SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  X.QUARTERLY REPORT UNDER SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended June 30, 2010  .TRANSITION 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)  Delaware06-1007765(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 . 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.Accelerated filer.Non-accelerated filer. (Do not check if a smaller reporting company)Smaller reporting companyX.  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . 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:  November 2, 2010  Common Stock, $.0001 par value: 700,862,912 shares   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.  2    INDEXPAGE
NUMBERPART I.  FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets  June 30, 2010 and March 31, 20104Unaudited Consolidated Statements of Operations for the three months ended June 30, 2010 and June 30, 20095Unaudited Consolidated Statements of Cash Flows for the three months ended June 30, 2010 and June 30, 20096Notes to Financial Statements (unaudited)7Item 2. Management's Discussion and Analysis12Item 3. Quantitative and Qualitative Disclosures about Market Risk16Item 4. Controls and Procedures16PART II.  OTHER INFORMATIONItem 1. Legal Proceedings17Item 2. Changes in Securities17Item 3. Defaults upon Senior Securities17Item 4. Removed and ReservedItem 5. Other Information17Item 6. Exhibits17Signatures18   3   Trudy Corporation Unaudited Balance Sheets as of June 30, 2010 and March 31, 2010  June 30,March 31,20102010AssetsCurrent assetsAssets held for saleCash and cash equivalents$179,533$94,954Accounts receivable, net809,610994,945Inventory, net1,113,3201,390,503Prepaid expenses and other current assets151,737169,762Restricted cash126,000-Total current assets2,380,2002,650,164Assets held for saleEquipment, net68,97468,161Royalty advances, net147,591247,436Prepublication costs and other assets, net482,016452,700Intangible assets, net327,586327,586Total other assets1,026,1671,095,883Total assets$3,406,367$3,746,047LiabilitiesCurrent liabilities associated with assets held for saleNotes payable - bank$849,706$710,706Notes payable - third party563,487429,251Notes payable - related parties2,680,7012,680,701Accounts payable - related parties113,42993,553Accounts payable and accrued expenses1,286,9681,504,240Deferred revenue136,325224,355Royalties and commissions payable306,880424,011Total current liabilities5,937,4966,066,817Total liabilities5,937,4966,066,817CommitmentsShareholders' deficitCommon stock - $ 0.0001 par value, 850,000,000 shares authorized, 700,862,912 issued and outstanding at June 30, 2010 and March 31, 2010, respectively70,08770,087Paid-in capital7,277,5417,246,419Accumulated deficit(9,878,757)(9,637,276)Total shareholders' deficit(2,531,129)(2,320,770)Total liabilities and shareholders' deficit$3,406,367$3,746,047  The accompanying summary of significant accounting policies and notes to financial statements are an integral part of the consolidated financial statements.  4   Trudy Corporation Unaudited Statements of Operations For the three months ended June 30, 2010 and 2009   Three Month PeriodEnded June 30,20102009Net sales$-$-Cost of sales--Gross profit--Operating expenses:Selling, general and administrative--Loss from operations--Other expense--Net loss before discontinued operations-Loss from discontinued operations(241,481)(201,883)Net Loss$(241,481)$(201,883)Basic & diluted net loss per share from continuing operations$-$-Basic & diluted net loss per share from discontinued operations$-$-Basic & diluted net loss per share$-$-Weighted average number of shares outstanding700,862,912700,862,912   The accompanying summary of significant accounting policies and notes to financial statements are an integral part of the consolidated financial statements.  5   Trudy Corporation Unaudited Statements of Cash Flows For the three months ended June 30, 2010 and 2009   20102009Cash Flows From Operating ActivitiesNet loss from discontinued operations$(241,481)$(201,883)Adjustments to reconcile net loss to net cashused in operating activities:Depreciation-6,507Amortization of pre-publication costs-51,013Amortization of acquisition costs-16,440Imputed interest expense31,122-Provision for losses on accounts receivable878-Provision for slow moving inventory59,980-Changes in operating assets and liabilities:Change in accounts receivable184,457(372,384)Change in inventories217,203130,953Change in prepaid expenses and other current assets18,02540,331Change in other assets10,177-Change in accounts payable and accrued expenses(326,167)(176,368)Change in accounts payable-related parties19,876-Change in deferred revenue(88,030)85Change in royalties and commissions payable-(65,827)Net cash used in operating activities(113,960)(571,133)Investing activities:Purchases of property and equipment(813)(4,231)Pre-publication and royalty advances(65,648)-Net cash used in investing activities(66,461)(4,231)Financing activities:Repayments of long-term debtBorrowings on debt265,000(6,002)Repayments to related parties-(17,715)Proceeds from related parties-490,493Net cash used in financing activities265,000466,776Net increase / (decrease) in cash and cash equivalents84,579(108,588)Cash and cash equivalents at beginning of period94,954122,739Cash and cash equivalents at end of period$179,533$14,151Supplemental Cash Flow Information:Cash paid for interest$31,733$28,462Cash paid for income taxes$-$-Non-cash investing & financing activities:$-$-   The accompanying summary of significant accounting policies and notes to financial statements are an integral part of the consolidated financial statements.  