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 June 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
June 30, 1998
Common Stock, $.0001 par value 331,222,249 shares
TRUDY CORPORATION
INDEX PAGE NUMBER
PART I. FINANCIAL INFORMATION
Balance Sheets - March 31 (audited) and June 30, 1998 (unaudited) ........... 2
Unaudited Statements of Operations - Three months ended
June 30, 1998 and June 30, 1997 ..................................... 3
Unaudited Statements of Cash Flows - Three months ended
June 30, 1998 and June 30, 1997 ..................................... 4
Notes to Unaudited Financial Statements .................................... 5
Management's Discussion and Analysis ....................................... 6
PART II. OTHER INFORMATION .................................................. 7
SIGNATURES ................................................................... 7
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TRUDY CORPORATION
BALANCE SHEETS
June 30, March 31,
ASSETS 1998 1998
----------- -----------
(Unaudited)
Current assets
Cash $ 3,727 $ --
Accounts receivable, net of allowance for doubtful
accounts 39,953 (June 30) 31,361 (March 31) 536,633 321,898
Inventories 1,760,352 1,574,901
Prepaid expenses and other current assets 86,212 84,596
Prepaid income taxes 21,134 21,134
Deferred income taxes 59,000 59,000
----------- -----------
Total current assets 2,467,058 2,061,529
Plant and equipment (net) 134,825 129,769
Pre-publication costs and royalty advances 327,148 379,546
Deferred income taxes 319,000 319,000
=========== ===========
Total assets $ 3,248,031 $ 2,889,844
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 337,164 $ 318,693
Current portion of long-term debt 52,271 49,350
Current portion of notes payable to related parties and
accrued interest 285,237 287,612
----------- -----------
Total current liabilities 674,672 655,655
Bank note payable 858,688 388,689
Long-term debt 189,111 200,650
Notes payable to related parties 163,809 161,276
----------- -----------
Total liabilities 1,886,280 1,406,270
----------- -----------
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 (2,671,688) (2,549,865)
----------- -----------
Total stockholders' equity 1,361,751 1,483,574
----------- -----------
Total liabilities and stockholders' equity $ 3,248,031 $ 2,889,844
=========== ===========
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TRUDY CORPORATION
STATEMENTS OF INCOME AND DEFICIT
Three months ended
June 30,
------------------------------
1998 1997
------------- -------------
(Unaudited)
Net sales $ 710,733 $ 675,856
------------- -------------
Operating costs and expenses (exclusive of depreciation)
Cost of sales 427,650 396,286
Selling, general and administrative 384,867 367,765
------------- -------------
812,517 764,051
------------- -------------
Loss from operations (101,784) (88,195)
------------- -------------
Other income (expense)
Other income 4,309 8,644
Interest expense, net (15,348) (12,943)
Depreciation (9,000) (2,807)
------------- -------------
(20,039) (7,106)
------------- -------------
Loss before income taxes (121,823) (95,301)
Provision for income taxes 0 0
------------- -------------
Net loss for the three months (121,823) (95,301)
Deficit-beginning of period (2,549,865) (2,753,417)
------------- -------------
Deficit-end of period $ (2,671,688) $ (2,848,718)
============= =============
Net loss $ (121,823) $ (95,301)
Weighted average of number of shares outstanding 331,222,249 324,457,249
------------- -------------
Net loss per share $ (0.000368) $ (0.000294)
============= =============
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TRUDY CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
-------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Cash flows from operating activities
NET LOSS $(121,823) $ (95,301)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of pre-publication costs 36,000 13,501
Depreciation 9,000 2,807
Provision for losses on accounts receivable 7,500 1,267
Changes in current assets and current liabilities
Accounts receivable (222,235) (225,018)
Inventories (185,451) (145,797)
Prepaid expenses and other current assets (1,616) (41,277)
Accounts payable and accrued expenses 18,471 3,971
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (460,154) (485,847)
--------- ---------
Cash flows from investing activities
Pre-publication & royalty advances 16,398 (53,441)
Additions to plant and equipment (14,056) (7,167)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,342 (60,608)
--------- ---------
Cash flows from financing activities
Net change in short-term borrowings (2,375) 526,979
Proceeds of loans - long-term 470,000 19,268
Repayment of loans - long-term (6,086) (2,500)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 461,539 543,747
--------- ---------
Net change in cash 3,727 (2,708)
Cash, beginning of period 0 2,939
--------- ---------
CASH, END OF PERIOD $ 3,727 $ 231
========= =========
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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 three months ended June 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Trudy Corporation's revenues for the first three months of fiscal 1999 were
$711,733, an increase of $34,877 or 5.2% over the first quarter of last year.
Sales to warehouse clubs, the largest market segment, were up $66,765 to
$285,516 as a result of earlier shipments than last year. Sales to schools and
education wholesalers were also improved as the Company decided to target this
growing category. Sales to bookstores and specialty retailers were below last
year's levels.
PROFIT AND LOSSES
A net loss of $121,823 for the first quarter of fiscal 1999 compares to a loss
of $95,301 for the same period last year. Given the seasonality of the Company's
sales, a first quarter loss of this size was expected. Despite the higher sales
volume, income was below last year primarily because of higher expenses
associated with the amortization of book design costs. Expenses in the first
quarter of fiscal 1998 were understated and not recorded until the fourth
quarter. Without these additional amortization costs, the gross profit rate
improved because of lower procurement costs. 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.
LIQUIDITY AND CAPITAL RESOURCES
Accounts receivable were $536,633 on June 30, 1998 compared with $321,898 on
March 31, 1998. This increase is due entirely to increased sales activity
especially to warehouse clubs which have extended payment terms. Inventory
levels were $1,760,352 at the end of the first quarter compared with $1,574,901
at the March 31 year end. The increase was due to the need to build inventory
levels to fill earlier orders for warehouse clubs. As of June 30, 1998, the
balance owed on bank loans was $1,152,341 (compared with $638,659 on March 31)
while loans to the president of the Company and his family totaled $449,046
(compared with $448,888 on March 31). 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.
The Company continues to actively seek acquisitions or merger partners to
capitalize on the growth opportunities it sees in the supplementary educational
market.
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PART II
OTHER INFORMATION - Items 1-6. Not Applicable.
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.
Dated: October 30, 1998 By: /s/ WILLIAM W. BURNHAM
---------------- ---------------------------
William W. Burnham,
President
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