<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-23000
The Harvey Entertainment Company
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(Exact name of registrant as specified in its charter)
California 95-4217605
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1999 Avenue of the Stars, Suite 2050, Los Angeles, California 90067-6055
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(Address of principal executive offices)
Registrant's phone number, including area code (310) 789-1990
----------------------------------
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 12, 1998
--------- ------------------------------
Common 4,186,941
<PAGE> 2
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 1-2
Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 1998
and 1997 3
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10
PART II
OTHER INFORMATION 11
</TABLE>
<PAGE> 3
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 5,614,000 $ 6,316,000
Accounts receivable, net of allowance for doubtful accounts
of $658,000 and $606,000 in 1998 and 1997, respectively 5,858,000 8,013,000
Prepaid income taxes 820,000 --
Prepaid expenses and other current assets 617,000 489,000
Film library, net of accumulated amortization of $3,892,000
and $3,373,000 in 1998 and 1997, respectively 9,819,000 10,236,000
Furniture and equipment, net of accumulated
depreciation of $563,000 and $497,000 in 1998 and 1997,
respectively 547,000 483,000
Goodwill, net of accumulated amortization of $1,157,000
and $1,092,000 in 1998 and 1997, respectively 1,438,000 1,503,000
Trademarks and copyrights, net of accumulated
amortization of $250,000 and $210,000 in 1998 and 1997,
respectively 697,000 590,000
----------- -----------
TOTAL $25,410,000 $27,630,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
(UNAUDITED)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $ 1,474,000 $ 2,300,000
Income taxes payable -- 498,000
Deferred income taxes 1,577,000 3,788,000
Accrued rent and other liabilities 187,000 131,000
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Total liabilities 3,238,000 6,717,000
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STOCKHOLDERS' EQUITY:
Preferred stock $1 par value, 3,000,000 shares authorized, none issued
Common stock, no par value, 10,000,000 shares authorized,
4,187,000 issued and outstanding at June 30, 1998 and
3,573,000 at December 31, 1997 22,674,000 18,153,000
Retained earnings (Accumulated deficit) (502,000) 2,760,000
------------ -----------
Total stockholders' equity 22,172,000 20,913,000
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TOTAL $ 25,410,000 $27,630,000
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1998 1997 1998 1997
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Filmed entertainment $ 20,000 $ 2,142,000 $ 105,000 $ 2,905,000
Merchandising 400,000 738,000 1,175,000 1,757,000
----------- ----------- ----------- -----------
Net operating revenues 420,000 2,880,000 1,280,000 4,662,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of sales 126,000 1,065,000 437,000 1,697,000
Selling, general and administrative expenses 2,291,000 1,405,000 5,690,000 2,789,000
Amortization of film library, goodwill,
trademarks, copyrights and other 43,000 107,000 623,000 195,000
Depreciation expense 32,000 22,000 66,000 44,000
----------- ----------- ----------- -----------
Total operating expenses 2,492,000 2,599,000 6,816,000 4,725,000
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (2,072,000) 281,000 (5,536,000) (63,000)
OTHER INCOME 72,000 52,000 106,000 109,000
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX
BENEFIT (PROVISION) (2,000,000) 333,000 (5,430,000) 46,000
INCOME TAX BENEFIT (PROVISION) 797,000 (150,000) 2,168,000 (46,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,203,000) $ 183,000 $(3,262,000) $ 0
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES O/S - Basic 4,174,000 3,954,000 3,908,000 3,882,000
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES O/S - Diluted 3,954,000 3,954,000
=========== ===========
NET INCOME (LOSS) PER SHARE - Basic $ (0.29) $ 0.05 $ (0.83) $ 0.00
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - Diluted $ 0.05 $ 0.00
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,262,000) $ --
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 66,000 44,000
Amortization of film library, goodwill, trademarks and copyrights
and other 623,000 195,000
Deferred income taxes (2,211,000) 27,000
Warrant expense 800,000 35,000
Write-off of leasehold improvements -- 20,000
Changes in operating assets and liabilities:
Accounts receivable, net 2,155,000 (300,000)
Prepaid expenses and other assets (128,000) 93,000
Prepaid income taxes (820,000) 425,000
Account payable and accrued expenses (826,000) 68,000
Income taxes payable (498,000) --
Accrued rent and other liabilities 56,000 65,000
----------- -----------
Net cash (used in) provided by operating activities (4,045,000) 672,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Film library (102,000) --
Purchase of furniture and equipment (130,000) (264,000)
Investments in trademarks and copyrights and film library (147,000) (221,000)
----------- -----------
Net cash used in investing activities (379,000) (485,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options, net of tax effect 3,722,000 --
Repurchase and retirement of common stock -- (357,000)
----------- -----------
Net cash provided by (used in) financing activities 3,722,000 (357,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (702,000) (170,000)
CASH AND CASH EQUIVALENTS, Beginning of period 6,316,000 6,057,000
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 5,614,000 $ 5,887,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SUMMARY OF ACCOUNTING POLICIES
The condensed consolidated financial statements of The Harvey Entertainment
Company and Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying condensed consolidated financial statements should be read in
conjunction with the more detailed consolidated financial statements and related
footnotes included in the Company's Form 10-KSB filed with the Securities and
Exchange Commission on April 15, 1998.