6   TRUDY CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  1. Description of Business and Basis of Presentation and Going Concern  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 period ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending March 31, 2011.  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, 2010.  Going Concern  The Company has suffered recurring losses from operations and has a deficiency in net assets. Such factors continue to raise substantial doubt about the Companys ability to continue as a going concern.  2. Discontinued Operations  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.  On September 3, 2010 the Company closed this transaction and sold substantially all of its assets to MMAC, LLC, a Delaware limited liability company (MMAC), which also assumed certain liabilities of Trudy.  The assets sold consisted of Trudys on-going business as a publisher of childrens educational story, novelty and electronic books, audiobooks and plush toys.  The consideration being paid by MMAC for the Companys assets consists of the following: (1) the assumption of substantially all of the secured and unsecured liabilities of the Company, including loans from an affiliate of MMAC to the Company in the principal amount of $545,000 and with the exception of $2.7 million of personal debt owed to a principal shareholder and Chairman of the Company, William W. Burnham (Burnham); and (2) upon the completion of the final calculation of the net asset value of the Company (estimated to be completed approximately 90-120 days from the closing) an equity interest in MMAC, estimated to be in the range of 4.75%, subject, however, to possible adjustment upon the final determination of such net asset value. In view of the initial determination at closing of the Companys net asset value, the previously announced Buyer Note from MMAC to Trudy in the principal amount of $225,000 was not issued.  The amount of such consideration was determined by the Company and MMAC in arms length negotiations. Factors taken into consideration in the negotiations included the Companys then current financial condition and future prospects, the Companys results of operations, the value of the Companys assets and the Companys banking and shareholder obligations, together with those of the Companys other creditors, both secured and unsecured.  Upon determination of the final percentage equity interest as described above, MMAC will transfer such equity to the Company which will then transfer it to Burnham in consideration of the cancellation by Burnham of the $2.7 million of personal debt owed by the Company to him. Excepted from cancellation is $50,000 of debt owed to Burnham which will remain outstanding and which will be repaid to Burnham one year following the closing if and to the extent the Company has not spent the $50,000 of cash it will retain at the closing for general corporate purposes.  At the closing, as required by agreement of the parties, Burnham made a capital contribution to MMAC of cash in the amount of $175,000 and a $25,000 promissory note. Adjustment upward or downward of such $200,000 in the aggregate may be made upon final determination of the net asset value of the Company.  7   Holders of Trudys common stock did not receive any payment or distribution with respect to their shares pursuant to the sale of substantially all the Companys assets.  In addition, MMAC entered into a new four year lease with Noreast Management, LLC, a company which is 91% owned by Burnham, for the Companys current headquarters on substantially the same terms as the current lease with the Company.  Ashley Andersen Zantop (Andersen Zantop), former CEO and President of the Company, Fell Herdeg (Herdeg), former CFO and Secretary of the Company, and Burnham, former Chairman and Director of Corporate Development of the Company, have been retained as employees by MMAC on substantially the same terms as their current employment with the Company. Andersen Zantop will serve as President and CEO of MMAC, Herdeg will serve as CFO of MMAC and Burnham will serve as Director of Corporate Development of MMAC. In addition, Burnham and Andersen Zantop will join the Board of Directors of MMAC.  On September 3, 2010 a group of Trudy shareholders including three Directors and one other employee of the Company sold a controlling interest of Trudy to an individual in a private transaction who will appoint new management and elect a new Board of Directors. The transaction will not be finalized until the buyer receives his controlling block of Trudy shares. At such time the Companys Board of Directors and senior management will resign effective September 3, 2010.  Please refer to the Form 8-K filed with the SEC on September 16, 2010.  