SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

oTRANSITION REPORT UNDER SECTION 13 OR
15 (d) OF THE EXCHANGE ACT

For the transition period from ____________ to____________

Commission File No. 0-16056

TRUDY CORPORATION(Exact name of Registrant as specified
in its charter)

|                                                      |  |                                     
|----------------------------------------------------- |  | ------------------------------------
|Delaware                                              |  | 06-1007765                          
|                                                      |  |                                     
|(State or Other Jurisdiction of                       |  | (I.R.S. Employer Identification No.)
|incorporation or organization)                        |  |                                     
|                                                      |  |                                     
|353 Main Avenue                                      
|Norwalk, CT 06851                                    
|(Address of Principal
 Executive Offices)            
|                                                      |  |                                     
|(203) 846-2274                                       
|                                                     
|(Registrants telephone number, including
 area code)
|                                                      |  |                                     
|N/A                                                  
|                                                     
|(Former name, former address and former fiscal year, 
|if changed since last report)                        

Indicate
by check mark whether the Registrant has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act) during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes   o    No   x


Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

|                          |  |                     |  |                         |  |                             
|------------------------- |  | ------------------- |  | ----------------------- |  | ----------------------------
|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer o |  | Smaller reporting company
 x

Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

Yes   o    No   x


---



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate
by check mark whether the Registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities and Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.

Not applicable.

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of
shares outstanding of each of the Registrants classes of common stock, as of
the latest practicable date:

February 12, 2010
Common Stock, $.0001 par value: 700,862,912 shares

2

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PART I

Item 1. Financial Statements

The Financial Statements of
the Registrant required to be filed with this 10-Q Quarterly Report were
prepared by management and commence below, together with related notes. In the
opinion of management, the Financial Statements fairly present the financial
condition of the Registrant.

3

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|                              |                                                                                                                                |    |             | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | -- | ----------- | 
|INDEX                         |                                                                                                                                |    | PAGE NUMBER
|                              |                                                                                                                                |    |             | 
|PART I. FINANCIAL INFORMATION |                                                                                                                                |    |            
|                              |                                                                                                                                |    |             | 
|Item 1.                       | Financial Statements                                                                                                           |    |             | 
|                              |                                                                                                                                |    |             | 
|                              | Consolidated
 Balance Sheets  September 30, 2009 (unaudited) and March 31, 2009                                               |    | 5           | 
|                              |                                                                                                                                |    |             | 
|                              | Unaudited
 Consolidated Statements of Operations for the three and six months ended September
 30, 2009 and September 30, 2008 |    | 6           | 
|                              |                                                                                                                                |    |             | 
|                              | Unaudited
 Consolidated Statement of Shareholders Deficit from March 31, 2009 through
 September 30, 2009                     |    | 7           | 
|                              |                                                                                                                                |    |             | 
|                              | Unaudited
 Consolidated Statements of Cash Flows for the six months ended September 30,
 2009 and September 30, 2008           |    | 8           | 
|                              |                                                                                                                                |    |             | 
|                              | Notes
 to Financial Statements (unaudited)                                                                                     |    | 9           | 
|                              |                                                                                                                                |    |             | 
|Item 2.                       | Managements
 Discussion and Analysis                                                                                          |    | 15          | 
|                              |                                                                                                                                |    |             | 
|Item 3.                       | Quantitative
 and Qualitative Disclosures about Market Risk                                                                    |    | 25          | 
|                              |                                                                                                                                |    |             | 
|Item 4.                       | Controls
 and Procedures                                                                                                       |    | 25          | 
|                              |                                                                                                                                |    |             | 
|PART II. OTHER INFORMATION    |                                                                                                                                |    |            
|                              |                                                                                                                                |    |             | 
|Item 1.                       | Legal
 Proceedings                                                                                                             |    | 27          | 
|                              |                                                                                                                                |    |             | 
|Item 2.                       | Changes in Securities                                                                                                          |    | 27          | 
|                              |                                                                                                                                |    |             | 
|Item 3.                       | Defaults
 upon Senior Securities                                                                                               |    | 27          | 
|                              |                                                                                                                                |    |             | 
|Item 4.                       | Submission
 of Matters to a Vote of Security Holders                                                                           |    | 28          | 
|                              |                                                                                                                                |    |             | 
|Item 5.                       | Other
 Information                                                                                                             |    | 28          | 
|                              |                                                                                                                                |    |             | 
|Item 6.                       | Exhibits                                                                                                                       |    | 28          | 
|                              |                                                                                                                                |    |             | 
|Signatures                    |                                                                                                                                | 29 |            

4

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Trudy CorporationBalance Sheets
September 30, 2009 and March 31, 2009

|                                                                                                                                            |  |                    |            |                |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | -------------- | - | ---------- | -
|                                                                                                                                            |  | September 30, 2009 |            | March 31, 2009 |  
|                                                                                                                                            |  |                    |            |                |  
|                                                                                                                                            |  | (Unaudited)        |            |                |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Assets                                                                                                                                      |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Current assets                                                                                                                              |  |                    |            |                |   |            |  
|Cash and cash equivalents                                                                                                                   |  | $                  | 266,772    |                | $ | 122,739    |  
|Accounts receivable, net                                                                                                                    |  |                    | 983,217    |                |   | 1,042,278  |  
|Inventory, net                                                                                                                              |  |                    | 1,333,585  |                |   | 1,649,476  |  
|Prepaid expenses and other current assets                                                                                                   |  |                    | 84,969     |                |   | 172,827    |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total current assets                                                                                                                        |  |                    | 2,668,543  |                |   | 2,987,320  |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Equipment, net                                                                                                                              |  |                    | 74,514     |                |   | 84,792     |  
|Royalty advances, net                                                                                                                       |  |                    | 220,639    |                |   | 264,820    |  
|Prepublication costs and other assets, net                                                                                                  |  |                    | 446,014    |                |   | 484,645    |  
|Prepaid acquisitions                                                                                                                        |  |                    | 349,027    |                |   | 386,908    |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total Other assets                                                                                                                          |  |                    | 1,090,194  |                |   | 1,221,165  |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total assets                                                                                                                                |  | $                  | 3,758,737  |                | $ | 4,208,485  |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Current liabilities                                                                                                                         |  |                    |            |                |   |            |  
|Notes payable - Bank                                                                                                                        |  | $                  | 849,706    |                |   | 1,045,947  |  
|Notes payable - Related parties                                                                                                             |  |                    | 2,688,455  |                |   | 1,894,959  |  
|Accounts payable and accrued expenses                                                                                                       |  |                    | 1,549,482  |                |   | 1,766,359  |  
|Deferred Revenue                                                                                                                            |  |                    | 37,125     |                |   | 280,231    |  
|Royalties and commissions payable                                                                                                           |  |                    | 529,382    |                |   | 554,060    |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total Current liabilities                                                                                                                   |  |                    | 5,654,150  |                |   | 5,541,556  |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total liabilities                                                                                                                           |  |                    | 5,654,150  |                |   | 5,541,556  |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Commitments                                                                                                                                 |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Shareholders equity                                                                                                                        |  |                    |            |                |   |            |  
|Common stock - $.0001 par value 850,000,000
 shares authorized 700,682,912 issued and outstanding at September 30, 2009
 and March 31, 2009 |  |                    | 70,087     |                |   | 70,087     |  
|Paid-in capital                                                                                                                             |  |                    | 7,140,750  |                |   | 7,140,750  |  
|Accumulated deficit                                                                                                                         |  |                    | (9,106,250 | )              |   | (8,543,908 | )
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total shareholders equity                                                                                                                  |  |                    | (1,895,413 | )              |   | (1,333,071 | )
|                                                                                                                                            |  |                    |            |                |   |            |  
|                                                                                                                                            |  |                    |            |                |   |            |  
|Total liabilities and
 shareholders equity                                                                                                 |  | $                  | 3,758,737  |                | $ | 4,208,485  |  
|                                                                                                                                            |  |                    |            |                |   |            |  

The accompanying
summary of significant accounting policies and notes to financial statements
are an integral part of the consolidated financial statements.

