621) (421,483) (386,078)
Income tax benefit (provision) -- -- -- --
------------- ------------- ------------- -------------
Net income (loss) (25,022) (274,621) (421,483) (386,078)
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 349,822,249 331,222,249 338,459,340 331,222,249
============= ============= ============= =============
See accompanying notes.
</TABLE>
3
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<TABLE>
<CAPTION>
Trudy Corporation
Statements of Cash Flows
Nine Month Period Ended December 31,
------------------------------------
1999 1998
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities
Net Loss $ (421,483) $ (386,078)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 24,057 53,500
Amortization of pre-publication costs 98,100 101,250
Provision for losses on accounts receivable 12,370 33,363
Changes in operating assets and liabilities:
Accounts receivable (343,080) 82,318
Inventories (9,124) (28,843)
Prepaid expenses and other current assets (119,624) (55,226)
Accounts payable and accrued expenses 490,027 32,319
-------------- --------------
Net cash used in/(provided by) operating activities (268,757) (167,397)
Investing activities
Purchases of property and equipment (2,956) (59,636)
Pre-publication and royalty advances, net (121,109) (55,719)
-------------- --------------
Net cash used in investing activities (124,065) (115,355)
Financing activities
Net proceeds on short-term borrowings 8,289 322,245
Proceeds from issuance of loans 650,319 --
Repayment of loans - long-term (970,349) (3,940)
Advances from related parties 771,143 --
-------------- --------------
Net cash provided by financing activities 459,402 318,305
Net increase (decrease) in cash and cash equivalents 66,580 35,553
Cash and cash equivalents at beginning of period 624 --
-------------- --------------
Cash and cash equivalents at end of period $ 67,204 $ 35,553
============== ==============
See accompanying notes.
</TABLE>
4
<PAGE>
TRUDY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business and Basis of Presentation
Trudy Corporation, which does business under the name Soundprints, publishes
juvenile storybooks, and audio cassettes which are sold in conjunction with
contract-manufactured educational toys to the retail, education, and mail order
markets. Trudy Corporation was initially organized as a Connecticut corporation
under the name Norwest Manufacturing Corporation on September 14, 1979, changed
its name to Trudy Toys Company, Inc. on December 5, 1979, changed its name to
Trudy Corporation on March 27, 1984, and was re-incorporated as a Delaware
corporation on February 25, 1987.
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-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 nine months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000. 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, 1999.
2. Pending Merger with Futech Interactive Products, Inc.
As previously reported, in December 1998, Trudy signed a letter of intent to
merge with Futech Interactive Products, Inc. On March 3, 1999 Trudy entered into
a merger agreement with Futech. This merger agreement was subsequently
renegotiated and replaced with a new merger agreement dated as of June 7, 1999
providing for the mergers of Trudy, Futech, Fundex Games, Ltd., DaMert Company
and Janex International, Inc. into a newly incorporated Delaware company or a
subsidiary thereof. Given the complexity of the merger arrangement and some
difficulties on Futech's part in securing the necessary financing, the merger
did not occur in late 1999 as expected. The Company has no assurance that the
merger will occur and is presently reviewing alternative courses of action.
3. Related Party Transactions
In June 1999, the Company began selling its products to Futech. Futech has
assumed sales responsibility for the majority of the Company's trade accounts
and acts as a distributor of the Company. Through December, sales to Futech for
nine months fiscal year-to-date have totaled $839,255. Sales to Futech were made
at discounts larger than those given to the Company's most favored customers.
Due to the sales volume to Futech, the discounts negatively impact the Company's
revenues and margins. Futech is also funding some of the Company's working
capital needs and through December 31, 1999 has advanced $541,143 to the
Company.
On May 28, 1999, Alice B. Burnham, a director of the Company and wife of the
President, loaned the Company $140,000 to meet immediate cash needs. The note
bears an interest rate of 8% and was to be paid on July 2, 1999 after a
financing plan between the Company, Futech, and the Company's bank was to be
developed. The loan remains unpaid, although interest payments are being made.
On October 5, 1999, Alice B. Burnham loaned the Company $180,000 to fund the
postage for the Company's annual catalog mailing. The note bears an interest
rate of 8% and was to be repaid on or before December 1, 1999 from mail order
catalog sales receipts or other resources. As of February 11, 2000, the unpaid
balance on this loan is $90,000.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND NET RESULTS
Trudy Corporation's revenues of $2,279,107 for the first nine months were
$725,580 below sales for the same period last year. Since June 1999, the Company
has sold its products to Futech, which is acting as a distributor. These sales
were at discounts 15-20% greater than those given to the Company's most favored
distributors. Sales to Futech through December 31, 1999 were $839,255 including
those earmarked for warehouse clubs. Direct sales to warehouse clubs were
$977,961 in the first nine months of the prior year.