Assets Held for Sale  Since substantially all of the Company was held for sale prior to June 30, 2010, the assets, liabilities and results of operations have been shown separately as discontinued operations on the accompanying balance sheets and statements of operations. Assets and liabilities of discontinued operations consisted of the following:  June 30,March 31,20102010ASSETSCurrent AssetsAssets held for saleCash and cash equivalents$179,533$94,954Accounts receivable, net809,610994,945Inventory, net1,113,3201,390,503Prepaid expenses and other current assets151,737169,762Restricted cash126,000-Total current assets2,380,2002,650,164Assets held for saleEquipment, net68,97468,161Royalty advances, net147,591247,436Prepublication and other assets, net482,016452,700Prepaid acquisitions327,586327,586Total other assets1,026,1671,095,883Total assets$3,406,367$3,746,047LIABILITIESCurrent liabilitiesCurrent liabilities associated with assets held for saleNotes payable  Bank$849,706$710,706Notes payable  Third party563,487429,251Notes payable  Related parties2,680,7012,680,701Accounts Payable  related parties113,42993,553Accounts Payable and accrued expenses1,286,9681,504,240Deferred Revenue136,325224,355Royalties and commissions payable306,880424,011Total Current Liabilities$5,937,496$6,066,817  8   Net sales from discontinued operations of $1,101,393 for the first quarter of fiscal 2011 decreased -0.9% versus the comparable quarters sales of $1,111,674 a year ago.  No gain was recorded on the disposal transaction subsequent to the balance sheet date due to the excess debt relief compared to the carrying value of the disposed assets on the sales transaction being from a related party.  a. Reclassification  Certain items from the March 31, 2010 balance sheet and the three month period ended June 30, 2009 statements of operations have been reclassified to conform with the three months ended June 30, 2010 financial statement presentation. There is no effect on net income, cash flows or stockholders deficit as a result of these classifications.  b.   Inventories  Inventories consist of the following:  June 30,March 31,20102010Raw Materials$27,462$32,462Finished Goods1,303,8401,636,004Reserve for Obsolescence(217,982)(277,963)Inventory$1,113,320$1,390,503  c. Notes Payable, Bank and Related Parties


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | - | ---------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | June 30,  |   | March 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2010      |   | 2010     
|A revolving line of credit totaling $850,000. Interest is payable monthly equal to the Wall Street Journal reported prime rate plus 2.0% with interest rate not to be less than 7.5%. 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   | $ | 710,706  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |          
|Various notes payable, to principal shareholder (William W. Burnham, Chairman of the Board) due on demand. Interest is payable monthly at LIBOR + 1.25%.                                                                                                                                                                                                                                                                                                                           |   | 2,680,701 |   | 2,680,701
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |          
|Notes payable, third party, due May 31, 2010 or upon termination of the Asset Purchase Agreement. Interest accrues monthly at 7.0% on any unpaid principal and accrued interest.                                                                                                                                                                                                                                                                                                   |   | 563,487   |   | 429,251  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |          
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $ | 4,093,894 | $ | 3,820,658

d. 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 $26,554 and $15,933 for the three months ended June 30, 2010 and 2009, respectively.  As of June 30, 2010, the Company has borrowings from related parties of $2,680,701. Interest to related parties totaled $46,912 and $12,553 for the three months ended June, 2010 and 2009, respectively. Repayments to related parties totaled $17,715 for the three months ended June 30, 2009. There were no prepayments for the three months ended June 30, 2010.  Accounts payable to related parties at June 30, 2010 was $113,429. Accounts payable to related parties at June 30, 2009 was $93,553.  9   Guarantor fees for Mr. Burnham for the quarter ended June 30, 2010 were $2,229.  e. Concentrations and Credit Risk  Percentage of net sales for
three months ended June 30,Balance in Accounts
Receivable as of20102009June 30, 2010Customer 115%0%14%Customer 213%0%12%Customer 310%6%9%  All other individual customers comprised less than 10% of total sales for the three month period ended June 30, 2010 and accounts receivable (net) as of June 30, 2010. 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.  f. Subsequent Events  On September 3, 2010 the Company closed its previously announced transaction and sold substantially all of its assets to MMAC, LLC, a Delaware limited liability company (MMAC), which also assumed certain liabilities of Trudy.  The assets sold consisted of Trudys on-going business as a publisher of childrens educational story and novelty books, audiobooks and plush toys.  