5

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Trudy CorporationStatements of Operations
For the three and six months ended September 30, 2009 and 2008

|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|--------------------------------------------------- |  | --------------------------------------- | ----------- | -------------------------------------- | - | ----------- | - | ----------- | ----------- | - | - | ----------- | -
|                                                    |  | Three Month Period
 Ended September 30, |             | Six Month Period 
 Ended September 30, |  
|                                                    |  |                                         |             |                                        |  
|                                                    |  | 2009                                    |             | 2008                                   |   | 2009        |   | 2008        |            
|                                                    |  |                                         |             |                                        |   |             |   |             |            
|                                                    |  | (unaudited)                             |             | (unaudited)                            |   | (unaudited) |   | (unaudited) |            
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Net product sales                                   |  |                                         | 1,308,381   |                                        |   | 1,567,363   |   |             | 2,418,985   |   |   | 3,099,277   |  
|Royalty sales                                       |  |                                         |            |                                        |   | 9,872       |   |             | 1,038       |   |   | 17,242      |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Net Sales                                           |  |                                         | 1,308,381   |                                        |   | 1,577,235   |   |             | 2,420,023   |   |   | 3,116,519   |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Cost of sales                                       |  |                                         | 922,683     |                                        |   | 984,414     |   |             | 1,547,505   |   |   | 1,864,714   |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Gross profit                                        |  |                                         | 385,698     |                                        |   | 592,820     |   |             | 872,518     |   |   | 1,251,805   |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Operating expenses:                                 |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Selling, general and administrative                 |  |                                         | 718,623     |                                        |   | 708,071     |   |             | 1,378,327   |   |   | 1,553,558   |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Income/(loss) from operations                       |  |                                         | (332,925    | )                                      |   | (115,250    | ) |             | (505,809    | ) |   | (301,753    | )
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Other expense                                       |  |                                         | (27,532     | )                                      |   | (21,370     | ) |             | (56,533     | ) |   | (53,423     | )
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Net income/(loss)                                   |  | $                                       | (360,457    | )                                      | $ | (136,621    | ) | $           | (562,342    | ) | $ | (355,176    | )
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Basic and diluted net income/(loss) loss
 per share |  | $                                       |            |                                        | $ |            |   | $           |            |   | $ |            |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  
|Weighted average number of shares
 outstanding      |  |                                         | 700,862,912 |                                        |   | 641,307,356 |   |             | 700,862,912 |   |   | 630,605,639 |  
|                                                    |  |                                         |             |                                        |   |             |   |             |             |   |   |             |  

The accompanying
summary of significant accounting policies and notes to financial statements
are an integral part of the consolidated financial statements.

6

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Trudy
CorporationStatements of Shareholders Equity
For the six months ended September 30, 2009

|                                          |  |              |             |                    |   |             |  |                     |           |        |   |            |   |   |            |  
|----------------------------------------- |  | ------------ | ----------- | ------------------ | - | ----------- |  | ------------------- | --------- | ------ | - | ---------- | - | - | ---------- | -
|                                          |  | Common Stock |             | Additional Paid-in |   | Accumulated |  | Total Shareholders |          
|                                          |  | Shares       |             | Amount             |   | Capital     |  | Deficit             |           | Equity |  
|                                          |  |              |             |                    |   |             |  |                     |           |        |  
|                                          |  |              |             |                    |   |             |  |                     |           |        |   |            |   |   |            |  
|Balance at March 31, 2009 (audited)       |  |              | 700,862,912 |                    | $ | 70,087      |  | $                   | 7,140,750 |        | $ | (8,543,908 | ) | $ | (1,333,071 | )
|                                          |  |              |             |                    |   |             |  |                     |           |        |   |            |   |   |            |  
|Net loss (unaudited)                      |  |              |             |                    |   |             |  |                     |           |        |   | (562,342   | ) |   | (562,342   | )
|                                          |  |              |             |                    |   |             |  |                     |           |        |   |            |   |   |            |  
|                                          |  |              |             |                    |   |             |  |                     |           |        |   |            |   |   |            |  
|Balance at September 30, 2009 (unaudited) |  |              | 700,862,912 |                    | $ | 70,087      |  | $                   | 7,140,750 |        | $ | (9,106,250 | ) | $ | (1,895,413 | )
|                                          |  |              |             |                    |   |             |  |                     |           |        |   |            |   |   |            |  

The accompanying
summary of significant accounting policies and notes to financial statements
are an integral part of the consolidated financial statements.

7

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Trudy CorporationStatements of Cash Flows
For the Six month period ended September 30, 2009 and September 30, 2008

|                                                                                           |  |                                         |          |             |   |          |  
|------------------------------------------------------------------------------------------ |  | --------------------------------------- | -------- | ----------- | - | -------- | -
|                                                                                           |  | For the Six Months Ended
 September 30, |         
|                                                                                           |  |                                         |          |             |  
|                                                                                           |  | 2009                                    |          | 2008        |  
|                                                                                           |  |                                         |          |             |  
|                                                                                           |  | (unaudited)                             |          | (unaudited) |  
|                                                                                           |  |                                         |          |             |   |          |  
|Cash Flows From Operating
 Activities                                                      |  |                                         |          |             |   |          |  
|Net loss                                                                                   |  | $                                       | (562,342 | )           | $ | (355,176 | )
|Adjustments to reconcile net loss to net
 cash (used in)/provided by operating activities: |  |                                         |          |             |   |          |  
|Depreciation                                                                               |  |                                         | 14,510   |             |   | 9,177    |  
|Amortization of pre-publication costs                                                      |  |                                         | 90,735   |             |   | 123,847  |  
|Amortization of intangibles                                                                |  |                                         | 82,061   |             |   | 37,419   |  
|Provision for losses on accounts receivable                                                |  |                                         | 29,404   |             |   |         |  
|Provision for promotional allowance                                                        |  |                                         | 11,000   |             |   | (27,000  | )
|Provision for slow moving inventory                                                        |  |                                         |         |             |   | (65,000  | )
|Provision for sales returns                                                                |  |                                         |         |             |   | (516,687 | )
|                                                                                           |  |                                         |          |             |   |          |  
|Changes in operating assets and
 liabilities:                                              |  |                                         |          |             |   |          |  
|Decrease (Increase) in accounts receivable                                                 |  |                                         | 18,657   |             |   | 497,513  |  
|Decrease (Increase) in inventories                                                         |  |                                         | 315,891  |             |   | (78,843  | )
|Decrease (Increase) in prepaid expenses and
 other current assets                          |  |                                         | 87,858   |             |   | 89,788   |  
|Increase (Decrease) in accounts payable and
 accrued expenses                              |  |                                         | (216,877 | )           |   | 193,017  |  
|Increase (Decrease) in deferred revenue                                                    |  |                                         | (243,106 | )           |   | 182,019  |  
|Increase (Decrease) in royalties and
 commissions payable                                  |  |                                         | (24,678  | )           |   | (1,068   | )
|                                                                                           |  |                                         |          |             |   |          |  
|Net cash (used) / provided by operating
 activities                                        |  |                                         | (396,887 | )           |   | 89,006   |  
|                                                                                           |  |                                         |          |             |   |          |  
|Investing activities:                                                                      |  |                                         |          |             |   |          |  
|Purchases of property and equipment                                                        |  |                                         | (4,232   | )           |   | (1,500   | )
|Pre-publication and royalty advances                                                       |  |                                         | (52,103  | )           |   | (166,932 | )
|                                                                                           |  |                                         |          |             |   |          |  
|Net cash (used) / provided by investing
 activities                                        |  |                                         | (56,335  | )           |   | (168,432 | )
|                                                                                           |  |                                         |          |             |   |          |  
|Financing activities:                                                                      |  |                                         |          |             |   |          |  
|Net change in note payable, bank                                                           |  |                                         | 35,000   |             |   | 66,938   |  
|Repayments of debt to related parties                                                      |  |                                         | (32,734  | )           |   | (24,040  | )
|Repayments of debt                                                                         |  |                                         | (231,241 | )           |   |         |  
|Proceeds from debt to related parties                                                      |  |                                         | 826,230  |             |   | 106,800  |  
|                                                                                           |  |                                         |          |             |   |          |  
|Net cash provided/(used) by financing
 activities                                          |  |                                         | 597,255  |             |   | 149,698  |  
|                                                                                           |  |                                         |          |             |   |          |  
|                                                                                           |  |                                         |          |             |   |          |  
|Net increase / (decrease) in cash and cash
 equivalents                                    |  |                                         | 144,033  |             |   | 70,272   |  
|Cash and cash equivalents at beginning of
 period                                          |  |                                         | 122,739  |             |   | 21,256   |  
|                                                                                           |  |                                         |          |             |   |          |  
|Cash and cash equivalents at end of period                                                 |  | $                                       | 266,772  |             | $ | 91,528   |  
|                                                                                           |  |                                         |          |             |   |          |  
|                                                                                           |  |                                         |          |             |   |          |  
|Cash paid for interest                                                                     |  | $                                       | 31,733   |             | $ | 39,337   |  
|Cash paid for income taxes                                                                 |  | $                                       |         |             | $ |         |  