In the opinion of the Company's management, the accompanying unaudited condensed
consolidated financial statements as of June 30, 1998 and for the three and six
months ended June 30, 1998 and 1997 contain all adjustments, which include
normal recurring accruals, necessary to present fairly the consolidated
financial position of the Company as of June 30, 1998 and the consolidated
results of operations and consolidated cash flows for the six months ended June
30, 1998 and 1997.
The results of operations for the interim periods of the Company's fiscal year
are not necessarily indicative of the results to be expected for the entire
year.
* * * * * *
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On March 20, 1998, the Company's Board of Directors voted not to renew the
employment agreements of the Company's Chief Executive Officer, Jeffrey A.
Montgomery, and Chief Financial Officer and Executive Vice President, Gregory M.
Yulish which expired on April 17, 1998. On March 27 and March 30, respectively,
Messrs. Yulish and Montgomery resigned from the Board of Directors. The Board of
Directors retained the non-exclusive services of Anthony J. Scotti as the
Company's Interim Chief Executive Officer and Michael S. Hope as the Company's
Interim Chief Financial Officer, effective as of March 23, 1998, through a
management services agreement with Global Media Media Management Group, LLC
("Global Media") for an initial six-month term. In July 1998, the Company's
Board of Directors unanimously approved a new three year business plan. Pursuant
to the plan, the Company contemplates producing up to 12 direct-to-video
products over the next three years, commencing in 1999 and one new television
show per year. The Company is currently in negotiations with several major media
companies to secure both domestic and international distribution agreements for
the new direct-to-video products. Additionally, the Board authorized an
executive recruitment effort to identify and retain a senior management team to
succeed its present interim management. In July 1998, at the request of the
Board of Directors, Global Media has agreed to a three-month extension of its
management contract to December 23, 1998. During the three-month extension
period, the interim management from Global Media will assist the Board of
Directors in an executive recruitment effort to identify and retain a permanent
senior management team.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Results of Operations - The Company's net operating revenues in the 1998 and
1997 three month periods were $420,000 and $2,880,000 respectively, a decrease
of $2,460,000. The decrease in revenues from 1997 to 1998 includes a decrease of
$2,122,000 in filmed entertainment revenues and a decrease of $338,000 in
merchandising revenues. The development of new revenue opportunities in the
filmed entertainment area requires significant lead time. The number of projects
expected to generate revenues in 1998 is limited and, accordingly, the Company
expects that the Company's operating results will be adversely impacted compared
to prior periods. The Company has formulated a new business plan, the results of
which will not be realized until subsequent periods. The new business plan
increases the Company's involvement in direct-to-video productions and calls for
the development of one new television show per year. The new business plan
reinforces the Company's continued development and exploitation of licensing and
merchandise rights for the Company's portfolio of classic characters. Execution
of the new business plan will require securing a senior management team,
entering into a video distribution agreement and arranging a financing package
to fund production activities, none of which can be assured.
Revenues - Net filmed entertainment revenues were $20,000 and $2,142,000 in the
three months ended June 30, 1998 and 1997, respectively, a decrease of
$2,122,000. The decrease in filmed entertainment revenues was primarily due to
the Company receiving non-refundable upfront advances from Universal Studios,
Inc. ("Universal") for an agreement entered into in May 1997 to produce and
distribute a motion picture sequel to the "Casper" movie released theatrically
in 1995. As part of the Company's agreement with Universal, the Company was also
paid a non-refundable advance against the Company's profit participation from
the first 1995 "Casper" movie. There were no such comparable revenues in 1998.