The consideration being paid by MMAC for the Companys assets consists of the following: (1) the assumption of substantially all of the secured and unsecured liabilities of the Company, including loans from an affiliate of MMAC to the Company in the principal amount of $545,000 and with the exception of $2.7 million of personal debt owed to a principal shareholder and Chairman of the Company, William W. Burnham (Burnham); and (2) upon the completion of the final calculation of the net asset value of the Company (estimated to be completed approximately 90-120 days from the closing) an equity interest in MMAC, estimated to be in the range of 4.75%, subject, however, to possible adjustment upon the final determination of such net asset value. In view of the initial determination at closing of the Companys net asset value, the previously announced Buyer Note from MMAC to Trudy in the principal amount of $225,000 was not issued.  The amount of such consideration was determined by the Company and MMAC in arms length negotiations. Factors taken into consideration in the negotiations included the Companys then current financial condition and future prospects, the Companys results of operations, the value of the Companys assets and the Companys banking and shareholder obligations, together with those of the Companys other creditors, both secured and unsecured.  Upon determination of the final percentage equity interest as described above, MMAC will transfer such equity to the Company which will then transfer it to Burnham in consideration of the cancellation by Burnham of the $2.7 million of personal debt owed by the Company to him. Excepted from cancellation is $50,000 of debt owed to Burnham which will remain outstanding and which will be repaid to Burnham one year following the closing if and to the extent the Company has not spent the $50,000 of cash it will retain at the closing for general corporate purposes.  At the closing, as required by agreement of the parties, Burnham made a capital contribution to MMAC of cash in the amount of $175,000 and a $25,000 promissory note. Adjustment upward or downward of such $200,000 in the aggregate may be made upon final determination of the net asset value of the Company.  Holders of Trudys common stock did not receive any payment or distribution with respect to their shares pursuant to the sale of substantially all the Companys assets.  In addition, MMAC entered into a new four year lease with Noreast Management, LLC, a company which is 91% owned by Burnham, for the Companys current headquarters on substantially the same terms as the current lease with the Company.  Ashley Andersen Zantop (Andersen Zantop), former CEO and President of the Company, Fell Herdeg (Herdeg), former CFO and Secretary of the Company, and Burnham, former Chairman and Director of Corporate Development of the Company, have been retained as employees by MMAC on substantially the same terms as their current employment with the Company. Andersen Zantop will serve as President and CEO of MMAC, Herdeg will serve as CFO of MMAC and Burnham will serve as Director of Corporate Development of MMAC. In addition, Burnham and Andersen Zantop will join the Board of Directors of MMAC.  10   On September 3, 2010 a group of Trudy shareholders including three Directors and one other employee of the Company sold controlling interest of Trudy to an individual in a private transaction who will appoint new management and elect a new Board of Directors. The transaction will not be finalized until the buyer receives his controlling block of Trudy shares. At such time the Companys Board of Directors will resign effective September 3, 2010.  Please refer to the Form 8-K filed with the SEC on September 16, 2010.  3.  New Accounting Pronouncements  a. 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 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 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.  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. There has been no material impact to the financial statements from the adoption of this standard.  Recently Issued Accounting Standards  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.  11    Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF DISCONTINUED OPERATIONS  NET SALES FROM DISCONTINUED OPERATIONS.  Overview  Net Sales from discontinued operations for the Companys June quarter of fiscal 2011 decreased -0.9% versus the comparable quarter of fiscal 2009. Product costs from discontinued operations increased from 33.1% in the quarter ended June 30, 2009 to 51.3% in the current quarter as a result of an increase in inventory balancing efforts, sales at reduced margins and continuing increases in manufacturing costs from vendors in China.  The three month period resulted in a net loss from discontinued operations of $241,481 versus a net loss of $201,883 for the prior year.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  As noted above, net sales from discontinued operations of $1,101,393 for the first quarter of fiscal 2011 decreased -0.9% versus the comparable quarters sales of $1,111,674 a year ago. Sales from discontinued operations from the Companys Music For Little People product line were 6.5% of sales for the current quarter versus 6.9% in the prior years quarter. The decrease in revenue from discontinued operations was primarily due to the unwillingness of the Company to continue buying low margin third-party product for resale, vendor out of stocks and the companys reluctance to repurchase certain inventory for ecommerce, resulting from cash constraints.  Sales of Disney-licensed products from discontinued operations as a percentage of total Company sales increased from 59.5% to 60.7% for the current quarter versus the comparable quarter a year ago. Smithsonian-licensed product sales from discontinued operations increased from 15.2% of Company sales to 20.5%. There were no Sesame Workshop product sales as a result of the termination of the license on December 31, 2009.  Percentage of sales from discontinued