The accompanying
summary of significant accounting policies and notes to financial statements
are an integral part of the consolidated financial statements.

8

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TRUDY CORPORATIONNOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1. Description of
Business and Basis of Presentation

Trudy Corporation
(hereinafter referred to as the Company), publishes childrens books, eBooks
and audiobooks and designs, manufactures and markets plush stuffed toys,
childrens instruments and musical electronics for sale directly to consumers
in the United States and to domestic and international retail and wholesale
customers. The Companys products are sold under the trade names (i.e.
imprints) of Studio Mouse, Soundprints, Little Soundprints, Fetching Books,
Music for Little People and BeBop.

The accompanying
unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America 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 accounting
principles generally accepted in the United States of America 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 month and six month periods
ended September 30, 2009 are not necessarily indicative of the results that may
be expected for the year ending March 31, 2010. For further information, refer
to the financial statements and footnotes thereto included in the Companys
annual report on Form 10-K for the year ended March 31, 2009.

2. New Accounting Pronouncements

Recently
Adopted Accounting Pronouncements

Effective March 31, 2009,
the Company adopted a new accounting standard issued by the FASB related to the
disclosure requirements of the fair value of the financial instruments. This
standard expands the disclosure requirements of fair value (including the methods
and significant assumptions used to estimate fair value) of certain financial
instruments to interim period financial statements that were previously only
required to be disclosed in financial statements for annual periods. In
accordance with this standard, the disclosure requirements have been applied on
a prospective basis and did not have a material impact on the Companys
financial statements.

On September 30, 2009,
the Company adopted changes issued by the Financial Accounting Standards Board
(FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB
Accounting Standards Codification (Codification) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with GAAP.
Rules and interpretive releases of the Securities and Exchange Commission (SEC)
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The FASB will no longer issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting
Standards Updates will not be authoritative in their own right as they will
only serve to update the Codification. These changes and the Codification
itself do not change GAAP. Other than the manner in which new accounting
guidance is referenced, the adoption of these changes had no impact on the
Financial Statements.

9

---



Recently
Issued Accounting Standards

In August 2009, the FASB
issued an amendment to the accounting standards related to the measurement of
liabilities that are recognized or disclosed at fair value on a recurring
basis. This standard clarifies how a company should measure the fair value of
liabilities and that restrictions preventing the transfer of a liability should
not be considered as a factor in the measurement of liabilities within the
scope of this standard. This standard is effective for the Company on October
1, 2009. The Company does not expect the impact of its adoption to be material
to its financial statements.

In October 2009, the FASB
issued an amendment to the accounting standards related to the accounting for
revenue in arrangements with multiple deliverables including how the
arrangement consideration is allocated among delivered and undelivered items of
the arrangement. Among the amendments, this standard eliminated the use of the
residual method for allocating arrangement considerations and requires an
entity to allocate the overall consideration to each deliverable based on an
estimated selling price of each individual deliverable in the arrangement in
the absence of having vendor-specific objective evidence or other third party
evidence of fair value of the undelivered items. This standard also provides
further guidance on how to determine a separate unit of accounting in a
multiple-deliverable revenue arrangement and expands the disclosure
requirements about the judgments made in applying the estimated selling price
method and how those judgments affect the timing or amount of revenue
recognition. This standard, for which the Company is currently assessing the
impact, will become effective for the Company on January 1, 2011.

In October 2009, the FASB
issued an amendment to the accounting standards related to certain revenue
arrangements that include software elements. This standard clarifies the
existing accounting guidance such that tangible products that contain both
software and non-software components that function together to deliver the
products essential functionality, shall be excluded from the scope of the
software revenue recognition accounting standards. Accordingly, sales of these
products may fall within the scope of other revenue recognition standards or
may now be within the scope of this standard and may require an allocation of
the arrangement consideration for each element of the arrangement. This
standard, for which the Company is currently assessing the impact, will become
effective for the Company on January 1, 2011.

10

---



3. Inventories

Inventories consist of
the following:

|                          |  |                    |           |                |   |           |  
|------------------------- |  | ------------------ | --------- | -------------- | - | --------- | -
|                          |  | September 30, 2009 |           | March 31, 2009 |  
|                          |  |                    |           |                |  
|                          |  |                    |           |                |   |           |  
|Raw Materials             |  | $                  | 42,941    |                | $ | 44,066    |  
|Finished Goods            |  |                    | 1,555,635 |                |   | 1,870,401 |  
|Reserve for
 Obsolescence |  |                    | (264,991  | )              |   | (264,991  | )
|                          |  |                    |           |                |   |           |  
|Inventory                 |  | $                  | 1,333,585 |                | $ | 1,649,476 |  
|                          |  |                    |           |                |   |           |  

4. Notes Payable, Bank
and Related Parties

|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | -------------- | - | --------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | September 30, 2009 |           | March 31, 2009 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 
|A revolving line of credit totaling $850,000 due on
 demand. Interest is payable monthly equal to the Wall Street Journal reported
 prime rate plus 1.0%. Borrowings are subject to a borrowing base equal to 80%
 of eligible accounts receivable. The note is also secured by all of the
 assets of the Company, a mortgage on the Companys premises and a personal
 guarantee of a principal shareholder (William W. Burnham, Chairman of the
 Board). |  | $                  | 849,706   |                | $ | 814,706   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 
|Various notes payable, to principal shareholder
 (William W. Burnham, Chairman of the Board) due on demand. Interest is
 payable monthly at LIBOR + 1.25%.                                                                                                                                                                                                                                                                                                 |  |                    | 2,688,455 |                |   | 1,894,949 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 
|Note payable, bank, payable in monthly installments
 of $2,713 including interest at 7%. Balance due in February 2009. The note is
 secured by all assets of the Company, a mortgage on the Companys premises
 and a personal guarantee of a principal shareholder, William W. Burnham.                                                                                                                                                                   |  |                    | 0         |                |   | 231,241   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $                  | 3,538,161 |                | $ | 2,940,906 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    |           |                |   |           | 

11

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5. Related Party
Transactions

The Company is involved
in several transactions with existing officers and shareholders of the Company
and entities, which are controlled by these individuals, collectively related
parties. The following is a summary of this activity:

The Main Avenue property
leased by the Company is owned by a Connecticut limited liability company,
Noreast Management LLC, which is owned jointly by William W. Burnham, the
Chairman of the Company, Peter Ogilvie, a former Director and Officer of the
Company, and Fred M. Filoon, a Director of the Company. Rent expense totaled
$28,010 and $29,150 for the three months ended September 30, 2009 and 2008,
respectively. Rent expense totaled $43,943 and $56,948 for the six months ended
September 30, 2009 and 2008, respectively.

