Harvey Entertainment Co.’s new management team wrote off $1.6 million against the company’s first-quarter earnings, resulting in an overall quarterly loss of $1.8 million, the company said Friday, compared with a loss of $183,000 a year earlier.
News of the loss sent Harvey stock plunging 10% to $10.50 Friday, well below its $14 level when Harvey appointed former All American Communications CEO Tony Scotti and former MGM chief financial officer Mike Hope as an interim management team to assess the company’s strategic objectives.
The two have already made plenty of progress on that part of their job. Hope said Friday that he and Scotti expected to make their recommendations to the board on the company’s strategic alternatives before Harvey’s annual meeting June 18.
Harvey said its revenues more than halved to $860,000 in the first quarter, largely because there was lower license fee revenue from the “Casper” TV series and no revenue from the “Richie Rich” animated series compared with last year.
At the same time Harvey took several provisions, both to clean up the balance sheet and in response to the Asian economic crisis. Harvey reserved $950,000 against money owed on licensing deals which the company now considers doubtful, about half of which is due from Asian merchandising reps who have gone out of business, Hope said.
The other half relates to money owed on deals done under the Universal Studios-administered licensing agreement, the company said.
Additionally, the new management team decided to write off a total of $650,000 on money involved in new TV shows and old video inventory.
In a statement Scotti said that while the first-quarter results were “disappointing, we are encouraged by the wealth of intellectual property rights which exist at Harvey. It is likely that 1998 will prove to be a transitional year for the company since the development of new revenue opportunities requires significant lead times.”
Harvey’s stock has been sliding in recent weeks, since hitting $14 on news of Scotti and Hope’s appointments. Former CEO Jeffrey Montgomery, whom the board ousted in March, sold his 10% stake on the market earlier this month, he revealed in an SEC filing May 11, likely raising about $5.7 million given the prevailing market price at the time.