operations by license and/or product
line for the quarters ended June 30,License/Product Line20102009Disney60.7%59.5%Music For Little People (MFLP)6.57.5Proprietary13.36.4Smithsonian20.515.2Sesame Workshop011.0All other-1.00.4Total100.0100.0  Sales Increases  Sales from discontinued operations decreased from $1,111,674 to $1,101,393 for the quarter ended June 30, 2010 compared to the 3 months ended June 30, 2009.  Several channels of trade experienced increased sales from discontinued operations for the quarter including, but not limited to, non-returnable discount retailers, close out accounts, school and library distributors and direct-to-consumer book distributors.  Several channels of trade experienced decreased sales from discontinued operations for the quarter including, but not limited to, domestic book distributors, domestic warehouse club distributors, domestic book retailers, domestic mass market distributors and international trade book retailers.  12   COST OF SALES FROM DISCONTINUED OPERATIONS.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  The Companys cost of sales from discontinued operations for the quarter ended June 30, 2010 increased $106,865 from $624,819 in the prior years quarter to $731,684 in the current year, an increase of 17.1%. Cost of sales from discontinued operations as a percentage of net sales from discontinued operations increased from 56.2% to 66.4% in the current quarter as a result of a significant increase in direct product costs from the Companys manufacturers in China and increased sales to channels with lower profit margins versus the prior year. These costs were partially offset by decreased warehousing and labor costs, fulfillment, product development expenses, and a reduction in the inventory obsolescence expense.  GROSS PROFIT FROM DISCONTINUED OPERATIONS.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  The resulting gross profit from discontinued operations for the quarter ended June 30, 2010 decreased 3.0% from $486,854 to $369,709. The gross margin was 43.8% in the prior comparable quarter versus 33.6% in the current years quarter.  SELLING, GENERAL & ADMINISTRATIVE COSTS FROM DISCONTINUED OPERATIONS.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  The Companys selling, general, and administrative costs from discontinued operations decreased 16.3% or $107,436 to $552,268 for the three months ended June 30, 2010 versus $659,704 for the three months ended June 30, 2009.  As a percentage of net sales from discontinued operations, selling, general and administrative expenses from discontinued operations decreased from 59.3% of net sales from discontinued operations from the prior comparable quarter to 50.1% of net sales from discontinued operations in the current fiscal year.  LOSS FROM DISCONTINUED OPERATIONS.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  For the quarter ended June 30, 2010, the loss from discontinued operations prior to other income /expense was $182,561 versus a loss of $172,849 for the prior years quarter.  OTHER INCOME/EXPENSE FROM DISCONTINUED OPERATIONS.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  The Companys other expense from discontinued operations for the quarter ended June 30, 2010 was $58,920 versus expense of $29,034 for the quarter ended June 30, 2009. The increase was due to increased borrowing costs.  NET LOSS FROM DISCONTINUED OPERATIONS.  Three months ended June 30, 2010 compared to the 3 months ended June 30, 2009  As a result of the items discussed above, the Companys net loss from discontinued operations for the quarter ended June 30, 2010 was $241,481 to a net loss from discontinued operations of $201,883 for the comparable prior quarter.  13   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 in Note 2 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.  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 Discontinued Operations  For the
Period Ended
June 30,
2010For the
Period Ended
March 31,
2010Variance% ChangeNet assets (deficiency)$(2,531,129)$(2,320,770)$(210,359)9.1%Working capital (deficiency)(3,557,296)(3,416,653)(140,643)4.1Accounts payable and  accrued expenses1,286,9681,504,240(217,272)-14.4Royalties and commissions payable306,880424,011(117,131)-27.6Accounts receivable, net809,610994,945(185,335)-18.6  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.  14   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.  On September 3, 2010 the Company closed this transaction and sold substantially all of its assets to MMAC, LLC, a Delaware limited liability company (MMAC), which also assumed certain liabilities of Trudy.  The assets sold consisted of Trudys on-going business as a publisher of childrens educational story and novelty books, audiobooks and plush toys.  