As of September 30, 2009,
the Company has borrowings from related parties of $2,688,455. Interest to
related parties totaled $7,927 and $15,387 for the three months ended September
30, 2009 and 2008, respectively. Interest to related parties totaled $16,089
and $40,732 for the six months ended September 30, 2009 and 2008, respectively.
Repayments to related parties totaled $12,435 and $14,883 for the three months
ended September 30, 2009 and 2008, respectively. Repayments to related parties
totaled $32,734 and $22,788 for the six months ended September 30, 2009 and
2008, respectively.

Accounts payable to
related parties at September 30, 2009 was $92,063. Accounts payable to related
parties at September 30, 2008 was $28,909.

Guarantor fees for Mr.
Burnham for the quarter ended September 30, 2009 were $2,080.

6. Concentrations and
Credit Risk

|           |  |                                                          |   |                                       |    |                    |  |    |   | 
|---------- |  | -------------------------------------------------------- | - | ------------------------------------- | -- | ------------------ |  | -- | - | 
|           |  | Percentage of net sales
 for 3 months endedSeptember 30, |   | Balance in Accounts
 Receivable as of |   
|          
|           |  | 2009                                                     |   | 2008                                  |    | September 30, 2009 | 
|           |  |                                                          |   |                                       |    |                    | 
|           |  |                                                          |   |                                       |    |                    |  |    |   | 
|Customer 1 |  | 38                                                       | % |                                       | 14 | %                  |  | 24 | % | 

All other individual
customers comprised less than 10% of total sales for the 3 month period ended
September 30, 2009. The Company does not require collateral to support accounts
receivable or financial instruments subject to credit risk though it does
pursue credit insurance on the larger accounts.

12

---



|           |  |                                                |    |                |  |   |  
|---------- |  | ---------------------------------------------- | -- | -------------- |  | - | -
|           |  | Percentage of Accounts
 Receivable (net) as of |   
|           |  |                                                |   
|           |  | September 30, 2009                             |    | March 31, 2009 | 
|           |  |                                                |    |                | 
|           |  |                                                |    |                |  |   |  
|Customer 1 |  |                                                | 31 | %              |  | 4 | %
|           |  |                                                |    |                |  |   |  
|Customer 2 |  |                                                | 10 | %              |  | 0 | %
|           |  |                                                |    |                |  |   |  
|           |  |                                                |    |                |  |   |  
|Total      |  |                                                | 41 | %              |  | 4 | %
|           |  |                                                |    |                |  |   |  

All other individual
customers comprised less than 10% of total accounts receivable (net) for the 3
months ended September 30, 2009.

|           |  |                                                            |    |                                       |  |                    |   |  |    |  
|---------- |  | ---------------------------------------------------------- | -- | ------------------------------------- |  | ------------------ | - |  | -- | -
|           |  | Percentage of net sales
 for six months endedSeptember 30, |    | Balance in Accounts
 Receivable as of | 
|           |  |                                                            |    |                                       |  |                    |   |  |    |  
|           |  | 2009                                                       |    | 2008                                  |  | September 30, 2009 |  
|           |  |                                                            |    |                                       |  |                    |  
|           |  |                                                            |    |                                       |  |                    |   |  |    |  
|Customer 1 |  |                                                            | 21 | %                                     |  | 0                  | % |  | 24 | %
|           |  |                                                            |    |                                       |  |                    |   |  |    |  
|Customer 2 |  |                                                            | 11 | %                                     |  | 0                  | % |  | 4  | %
|           |  |                                                            |    |                                       |  |                    |   |  |    |  
|           |  |                                                            |    |                                       |  |                    |   |  |    |  
|Total      |  |                                                            | 32 | %                                     |  | 0                  | % |  | 28 | %
|           |  |                                                            |    |                                       |  |                    |   |  |    |  

All other individual customers
comprised less than 10% of total sales for the six month period ended September
30, 2009. The Company does not require collateral to support accounts
receivable or financial instruments subject to credit risk though it does
pursue credit insurance on the larger accounts.

7. Subsequent Events

On December 18, 2009 the
Company entered into a definitive Asset Purchase Agreement whereby Trudy would
sell substantially all of its assets to MMAC, LLC, which also would assume
certain liabilities of Trudy.

Under the terms of the
agreement, MMAC will assume substantially all of the secured and unsecured
liabilities of Trudy with the exception of $2.7MM of personal debt owed to the
principal shareholder and Chairman of Trudy, William W. Burnham. In
consideration of the sale of substantially all of its assets, at Closing, Trudy
will receive a note from MMAC to Trudy in the principal amount of $225,000 and
an equity interest in MMAC, not to exceed 33%, determined in accordance with
the net asset value of Trudy at Closing. In addition, loans from an affiliate
of MMAC to Trudy, estimated to be $600,000 at Closing, will be assumed by MMAC
at Closing. Substantially simultaneously with the Closing, Trudy will transfer
the note and the equity interest in MMAC to William W. Burnham in consideration
of the cancellation by Mr. Burnham of the personal debt owed by Trudy to Mr.
Burnham, with the exception of up to $50,000 of debt owed to Mr. Burnham which
will remain outstanding and which will be repaid to Mr. Burnham one year following
the closing if and to the extent Trudy has not spent the $50,000 of cash it
will retain at the closing for general corporate purposes.

13

---



Holders of Trudys common
stock will not receive any payment or distribution with respect to their shares
pursuant to the sale of substantially all the assets to MMAC.

MMAC will also enter into
a new four year lease with Noreast Management, LLC, a company that is 91% owned
by Mr. Burnham, for Trudys current headquarters on substantially the same
terms as the current lease with Trudy.

Ashley Andersen Zantop,
CEO and President of Trudy, Fell Herdeg, CFO, and William W. Burnham, Director
of Corporate Development will be retained as employees by MMAC on substantially
the same terms as their current employment with Trudy. Mr. Burnham and Ms.
Andersen Zantop will join the Board of Directors of MMAC.

Trudys senior management
intends to recommend to its Board of Directors that, after Closing, Trudy
dissolve or enter into a transaction whereby the Trudy corporate shell may be
sold. There is no assurance that a sale of the shell can be arranged.

The Asset Purchase
Agreement and the transactions contemplated thereby have been approved by an
Independent Committee of outside Directors of Trudy, by the Board of Directors
of Trudy and by written consent of holders of a majority of the issued and
outstanding shares of Common Stock of Trudy. The transaction is, however,
subject to compliance with U.S. securities laws, including the preparation and
filing with the Securities and Exchange Commission of an Information Statement
which will be mailed to all of Trudys shareholders for their information, as
well as other closing conditions.

The Company shall use its
reasonable best efforts, after consultation with the Buyer, to respond to and
resolve all SEC comments with respect to the Information Statement promptly
after receipt thereof.

Please refer to the Asset
Purchase Agreement filed with the SEC on December 23, 2009 as an exhibit to the
Companys Form 8-K. It is anticipated that the transaction will close within
the next couple of months.

The assets of the Company
were not held for sale as of the September 30, 2009 balance sheet date as no
transaction was imminent at that time.

Management evaluated
subsequent events through the report date February 12, 2010

14

---



Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

NET
SALES.

