Harvey Electronics readies new stores

Television Digest with Consumer Electronics, Jan 5, 1998

New stores would be scattered across southern Conn., N.J. and Long Island and would be chain's first major expansion since emerging from bankruptcy in 1996 after shrinking to 3 outlets from 7. Each store will average $650,000 to open, SEC filing said. Harvey currently has 4 stores.

Offering consists of 850,000 shares of common at $5 and 1.3 million warrants. It's projected to raise $3.2 million, $2.6 million of which will be used to open new stores or acquire other chains. Harvey Acquisition Corp. (HAC) will reduce stake to 62% from 85%.

In augmenting current funding, Harvey reached agreement with Paragon Capital in Nov. on 3-year, $3.3-million revolving credit facility, it said in SEC filing. Paragon received warrant to buy up to 125,000 shares of common at $5.50.

For 9 months ended Aug. 2, Harvey said, loss narrowed to $900,000 from $1.6 million year earlier as sales rose to $11.6 million from $10 million. Audio products were 74% of sales and yielded 38% gross margin, while video was 23% on 23% margin, SEC filing said. In audio segment, components were 54% of sales, while TVs and projectors were 15% of video. Custom installation accounted for 17% of net product sales at prices ranging from $5,000 to more than $100,000, documents said.

Harvey's top 10 suppliers accounted for 54% of chain's purchases for 40 weeks ended Aug. 2. Bang & Olufsen, Marantz, Mitsubishi, Pioneer Elite and Sony each had more than 5% of purchases, filing said. Among dealer agreements, Harvey is required to buy $400,000 annually in Mitsubishi products, $300,000 for Niles Audio.

In personnel, Harvey Chmn. Michael Recta, who is part of HAC, will draw $75,000 annual salary, and Pres. Franklin Karp, who had $126,000 salary in 1997, will sign 2-year contract when stock begins trading.