Also contributing to the higher revenues in 1997 were the license fees generated
from the "Casper" animated television show on Fox Kids' Network. In February
1997, the Company and Universal Cartoon Studios received an order from Fox Kids'
Network for an additional 26 thirty minute episodes for a total of 52 animated
episodes resulting in license fee revenues of $418,000 in the second quarter of
1997. There were no such revenues in the second quarter of
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<PAGE> 9
1998. Foreign broadcast license revenues from the Harvey Classic Film Library
accounted for $20,000 in the second quarter of 1998 and $106,000 in the second
quarter of 1997. The reduction in revenues in 1998 is due in part to the
expiration of the Company's distribution agreement with its prior foreign
distributor, which expired in November 1997. In March 1998, the Company hired a
foreign distribution consultant based in London to assist with and oversee
foreign sales of the Harvey Classic Film Library. Other filmed entertainment
revenues in 1997 relate to domestic syndication of the "Richie Rich" and other
miscellaneous sources.
Net merchandising revenues were $400,000 and $738,000 in 1998 and 1997,
respectively, a decrease of $338,000. The revenues in 1998 consist of new
licenses for the worldwide merchandising of the Harvey Classic Characters and
the licensing revenues from the Company's direct-to-video features entered into
by the Company's in-house licensing division. Although merchandising licenses
are generally granted for a period of one to three years, a substantial portion
of the minimum guaranteed license revenues are recognized when the license
period begins, provided certain conditions have been met. Due to this accounting
treatment, revenue fluctuations from the Company's merchandising activities will
likely recur in the future on a quarterly and annual basis. The ongoing success
of the merchandising program is in part dependent upon the attractiveness, the
ancillary exploitation and future marketability of the Harvey Classic
Characters.
Cost of Sales - Costs of sales relating to filmed entertainment revenues were
$7,000 and $690,000 in 1998 and 1997, respectively. The decrease in cost of
sales is due to a decrease in filmed entertainment activity for the period.
Merchandising costs were $119,000 and $375,000 in 1998 and 1997, respectively.
The decrease in merchandising costs is due to a decrease in merchandising
activity for the period.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses (SG&A) were $2,291,000 and $1,405,000 for 1998 and 1997,
respectively, an increase of $886,000. The increase in SG&A is primarily due to
higher costs incurred for salaries, consulting and legal expenses in the current
period, including expenses of $367,000 related to the issuance of options to
Global Media and the extension, in June 1999, of the term of certain warrants
granted in a prior year.
Depreciation and Amortization - Depreciation expense was $32,000 and $22,000 in
1998 and 1997, respectively. Amortization of the film library was $4,000 and
$61,000 in 1998 and 1997, respectively. The decrease in amortization is due to
the decrease in revenue derived from the film library, which is being amortized
in accordance with the individual film forecast method. Amortization of
trademarks, copyrights and other was $7,000 in 1998 and $14,000 in 1997.
Amortization of goodwill was $32,000 in both 1998 and 1997.
Other Income - Other income was $72,000 and $52,000 in 1998 and 1997,
respectively. The increase in other income was due to higher dividend income in
the current period.
Income Taxes - Income tax benefit (provision) was $797,000 and $(150,000) in
1998 and 1997, respectively. The income tax benefit for 1998 is due to the
operating losses.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Results of Operations - The Company's net operating revenues in the 1998 and
1997 six month periods were $1,280,000 and $4,662,000 respectively, a decrease
of $3,382,000. The net decrease in revenues from 1997 to 1998 includes a
decrease of $2,800,000 in filmed entertainment revenues and a decrease of
$582,000 in merchandising revenues.