Overview

Net Sales for the
Companys September quarter of fiscal 2010 decreased 17.0% versus the
comparable quarter of fiscal 2009. This is primarily a result of decreased
revenue related to the depressed retail economy both domestically and in
international markets. Most notably affected by the economic downturn in this
quarter were the Companys domestic mass market distributors and international
mass market distributors as well as the companys proprietary
direct-to-consumer business. While the Company made off-setting gains in
revenue in certain domestic and international wholesale/distribution and
direct-to-consumer distributor business divisions by negotiating larger
discounts to save and/or grow distribution and retail placement, its
distributors in key markets such as Canada and Mexico did not perform. The
Company replaced its distributor for Canada effective December 1, 2009. The
deeper discounts and significant cost increases from the Companys Chinese
printers depressed product margins from 60.3% in the quarter ending September
30, 2008 to 49.5% the current quarter. The three month period resulted in a net
loss of $360,456 versus a net loss of $136,620 for the prior year.

Three months ended
September 30, 2009

As noted above, net sales
of $1,308,381 for the second quarter of fiscal 2010 decreased 17.0% versus the
comparable quarters sales of 1,577,235 a year ago. Sales from the Companys
Music For Little People product line were 3.1% of sales for the current quarter
versus 8.8% in the prior years quarter.

Sales of Disney-licensed
products as a percentage of total Company sales decreased from 60.0% to 35.5%
for the quarter versus the comparable quarter a year ago. Smithsonian-licensed
product sales increased from 25.1% of Company sales to 47.0% as a result of a
significant increase in orders for Smithsonian licensed products from a
television home shopping customer.

|                                |  |                                                                                          |       |      |  |       |  
|------------------------------- |  | ---------------------------------------------------------------------------------------- | ----- | ---- |  | ----- | -
|                                |  | Percentage of Sales by
 license and/or product line for the quarters ended September 30, |      
|                                |  |                                                                                          |      
|License                         |  | 2009                                                                                     |       | 2008 | 
|                                |  |                                                                                          |       |      | 
|Disney                          |  |                                                                                          | 35.5  | %    |  | 60.0  | %
|Music For Little
 People (MFLP) |  |                                                                                          | 3.1   |      |  | 8.8   |  
|Proprietary                     |  |                                                                                          | 5.1   |      |  | 6.1   |  
|Smithsonian                     |  |                                                                                          | 47.0  |      |  | 25.1  |  
|Sesame Workshop                 |  |                                                                                          | 9.1   |      |  | NMF   |  
|All other                       |  |                                                                                          | 0.2   |      |  | 0     |  
|                                |  |                                                                                          |       |      |  |       |  
|Total                           |  |                                                                                          | 100.0 |      |  | 100.0 |  
|                                |  |                                                                                          |       |      |  |       |  

15

---



|                                        |  |                                                           |        |      |   |          |  |          |          |   |       |   | 
|--------------------------------------- |  | --------------------------------------------------------- | ------ | ---- | - | -------- |  | -------- | -------- | - | ----- | - | 
|                                        |  | Sales decreases for the
 three months ended September 30, |        |      |   |          |  |          |         
|                                        |  |                                                           |        |      |   |          |  |          |         
|Sales channel                           |  | 2009                                                      |        | 2008 |   | Variance |  | % change |         
|                                        |  |                                                           |        |      |   |          |  |          |         
|International
 Mass Market distributors |  | $                                                         | 65,457 |      | $ | 506,142  |  | $        | (437,685 | ) | -86.5 | % | 
|                                        |  |                                                           |        |      |   |          |  |          |          |   |       |   | 
|Mass Market
 distributors               |  |                                                           | 0      |      |   | 111,814  |  |          | (111,814 | ) | NMF   |   | 
|                                        |  |                                                           |        |      |   |          |  |          |          |   |       |   | 
|Music For Little
 People                |  |                                                           | 45,008 |      |   | 152,418  |  |          | (107,410 | ) | -69.5 |   | 

Sales to international
mass market distributors declined $437,685 as a result of the sharp economic
decline in Mexico and Latin America and consequent loss of sales to the
Companys distributor to Latin America.

There were reduced sales
to mass market distributors in the current quarter versus $111,814 in the prior
year as a result of the decline in the domestic retail market and the Companys
corresponding reduction in inventory levels, increasing the lead time required
by the Company to fill orders into this channel. Additionally, sales revenue
for this channel is not booked until the distributors pay their invoices.

Proprietary
direct-to-consumer and internet distributor sales for Music For Little People
were $45,008 in the current quarter versus $152,418 in the comparable quarter a
year ago, a decline of $107,410 due to an intentional reduction in third party
product purchases and advertising to support web sales due to working capital
constraints. In prior periods, sales for Music for Little People were generated
through the Companys website, targeted emailing and an annual catalog mailing
supported by targeted online advertising.

Most of the Companys
channels of trade experienced decreased sales including but not limited to
international trade book retailers, Canadian book distributors, and domestic
book distributors.

|                                |  |                                                          |         |      |   |          |  |          |         |  |       |   | 
|------------------------------- |  | -------------------------------------------------------- | ------- | ---- | - | -------- |  | -------- | ------- |  | ----- | - | 
|                                |  | Sales increases for the three months ended September 30, |         |      |   |          |  |          |        
|                                |  |                                                          |         |      |   |          |  |          |        
|Sales channel                   |  | 2009                                                     |         | 2008 |   | Variance |  | % change |        
|                                |  |                                                          |         |      |   |          |  |          |        
|                                |  |                                                          |         |      |   |          |  |          |         |  |       |   | 
|Direct-to-consumer
 distributor |  | $                                                        | 499,581 |      | $ | 219,703  |  | $        | 279,878 |  | 127.4 | % | 
|                                |  |                                                          |         |      |   |          |  |          |         |  |       |   | 
|Domestic Book Retailers         |  |                                                          | 118,665 |      |   | 14,257   |  |          | 104,408 |  | NMF   |   | 
|                                |  |                                                          |         |      |   |          |  |          |         |  |       |   | 
|Domestic
 Discount Retailers    |  |                                                          | 215,298 |      |   | 149,936  |  |          | 65,362  |  | 43.6  |   | 

16

---



Sales to
Direct-to-consumer distributor accounts increased $279,878 as a result of the
shipment of three of five orders received from a television home shopping
customer. This customer tested certain bundled Smithsonian titles and stuffed
toys in the September Quarter, 2008. Having tested well, the home shopping
network increased their orders dramatically in 2009.

Domestic Book Retailers
sales increased over seven-fold to $118,665 as a result of a continued increase
in non-returnable custom product sales to a major national book store chain.

Domestic Discount
Retailers sales increased $65,362 to $215,298 as a result of a long term
commitment by a group of leading non-returnable discount chains to purchase a
broad spectrum of the Companys licensed products prompted by significant
discounts.

A few other channels of
trade experienced increased sales for the quarter including direct-to-consumer
book distributors, domestic warehouse club distributor, close-out accounts and
international trade book distributors.

Six months ended
September 30, 2009

Net sales for the six
months ended September 30, 2009 decreased 22.3% versus the prior year. Sales
from the Companys Music For Little People product line were 6.6% of sales for
the current six month period versus 11.7% in the prior year.