A net loss of $421,483 for the first nine months of the year compares to a loss
of $386,078 for the same period last year. Gross profit of $796,442 is down from
$1,567,841 last year due to the lower level of sales and lower margins on sales
to Futech. Selling, general, and administrative expenses of $1,203,096 are down
from $1,811,394 last year, as Futech shared in the cost of the consumer catalog,
personnel, and general overhead.
Revenues for the three months ended December 31, 1999 were $1,140,172, a
decrease of $132,314 compared with the same period last year. Sales to Futech
replaced direct sales to other trade segments. Consumer catalog sales of
$552,357 were down $171,742 from the same period last year due to a one-month
delay in mailing the catalog and a 15% decrease in the number of catalogs
mailed.
A net loss of $25,022 for the three months ended December 31, 1999 compares to a
net loss of $274,621 for the same period last year. Although gross margins were
reduced due to the deep discounts on sales to Futech, Futech's sharing in the
cost of the catalog reduced selling expense. The Company has also taken action
to reduce headcount and administrative expenses. Other income increased to
$28,789 from an expense of $12,371 last year. Last year, a retroactive charge of
$40,000 for royalty sub-right expenses was recorded in the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Futech and Trudy are parties to an agreement, dated March 3, 1999, which is an
integral part of the June 7, 1999 merger agreement described in Note 2 to
Financial Statements whereby Futech is to assist in providing the working
capital needs of Trudy, if needed, to maintain sales momentum and assure that
Trudy is not in default of its loan agreements. This agreement took effect on
June 1, 1999 since the effective date of the merger had not occurred by then.
The Company has been working closely with Futech which is to provide funds for
immediate cash needs and to support sales. Management has no assurances that
Futech currently has the financial resources to enable the Company's to meet its
cash requirements.
In the absence of financial support from Futech, the ability of Trudy to
continue as a going concern is seriously in doubt. On February 1, 2000, the
Company sent a letter to its major suppliers informing them that it would work
out a repayment schedule with each after March 1, 2000 when Futech's financial
condition and plans are better known. Without further financial support from
Futech, the Company will likely propose an extended payment schedule to each of
its major suppliers depending on the ability of Futech and the Company to
generate sales. In this regard, on February 1, 2000 the Company successfully
renegotiated a lower discount rate on distributor sales to Futech that will
increase the Company's prices by 27% on shipments to Futech.
6
<PAGE>
CHANGE IN CHIEF FINANCIAL OFFICER
On December 17, 1999, Richard Saltz who had been the interim Chief Financial
Officer and Secretary resigned his positions with the Company. He was replaced
by William T. Carney. Mr. Carney had served as the Company's Chief Financial
Officer and Secretary from March 23, 1998 until September 10, 1999 when he
resigned from the Company to accept a position with another company.
YEAR 2000 COMPLIANCE STATUS
The Company experienced no adverse effects early in the year 2000 related to its
computer or other operating systems. The Company is not aware of any such
problems with any of its vendors. The Company is continuing to monitor for
problems in the event that they occur and is prepared to take necessary
corrective action.
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, 1999 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 planned merger with Futech;
o the implementation of our 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.
7
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
27. Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
On November 24, the Registrant filed Form 8-K with the SEC announcing
that it had noted unusually high volume and swings in prices paid for its shares
of Common Stock and that the terms of the previously announced merger with
Futech Interactive Products, Inc. et al, were being reviewed with the Boards of
Futech and the Registrant.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUDY CORPORATION
(REGISTRANT)
Date: February 11, 2000 By: /s/ WILLIAM W. BURNHAM
----------------- ------------------------------------
William W. Burnham,
Chairman and Chief Executive Officer
9
<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> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 601,499 <F1>
<ALLOWANCES> 0
<INVENTORY> 1,510,328
<CURRENT-ASSETS> 2,349,497
<PP&E> 93,084 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,664,662
<CURRENT-LIABILITIES> 2,365,188
<BONDS> 830,016
0
0
<COMMON> 34,982
<OTHER-SE> (565,524)
<TOTAL-LIABILITY-AND-EQUITY> 2,664,662
<SALES> 2,279,107
<TOTAL-REVENUES> 2,279,107
<CGS> 1,482,665
<TOTAL-COSTS> 2,685,761
<OTHER-EXPENSES> (75,057)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,886
<INCOME-PRETAX> (421,483)
<INCOME-TAX> 0
<INCOME-CONTINUING> (421,483)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (421,483)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
<FN>
The values for Receivables and PP&E represent net amounts.
</FN>
</TABLE>