Revenues - Net filmed entertainment revenues were $105,000 and $2,905,000 in
1998 and 1997, respectively, a decrease of $2,800,000. The decrease in filmed
revenues was primarily due to the Company receiving non-refundable upfront
advances from Universal Studios, Inc. ("Universal") for an agreement entered
into in May 1997 to produce and distribute a motion picture sequel to the
"Casper" movie released theatrically in 1995. The Company was paid a
non-refundable upfront advance for the sequel and, if the sequel is produced the
Company will receive additional non-refundable cash advances to be recouped from
the Company's gross profit participations in worldwide distribution and
merchandising sales. As part of the Company's agreement with Universal, the
Company was also paid a non-refundable advance against the Company's profit
participation from the first 1995 "Casper" movie. There were no such comparable
revenues in 1998. Also contributing to the higher revenues in 1997 were the
license fees generated from the "Casper" animated television show on Fox Kids'
Network. In February 1997, the Company and Universal Cartoon Studios received an
order from Fox Kids' Network for an additional 26 thirty minute episodes for a
total of 52 animated episodes resulting in license fee revenues of $721,000 in
1997, but only $63,000 in 1998. Foreign broadcast license revenues from the
Harvey Classic Film Library accounted for $42,000 in 1998 and $144,000 in 1997.
The low revenues were due in part to the expiration of the Company's
distribution agreement with its prior foreign distributor, which expired in
November 1997. In March 1998, the Company hired a foreign distribution
consultant based in London to assist with and oversee foreign sales of the
Harvey Classic Film Library. Other filmed entertainment revenues in 1997 relate
to domestic syndication of the "Richie Rich" show, royalties from Richie Rich
cartoon series which is distributed by Hanna Barbera, a wholly owned subsidiary
of Time Warner Inc., and other miscellaneous sources.
Net merchandising revenues were $1,175,000 and $1,757,000 in 1998 and 1997,
respectively, a decrease of $582,000. The revenues in 1998 consist of new
licenses for the worldwide merchandising of the Harvey Classic Characters and
the licensing revenues from the Company's direct-to-video features entered into
by the Company's in-house licensing division. Although merchandising licenses
are generally granted for a period of one to three years, a substantial portion
of the minimum guaranteed license revenues are recognized when the license
period begins, provided certain conditions have been met. Due to this accounting
treatment, revenue fluctuations from the Company's merchandising activities will
likely recur in the future on a quarterly and annual basis. The ongoing success
of the merchandising program is in part dependent upon the attractiveness and
future marketability of the Harvey Classic Characters.
Cost of Sales - Costs of sales relating to filmed entertainment revenues were
$205,000 and $877,000 in 1998 and 1997, respectively. The decrease in costs of
sales is due to a decrease in filmed entertainment activity for the period. The
high cost of sales relative to comparable revenue amounts is due to a $150,000
adjustment in the carrying value of certain video inventory in the first quarter
of 1998.
Merchandising costs were $232,000 and $820,000 in 1998 and 1997, respectively.
The decrease in merchandising costs is due to a decrease in merchandising
activity for the period.
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<PAGE> 11
Selling, General and Administrative Expenses - Selling, general and
administrative expenses (SG&A) were $5,690,000 and $2,789,000 for 1998 and 1997,
respectively, an increase of $2,901,000. The increase in SG&A in the 1998 period
includes the effect of an approximate $500,000 provision relating to doubtful
accounts from previously recognized guarantees from agents and licensees
operating in the Pacific Rim territories and a $450,000 provision relating to
the Company's prior participation interest in Universal's Harvey-related
merchandising business. Pursuant to the new business plan the Company has
undergone a significant expansion over its prior activities. It has thus
incurred increased salaries, consulting and other overhead expenses in 1998,
including expenses of $800,000 related to the issuance of warrants and options
to Global Media during the six-month period and, in June 1999, the extension of
the term of certain warrants granted in a prior year. The Company cannot
ascertain or give assurances at this time whether the execution of the new
business plan will ultimately be successful.
Depreciation and Amortization - Depreciation expense was $66,000 and $44,000 in
1998 and 1997, respectively. Amortization of the film library was $519,000 and
$104,000 in 1998 and 1997, respectively. The amortization amount in the current
period includes the write-off of $500,000 of previously capitalized product
development costs due to uncertainties concerning the recoverability of such
costs based on the Company's new business plan. Amortization of trademarks,
copyrights and other was $40,000 in 1998 and $27,000 in 1997. Amortization of
goodwill was $64,000 in both 1998 and 1997.
Other Income - Other income was $106,000 in 1998, which was comparable to
$109,000 in 1997.
Income Taxes - Income tax benefit (provision) was $2,168,000 and $(46,000) in
1998 and 1997, respectively. The income tax benefit for 1998 is due to the
operating losses and the tax effect of the stock options exercised.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was $(4,045,000) and
$672,000 in 1998 and 1997, respectively. The decrease in cash flows from
operations was primarily due to the operating loss in 1998 and the payment of
accrued expenses partially offset by collections of accounts receivable.