Sales of Disney-licensed
products as a percentage of total Company sales decreased from 54.6% to 45.7%
for the current six month period versus the comparable period a year ago as a
result of a significant increase in Smithsonian-licensed product sales as a
percentage of total Company revenuean increase from 21.9% for the six months
ending September 30, 2008 to 32.5% in the current Quarter. Again, this was the
result of the significant order from the television home shopping network.

|                                |  |                                                                                            |       |      |  |       |  
|------------------------------- |  | ------------------------------------------------------------------------------------------ | ----- | ---- |  | ----- | -
|                                |  | Percentage of Sales by
 license and/or product line for the six months ended September 30, |      
|                                |  |                                                                                            |      
|License                         |  | 2009                                                                                       |       | 2008 | 
|                                |  |                                                                                            |       |      | 
|Disney                          |  |                                                                                            | 45.7  | %    |  | 54.6  | %
|Music For Little
 People (MFLP) |  |                                                                                            | 6.6   |      |  | 11.7  |  
|Proprietary                     |  |                                                                                            | 5.2   |      |  | 8.3   |  
|Smithsonian                     |  |                                                                                            | 32.5  |      |  | 21.9  |  
|Sesame Workshop                 |  |                                                                                            | 9.6   |      |  | 2.7   |  
|All other                       |  |                                                                                            | 0.4   |      |  | 0.8   |  
|                                |  |                                                                                            |       |      |  |       |  
|Total                           |  |                                                                                            | 100.0 |      |  | 100.0 |  
|                                |  |                                                                                            |       |      |  |       |  

17

---



|                                                              |  |                                                         |         |      |   |          |  |          |          |   |       |   | 
|------------------------------------------------------------- |  | ------------------------------------------------------- | ------- | ---- | - | -------- |  | -------- | -------- | - | ----- | - | 
|                                                              |  | Sales decreases for the
 six months ended September 30, |         |      |   |          |  |          |         
|                                                              |  |                                                         |         |      |   |          |  |          |         
|Sales channel                                                 |  | 2009                                                    |         | 2008 |   | Variance |  | % change |         
|                                                              |  |                                                         |         |      |   |          |  |          |         
|International
 Mass Market distributors                       |  | $                                                       | 68,457  |      | $ | 620,998  |  | $        | (552,542 | ) | -89.0 | % | 
|                                                              |  |                                                         |         |      |   |          |  |          |          |   |       |   | 
|Mass Market
 distributors                                     |  |                                                         | 41,238  |      |   | 205,718  |  |          | (164,480 | ) | -80.0 | % | 
|                                                              |  |                                                         |         |      |   |          |  |          |          |   |       |   | 
|Domestic Close
 outs                                          |  |                                                         | 143,646 |      |   | 264,202  |  |          | (120,555 | ) | -45.6 |   | 
|                                                              |  |                                                         |         |      |   |          |  |          |          |   |       |   | 
|Proprietary
 Direct response/Internet Music For Little People |  |                                                         | 124,463 |      |   | 348,485  |  |          | (224,022 | ) | -64.3 |   | 

Sales to international
mass market distributors declined $552,542 again as a result of the poor
economic conditions of Latin America and the loss of distribution from the
Companys distributor in that market.

Sales to mass market
distributors in the current year declined $164,480 as a result of maintaining
lower levels of inventory and the decision to not recognize revenue until major
returnable accounts pay their invoices.

Domestic close out
account sales were $143,646 for the six months ended September 30, 2009 versus
$264,202 in the prior year, a decline of $120,555. The Company from time to
time needs to balance inventories by selling overstocks. Such sales happen only
periodically.

Proprietary direct response/internet
distributor Music For Little People sales were $124,463 in the current six
month period versus $348,485 in the prior year, a decline of $224,022.
Management intentionally pared back product purchases to support web sales due
to working capital constraints.

Most of the Companys
channels of trade experienced decreased sales including but not limited to
direct-to-consumer book distributors, military bases, ad specialty accounts,
international trade book retailers and specialty retailers.

18

---



|                                       |  |                                                         |         |      |   |          |  |          |         |  |       |   | 
|-------------------------------------- |  | ------------------------------------------------------- | ------- | ---- | - | -------- |  | -------- | ------- |  | ----- | - | 
|                                       |  | Sales increases for the
 six months ended September 30, |         |      |   |          |  |          |        
|                                       |  |                                                         |         |      |   |          |  |          |        
|Sales channel                          |  | 2009                                                    |         | 2008 |   | Variance |  | % change |        
|                                       |  |                                                         |         |      |   |          |  |          |        
|                                       |  |                                                         |         |      |   |          |  |          |         |  |       |   | 
|International
 trade book distributors |  | $                                                       | 269,109 |      | $ | 53,346   |  | $        | 215,763 |  | 404.5 | % | 
|                                       |  |                                                         |         |      |   |          |  |          |         |  |       |   | 
|Direct-to-consumer                     |  |                                                         | 516,587 |      |   | 322,887  |  |          | 193,700 |  | 60.0  |   | 
|                                       |  |                                                         |         |      |   |          |  |          |         |  |       |   | 
|Domestic
 warehouse club distributors  |  |                                                         | 259,488 |      |   | 126,949  |  |          | 132,539 |  | 104.4 |   | 

Sales to international
trade book distributors increased $215,763 as a result of a significant opening
order from the Companys new customer in Italy.

Sales to
Direct-to-consumer distributor returnable accounts increased $193,700 as a
result of the aforementioned orders received from the television home shopping
customer.

Domestic warehouse club
distributor sales increased $132,539 to $259,488.

A few other channels of
trade experienced increased sales for the six month period including domestic
book retailers, discount retailers and distributors.

COST OF SALES.

Three months ended
September 30, 2009

The Companys cost of
sales for the quarter ended September 30, 2009 decreased $61,7231 from $984,414
in the prior year to $922,683 in the current year, a decrease of 6.3%. Cost of
sales as a percentage of net sales increased from 62.4% to 70.5% in the current
quarter as a result of a significant increase in direct product costs for the
Companys printers in China. These costs were partially offset by decreased
warehousing and fulfillment expenses. The Company completed its move to a new
lower cost fulfillment facility in Ohio to handle its proprietary Music for
Little People direct-to-consumer fulfillment.

Six months ended
September 30, 2009

The Companys cost of
sales for the six months ended September 30, 2009 decreased $317,209 from
$1,867,714 in the prior year to $1,547,505 in the current year, a decrease of
17.0%. Cost of sales as a percentage of net sales increased from 59.8% to 63.9%
in the current quarter as a result of a change in the sales mix and increased
direct product costs which were partially offset by decreased warehousing and
fulfillment expenses.

GROSS PROFIT.

Three months ended
September 30, 2009

The resulting gross
profit for the quarter ended September 30, 2009 decreased 34.9% from $592,821
to $385,699. Gross margin was 37.6% in the prior year versus 29.5% in the
current years quarter.

19

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Six months ended
September 30, 2009

The resulting gross
profit for the six months ended September 30, 2009 decreased 30.3% from
$1,251,805 to $872,518. Gross margin was 40.2% in the prior years six month
period versus 36.1% in the current years six month period.

SELLING, GENERAL &
ADMINISTRATIVE COSTS.

Three months ended
September 30, 2009

The Companys selling,
general, and administrative costs increased 1.5% or $10,552 to $718,623 for the
three months ended September 30, 2009 versus $708,071 for the three months
ended September 30, 2008. As a percentage of net sales, selling, general and
administrative expenses increased from 44.9% of net sales from the prior year
to 54.9% of net sales in the current fiscal year. The increase in selling,
general and administrative expenses as a percentage of net sales was primarily
as result of the decrease in sales. Despite management efforts to control
costs, certain expenses continue to increase such as health insurance, bank
fees, accounting and legal expenses, casualty and property insurance.

Six months ended
September 30, 2009

The Companys selling,
general, and administrative costs decreased 11.3% or $175,231 to $1,378,327 for
the six months ended September 30, 2009 versus $1,553,558 for the six months
ended September 30, 2008. As a percentage of net sales, selling, general and
administrative expenses increased from 49.8% of net sales from the prior year
to 57.0% of net sales in the current fiscal year. The increase in selling,
general and administrative expenses as a percentage of net sales was primarily
as result of the decrease in sales.

INCOME / LOSS FROM
OPERATIONS.