The consideration being paid by MMAC for the Companys assets consists of the following: (1) the assumption of substantially all of the secured and unsecured liabilities of the Company, including loans from an affiliate of MMAC to the Company in the principal amount of $545,000 and with the exception of $2.7 million of personal debt owed to a principal shareholder and Chairman of the Company, William W. Burnham (Burnham); and (2) upon the completion of the final calculation of the net asset value of the Company (estimated to be completed approximately 90-120 days from the closing) an equity interest in MMAC, estimated to be in the range of 4.75%, subject, however, to possible adjustment upon the final determination of such net asset value. In view of the initial determination at closing of the Companys net asset value, the previously announced Buyer Note from MMAC to Trudy in the principal amount of $225,000 was not issued.  The amount of such consideration was determined by the Company and MMAC in arms length negotiations. Factors taken into consideration in the negotiations included the Companys then current financial condition and future prospects, the Companys results of operations, the value of the Companys assets and the Companys banking and shareholder obligations, together with those of the Companys other creditors, both secured and unsecured.  Upon determination of the final percentage equity interest as described above, MMAC will transfer such equity to the Company which will then transfer it to Burnham in consideration of the cancellation by Burnham of the $2.7 million of personal debt owed by the Company to him. Excepted from cancellation is $50,000 of debt owed to Burnham which will remain outstanding and which will be repaid to Burnham one year following the closing if and to the extent the Company has not spent the $50,000 of cash it will retain at the closing for general corporate purposes.  At the closing, as required by agreement of the parties, Burnham made a capital contribution to MMAC of cash in the amount of $175,000 and a $25,000 promissory note. Adjustment upward or downward of such $200,000 in the aggregate may be made upon final determination of the net asset value of the Company.  Holders of Trudys common stock did not receive any payment or distribution with respect to their shares pursuant to the sale of substantially all the Companys assets.  In addition, MMAC entered into a new four year lease with Noreast Management, LLC, a company which is 91% owned by Burnham, for the Companys current headquarters on substantially the same terms as the current lease with the Company.  Ashley Andersen Zantop (Andersen Zantop), former CEO and President of the Company, Fell Herdeg (Herdeg), former CFO and Secretary of the Company, and Burnham, former Chairman and Director of Corporate Development of the Company, have been retained as employees by MMAC on substantially the same terms as their current employment with the Company. Andersen Zantop will serve as President and CEO of MMAC, Herdeg will serve as CFO of MMAC and Burnham will serve as Director of Corporate Development of MMAC. In addition, Burnham and Andersen Zantop will join the Board of Directors of MMAC.  Please refer to the Form 8-K filed with the SEC on September 16, 2010.  On September 3, 2010 a group of Trudy shareholders including three Directors and one other employee of the Company sold controlling interest of Trudy to an individual in a private transaction who will appoint new management and elect a new Board of Directors. The transaction will not be finalized until the buyer receives his controlling block of Trudy shares. At such time the Companys Board of Directors will resign effective September 3, 2010.  At June 30, 2010 the Company had a deficiency of net assets held for sale of $2,531,129 versus a deficiency of $2,320,770 at March 31, 2010. Working capital deteriorated by $140,643 from a deficiency of $3,416,653 to a deficiency of $3,557,296 as of June 30, 2010.  Accounts payable and accrued expenses associated with assets held for sale decreased $217,272 versus the prior year from $1,504,240 to $1,286,968 at June 30, 2010. Royalties and commissions payable associated with assets held for sale decreased $117,131 versus the prior year from $424,011 at March 31, 2010 to $306,880 at June 30, 2010 primarily as a result of the sales mix. Accounts receivable held for sale decreased from $994,945 at March 31, 2010 to $809,610 at June 30, 2010, a decrease of $185,335.  15   In the quarter ended June 30, 2010 the Company received $126,000 in short-term notes from Myers Education, LLC, a Delaware limited liability company and an Affiliate of the Buyer. The notes carry an interest rate of 7.0% and any accrued and unpaid interest is due along with any unpaid principal upon termination of the Asset Purchase Agreement.  As of September 3, 2010 the Company's backlog from discontinued operations was approximately $1,128,620.  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 June 30, 2010, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  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, 2010. Management updated that evaluation as of June 30, 2010 and 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 June 30, 2010. 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.  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, 2010 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.  16   PART II OTHER INFORMATION  Item 1. Legal Proceedings  None.  Item 2. Changes in Securities  None.  Item 3. Defaults upon Senior Securities  None.  Item 4. Removed and Reserved  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.  17   SIGNATURES  In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  TRUDY CORPORATION (REGISTRANT)  Date: November 2, 2010 By: /s/ Stan Larson Stan Larson,  President   18