Net cash used in investing activities was $379,000 and $485,000 in 1998 and
1997, respectively. The decrease in cash used in investing activities was
primarily due to less investment by the Company in its trademarks, copyrights
and film library and purchase of less furniture and equipment in 1998.
Net cash provided by (used in) financing activities was $3,722,000 and
$(357,000) in 1998 and 1997, respectively. The increase is due to the exercise
of employee stock options in 1998 as compared to the Company's repurchase of
common stock in 1997.
The Company has a $5,000,000 revolving credit facility with City National Bank,
which expires on September 1, 1998. Interest on advances made under the facility
accrues at 1% above the prime rate as reported by the lender. The facility is
secured by substantially all of the assets of the Company. The Company must
maintain at all times cash or marketable securities with a value of no less than
$2,500,000 and not permit the Company's net worth to fall below $20,000,000 for
any quarter or at any fiscal year end. The Company has not drawn on this
facility and it is not expected that this facility will be drawn on prior to its
expiration. It is unlikely that this facility will be renewed.
The new business plan contemplates a significant expansion of the Company's
direct-to-video and television production activities as well as, for the first
time, positioning the Company to actively participate in both financing and
producing the projects. Accordingly, the Company will require additional working
capital to support the funding of its productions in an amount currently
estimated to exceed $40,000,000, a large portion
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<PAGE> 12
of which would be sought in the form of debt financing. It is anticipated that
any such financing will be dependent on a number of factors, including
engagement of satisfactory permanent management, and completion of satisfactory
distribution agreements for the Company's anticipated new product. It is
anticipated that the Company will require such financing or, should such working
capital financing not be available at that time, interim financing prior to the
end of the current calendar quarter. Should the Company be unsuccessful in
securing the financing necessary to implement its business plan, or interim
financing to allow it to continue its present level of activity pending new
permanent management and receipt of working capital financing, it would be
forced to make significant revisions in its operations, which could include
curtailment of its production activities, the sale of assets, reduction in
overhead and other measures necessary to provide sufficient liquidity to
continue to operate.
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<PAGE> 13
OTHER INFORMATION
Item 1 - 1. Franklin Litigation. On September 30, 1994, the Company
filed suit in the Superior Court of the State of California
for the County of Los Angeles against Jeffrey Franklin d/b/a
ATI Enterprises, and Franklin/Waterman Entertainment, Inc.,
seeking to recover damages arising from, among other things,
wrongful usurpation of corporate business opportunities. ATI
filed a cross-complaint against the Company for commissions.
The Company filed a related claim against Franklin's
business partner Stephen Waterman in May 1996. The Company
was also named in a related action filed by the defendants'
insurers, American Casualty Co., in which the insurers
sought determinations as to their obligations to provide
insurance coverage for the claims made by the Company
against the defendants. In June 1997, judgment was granted
in favor of the Company in the Franklin action for an amount
in excess of $800,000, and the cross-complaint brought by
defendant ATI against the Company was dismissed. The
defendants appealed. The parties have reached a tentative
settlement agreement conditional on the approval of the
bankruptcy court, among other things. The conditions have
not yet been satisfied.
Item 1 - 2. Realty Trust Advisors, Inc. On December 31, 1997, Realty
Trust Advisors, Inc. ("RTA") filed suit against the Company
in Los Angeles Superior Court seeking damages arising out of
the alleged failure of the Company to pay certain
commissions. On May 11, 1998 the Company filed a Demurrer
and a Motion to Strike the fraud and punitive damages
portions of the First Amended Complaint, which were granted.
On or about July 9, 1998, the Company filed an answer to the
First Amended Complaint and a cross-complaint against RTA
and its principal, Anne Keshen, for fraud and declaratory
relief.
Items 2 through 4 are omitted as not applicable.
Item 5 - Other Information
None
Item 6 (a)- Exhibit 10.52 Multi-Agreement No 6 dated June 1, 1998 to
Revolving Loan and Security Agreement dated October 27,
1993, between the Company and City National Bank, N.A.
Item 6 (b)- Reports on Form 8-K
None
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE HARVEY ENTERTAINMENT COMPANY
AND SUBSIDIARIES (Registrant)
May 5, 1999 /s/Ronald B. Cushey
--------------------------------
Name: Ronald B. Cushey
Title: Chief Financial Officer
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