Three months ended
September 30, 2009

For the quarter ended
September 30, 2009, the loss from operations was $332,924 versus a loss of
$115,249 for the prior years quarter.

Six months ended
September 30, 2009

For the six months ended
September 30, 2009, the loss from operations was $505,809 versus a loss of
$301,753 for the prior years six month period.

20

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OTHER EXPENSE.

Three months ended
September 30, 2009

The Companys other
expense for the quarter ended September 30, 2009 was $27,532 versus $21,370 for
the quarter ended September 30, 2008.

Six months ended
September 30, 2009

The Companys other
expense for the six months ended September 30, 2009 was $56,553 versus an
expense of $53,423 for the six months ended September 30, 2008.

NET INCOME / LOSS.

Three months ended
September 30, 2009

As a result of the items
discussed above, the Companys net loss for the quarter ended September 30,
2009 was $360,456 compared to a net loss of $136,620 for the comparable prior
quarter.

Six months ended
September 30, 2009

As a result of the items
discussed above, the Companys net loss for the six months ended September 30,
2009 was $562,342 compared to a net loss of $355,176 for the comparable six
month period in the prior year.

Impact of New Accounting
Pronouncements

In April 2008, the FASB
issued ASC 350-10, Determination of the Useful Life of Intangible Assets. ASC
350-10 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under ASC 350-10, Goodwill and Other Intangible Assets. ASC
No. 350-10 is effective for fiscal years beginning after December 15, 2008. The
adoption of this ASC did not have a material impact on our financial
statements.

In April 2009, the FASB
issued ASC 805-10, Accounting for Assets Acquired and Liabilities assumed in a
Business Combination That Arise from Contingencies  an amendment of FASB
Statement No. 141 (Revised December 2007), Business Combinations. ASC 805-10
addresses application issues raised by preparers, auditors and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting and disclosure of assets and liabilities arising from
contingencies in a business combination. ASC 805-10 is effective for assets or
liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. ASC 805-10 will have an impact
on our accounting for any future acquisitions and financial statements.

21

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In May 2009, the FASB
issued SFAS No. 165, Subsequent Events, which is included in ASC Topic 855,
Subsequent Events. ASC Topic 855 established principles and requirements for
evaluating and reporting subsequent events and distinguishes which subsequent
events should be recognized in the financial statements versus which subsequent
events should be disclosed in the financial statements. ASC Topic 855 also
requires disclosure of the date through which subsequent events are evaluated
by management. ASC Topic 855 was effective for interim periods ending after
June 15, 2009 and applies prospectively. Because ASC Topic 855 impacts the
disclosure requirements, and not the accounting treatment for subsequent
events, the adoption of ASC Topic 855 did not impact our results of operations
or financial condition.

Effective July 1, 2009,
we adopted the Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 105-10, Generally Accepted Accounting Principles
 Overall (ASC 105-10). ASC 105-10 establishes the FASB Accounting Standards
Codification (the Codification) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. All guidance
contained in the Codification carries an equal level of authority. The
Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(ASUs). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in
the Codification. References made to FASB guidance throughout these
consolidated financials have been updated for the Codification.

In August 2009, the FASB
issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which provides
additional guidance on how companies should measure liabilities at fair value
under ASC 820. The ASU clarifies that the quoted price for an identical
liability should be used. However, if such information is not available, an
entity may use the quoted price of an identical liability when traded as an
asset, quoted prices for similar liabilities or similar liabilities traded as
assets, or another valuation technique (such as the market or income approach).
The ASU also indicates that the fair value of a liability is not adjusted to
reflect the impact of contractual restrictions that prevent its transfer and
indicates circumstances in which quoted prices for an identical liability or
quoted price for an identical liability traded as an asset may be considered
level 1 fair value measurements. This ASU is effective October 1, 2009. We are
currently evaluating the impact of this standard, but would not expect it to
have a material impact on our results of operations or financial condition.

22

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In October 2009, the FASB
issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements  a consensus
of the FASB Emerging Issues Task Force that provides amendments to the criteria
for separating consideration in multiple-deliverable arrangements. As a result
of these amendments, multiple-deliverable revenue arrangements will be
separated in more circumstances than under existing U.S. GAAP. The ASU does
this by establishing a selling price hierarchy for determining the selling
price of a deliverable. The selling price used for each deliverable will be
based on vendor-specific objective evidence if available, third-party evidence
if vendor-specific objective evidence is not available, or estimated selling
price if neither vendor-specific objective evidence nor third-party evidence is
available. A vendor will be required to determine its best estimate of selling
price in a manner that is consistent with that used to determine the price to
sell the deliverable on a standalone basis. This ASU also eliminates the
residual method of allocation and will require that arrangement consideration
be allocated at the inception of the arrangement to all deliverables using the
relative selling price method, which allocates any discount in the overall
arrangement proportionally to each deliverable based on its relative selling
price. Expanded disclosures of qualitative and quantitative information
regarding application of the multiple-deliverable revenue arrangement guidance
are also required under the ASU. The ASU does not apply to arrangements for
which industry specific allocation and measurement guidance exists, such as
long-term construction contracts and software transactions. ASU No. 2009-13 is
effective beginning January 1, 2011. We are currently evaluating the impact of
this standard on our results of operations and financial condition.

Critical Accounting
Estimates

Managements discussion
and analysis of financial condition and results of operations are based upon
the Companys financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures. On an ongoing
basis, the Company evaluates its estimates and judgments based on historical
experience and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. The Company annually reviews its financial
reporting and disclosure practices and accounting policies to ensure that its
financial reporting and disclosures provide accurate and transparent
information relative to the current economic and business environment. The
Company believes that of its significant accounting policies (see summary of
significant accounting policies more fully described on Note 2 of notes to our
financial statements), the following policies involve a higher degree of
judgment and/or complexity:

Pre-Publication Costs

Pre-publication costs are
title development costs including but not limited to authors, illustrators and
other artists, narration, audio production, and studio time for recording and
mixing final audio products. These costs are capitalized through the date of
publication. At the date of publication the costs begin amortization on an
accelerated method over their expected revenue generating lives. The
accelerated method is based on historical and future expected sales.

Prepaid Catalog Costs

Catalogs and brochures
are amortized over the period benefited, not to exceed the publication date of
the subsequent brochure or twelve months, whichever is less.

23

---



Inventory

The Company writes down
its inventories for estimated slow moving and obsolete goods based upon
historical selling patterns, assumptions about future demand and market
conditions. A significant sudden increase in the demand for the Companys
products could result in a short-term increase in the cost of inventory
purchases while a significant decrease in demand could result in an increase in
the amount of excess inventory quantities on-hand. Additionally, the Companys
estimates of future product demand may prove to be inaccurate, in which case
the Company may have understated or overstated the write-down required for
excess and obsolete inventory. In the future, if the Companys inventory is
determined to be overvalued, it would be required to recognize such costs in
its cost of goods sold at the time of such determination. Likewise, if the
Company does not properly estimate the lower of cost or market of its inventory
and it is therefore determined to be undervalued, it may have over-reported its
cost of goods sold in previous periods and would be required to recognize such
additional operating income at the time of sale. Therefore, although the
Company makes every effort to ensure the accuracy of its forecasts of future
product demand, any significant unanticipated changes in demand could have a
significant impact on the value of the Companys inventory and its reported
operating results.

Liquidity and Capital
Resources

|                                       |  |                                      |            |      |   |            |   |          |            |   |       |   | 
|-------------------------------------- |  | ------------------------------------ | ---------- | ---- | - | ---------- | - | -------- | ---------- | - | ----- | - | 
|                                       |  | For the quarters ended September 30, |            |      |   |            |   |          |           
|                                       |  |                                      |            |      |   |            |   |          |           
|                                       |  | 2009                                 |            | 2008 |   | Variance   |   | % change |           
|                                       |  |                                      |            |      |   |            |   |          |           
|                                       |  |                                      |            |      |   |            |   |          |            |   |       |   | 
|Net assets
 (deficiency)               |  | $                                    | (1,895,412 | )    | $ | (507,845   | ) | $        | (1,387,567 | ) | NMF   |   | 
|                                       |  |                                      |            |      |   |            |   |          |            |   |       |   | 
|Working capital
 (deficiency)          |  |                                      | (2,985,606 | )    |   | (1,682,094 | ) |          | (1,303,512 | ) | -77.5 | % | 
|                                       |  |                                      |            |      |   |            |   |          |            |   |       |   | 
|Accounts
 receivable, net              |  |                                      | 983,217    |      |   | 1,588,449  |   |          | (605,232   | ) | -38.1 |   | 
|                                       |  |                                      |            |      |   |            |   |          |            |   |       |   | 
|Accounts payable
 and accrued expenses |  |                                      | 1,549,482  |      |   | 1,673,397  |   |          | (152,022   | ) | -9.1  |   | 
|                                       |  |                                      |            |      |   |            |   |          |            |   |       |   | 
|Royalties and
 commissions payable     |  |                                      | 529,382    |      |   | 351,330    |   |          | 178,052    |   | 50.7  |   | 

The Company has suffered
recurring losses from operations and has a deficiency in net assets. Such
factors raise substantial doubt about the Companys ability to continue as a
going concern.

On December 18, 2009 the
Company executed an Asset Purchase Agreement whereby it would sell
substantially all of its assets to MMAC, LLC, which also would assume certain
liabilities of the Company. A Form 8-K was filed with the Securities and Exchange
Commission on December 23, 2009 to which the Agreement was attached as an
Exhibit. For additional information on the proposed sale, see Note 7
(Subsequent Events) to Notes to Financial Statements above.

24

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At September 30, 2009 the
Company had a deficiency of net assets of $1,895,412 versus a deficiency of
$507,845 at September 30, 2008. Working capital deteriorated by $1,303,512 from
a deficiency of $1,682,094 to a deficiency of $2,985,606 at September 30, 2008.

Accounts receivable
decreased from $1,588,449 at September 30, 2008 to $983,217 at September 30,
2009, a decrease of $605,232. Accounts payable and accrued expenses decreased
$152,022 versus the prior year from $1,673,397 to $1,549,482 at September 30,
2009. Royalties and commissions payable increased $178,052 versus the prior
year from $351,330 at September 30, 2008 to $529,382 at September 30, 2009
primarily as a result of the sales mix.

On
September 29, 2009 the Company refinanced its bank debt:

| |   |                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | The Company had a revolving line of credit totaling $850,000 with its
 bank that matured on August 25, 2009. On September 29, 2009 the Company and
 its bank signed a loan modification agreement for this $850,000 line with a
 new maturity of August 31, 2010 that is personally guaranteed by its
 Chairman, William W. Burnham.
| |   |                                                                                                                                                                                                                                                                                                                                     
| | o | On September 29, 2009 the Companys borrowed $224,238 from William W.
 Burnham and used these funds to pay off in full the note payable bank, with a
 balance of $227,239 as of June 30, 2009. As of September 29, 2009 a new
 promissory note was issued by the Company to Mr. Burnham in the amount of
 $224,238.                 

In the quarter ended
September 30, 2009 the Company also received an additional $110,000 short-term
note from Mr. Burnham, also its principal shareholder. All of his shareholder
notes are demand notes.

As of February 12, 2009
the Companys backlog was approximately $1,320,000

Item
3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item
4. Controls and Procedures

There was no change in
our internal control over financial reporting during the quarter ended
September 30, 2009, that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

25

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The Companys Chief
Executive Officer and the Chief Financial Officer conducted an evaluation of
the Companys critical disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2009, the
Companys most recent evaluation of these controls. Based on that evaluation,
Management identified the following weaknesses:

| |       |                                                                                                                                                                                                         
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | The Company does not have adequate office and
 financial staffing in place to effectively control the level of transaction
 activity and consistently address the complex accounting matters that arise.
| |       |                                                                                                                                                                                                         
| | (ii)  | A principal shareholder and Director of the Company
 who is involved in certain functions of the daily operations of the Company,
 could in theory override normal operating procedures.                
| |       |                                                                                                                                                                                                         
| | (iii) | The Company currently does not have an Audit
 Committee.                                                                                                                                                

Given the above identified
matters, Management believes that disclosure controls and procedures are not
effective and these identified matters have not been remedied as of September
30, 2009. Further, even with proper oversight and controls, Management does not
expect that our disclosure controls and procedures or our internal controls
will necessarily prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the registrant would be detected.

26

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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-K for the year ended March 31, 2009 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:

|  |                                                                      
|- | ---------------------------------------------------------------------
|* | The implementation of our strategies;                                
|  |                                                                      
|* | The availability of additional capital;                              
|  |                                                                      
|* | Variations in stock prices and interest rates;                       
|  |                                                                      
|* | Fluctuations in quarterly operating results; and                     
|  |                                                                      
|* | Other risks and uncertainties described in our
 filings with the SEC.

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.

PART II OTHER INFORMATION

Item
1.          Legal Proceedings

On January 6, 2009 the
Company was sued in the Superior Court of California for breach of contract.
The suit was later dismissed.

Item
2.          Changes in
Securities

None.

Item
3.          Defaults upon
Senior Securities

None

27

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Item
4.          Submission of
Matters to a Vote of Security Holders

None

Item
5.          Other Information

None

Item
6.          Exhibits.

|     |  |                                                                                                                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | Exhibits                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                       
|     |  |                                                                                                                                                                                                                       
|3a.  |  | Certificate of
 Incorporation (incorporated by reference to the Companys registration
 statement on Form S-18 (file number 33-14379B)).                                                                              
|     |  |                                                                                                                                                                                                                       
|3b.  |  | Certificate of
 Amendment of Certificate of Incorporation (incorporated by reference to the
 Companys registration statement on Form S-18 (file number 33-14379B)).                                                  
|     |  |                                                                                                                                                                                                                       
|3c.  |  | By-laws of Company
 (incorporated by reference to the Companys registration statement on Form
 S-18 (file number 33-14379B)).                                                                                        
|     |  |                                                                                                                                                                                                                       
|3d.  |  | Certificate of Incorporation
 of Norwest Manufacturing Company (incorporated by reference to the Companys
 registration statement on Form S-18 (file number 33-14379B)).                                             
|     |  |                                                                                                                                                                                                                       
|3e.  |  | Certificate Amending
 Certificate of Incorporation of Norwest Manufacturing Company dated December
 5, 1979 (incorporated by reference to the Companys registration statement on
 Form S-18 (file number 33-14379B)).
|     |  |                                                                                                                                                                                                                       
|3f.  |  | Certificate Amending
 Certificate of Incorporation of Trudy Toys Company, Inc. dated March 27, 1984
 (incorporated by reference to the Companys registration statement on Form
 S-18 (file number 33-14379B)).       
|     |  |                                                                                                                                                                                                                       
|31.1 |  | Certification of Chief
 Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                  
|     |  |                                                                                                                                                                                                                       
|31.2 |  | Certification of Chief
 Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                  
|     |  |                                                                                                                                                                                                                       
|32.1 |  | Certification of Chief
 Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002.                                                                  
|     |  |                                                                                                                                                                                                                       
|32.2 |  | Certification of Chief
 Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002.                                                                  

28

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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: February 12, 2010 |  | By:                                | /s/ Ashley C. Andersen Zantop | 
|                        |  |                                    |                               | 
|                        |  | Ashley C. Andersen Zantop,         |                              
|                        |  | President, Chief Executive Officer |                              

29

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