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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED] for the fiscal year ended December 31, 1995.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED] for the transition period from ____________
to _____________.
Commission file number 0-13966
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HARISTON CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Canada 33-0645339
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
611 Anton Blvd., Suite 1270, Costa Mesa, California 92718
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (714) 556-1755
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
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(TITLE OF CLASS)
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 or
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 by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant computed by reference to the price at which the stock was sold; or
the average bid and asked prices of such stock, was: $28,667,367 at March 31,
1996.
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 11,463,113 shares of Common Stock, as of
March 31, 1996
DOCUMENTS INCORPORATED BY REFERENCE. List hereunder the following documents if
incorporated by reference, and the part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933: None
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PART I
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
consolidated financial data and the notes thereto included, or incorporated by
reference, in Item 8.
OVERVIEW
Guided by management's previously stated strategy to reposition the
Company, Hariston has undergone a significant transformation during the past
fiscal year. The Company divested substantially all of the businesses and
investments which were unrelated to its new focus on multimedia software
publishing and distribution. During the second quarter, the Company formed a
wholly owned subsidiary, CD-Soft Corporation, to pursue this business. During
the third quarter of 1995, Hariston sold its Metanetix minerals recovery
operation as well as its Canadian oil and natural gas interests, and, through a
subsidiary of CD-Soft Corporation, purchased substantially all of the assets of
a group of affiliated businesses located in San Diego, California, doing
business under the trade name Educorp. The affiliated businesses now operate
under the name Educorp Direct ("Direct").
Founded in 1984, Direct is a publisher and direct mail distributor of
multimedia consumer software offered on CD-ROMs. Through its catalogs, Direct
offers what is believed to be one of the largest selections of consumer CD-ROM
software titles in the industry. Last year, Direct mailed more than two
million catalogs and newsletters to its customer base. Through its affiliates,
Direct is also involved in the development and publishing of software titles as
well as wholesale and international distribution.
In January 1996, the Company acquired, through a wholly-owned
subsidiary, substantially all of the assets and selected liabilities of
HighText Publications, Inc., a San Diego, California based publisher of books
and educational CD-ROM software programs. This business has been renamed
HighText Interactive, Inc. ("HighText").
In the future, the Company's multimedia operations may be expanded
through the acquisition of complementary businesses and through the: (1)
development and/or publishing of new software titles, (2) increased number and
mailing frequency of print catalogs, (3) development of new distribution
channels, and (4) international expansion of the business. Although the
Company is considering each of these alternatives, no assurance can be given
that these or any other activities will be successful.
As a result of Hariston's divestiture of its Canadian oil and natural
gas interests and its subsequent acquisition of Educorp, the U.S. dollar
became the Company's functional currency on August 25, 1995. In addition, and
related to this change of strategic direction, the Company established
executive offices in Costa Mesa, California on October 1, 1995.
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The Company continues to retain its investment, directly and through a
collateral position for a note receivable, in Polish Life Improvement S.A.
("PLI"). See "--Investments; Polish Life Improvement S.A.," below.
CHANGES IN CORPORATE STRUCTURE
Effective January 1, 1995, Hariston amalgamated with its wholly-owned
Canadian subsidiaries, Canadian Capital Financial Markets Inc. and Metanetix
Corporation. This combination allowed Hariston access to the tax loss balances
in the two subsidiary companies and simplified the Company's legal and
reporting requirements. The Metanetix operations, as well as the Company's oil
and natural gas interests, were sold in the third quarter of 1995.
During June 1995, Hariston incorporated a wholly-owned California
subsidiary, CD-Soft Corporation, to pursue Hariston's strategy of focusing its
investment capital and managerial expertise on the multimedia software
publishing and distribution business. During July 1995, CD-Soft Corporation
incorporated a wholly-owned California subsidiary, CD-Soft Source Corporation,
for the purpose of acquiring substantially all of the assets of a group of
businesses operating under the trade name Educorp. This subsidiary has since
been renamed Educorp Direct, Inc. In January 1996, CD-Soft Corporation formed
an additional wholly-owned California subsidiary, now called HighText
Interactive, Inc., for the purpose of acquiring substantially all of the assets
and selected liabilities of HighText Publications, Inc. In March 1996, CD-Soft
Corporation was merged into Educorp Multimedia, Inc., a newly formed
wholly-owned Delaware subsidiary of Hariston.
RESULTS OF OPERATIONS
The Company incurred a consolidated net loss of $823,000 for the
fiscal year ended December 31, 1995. Continuing operations incurred a loss of
$1,803,000. Discontinued operations yielded net income of $980,000, after
inclusion of the $1,140,000 gain realized on the sale of the Canadian oil and
gas royalty and working interests. An analysis of the results from continuing
and discontinued operations is presented below. Following that analysis is a
discussion of the results of operations for the Predecessor, Gazelle
Technologies, Inc. and Affiliates, which had been doing business under the
trade name "Educorp."
CONTINUING OPERATIONS
CD-ROM SOFTWARE. On August 25, 1995, Hariston, through its subsidiary
Direct, acquired substantially all of the assets of the Predecessor for a
purchase price of $6,067,000, consisting of $4,500,000 of cash, $374,000 of
short-term notes, and $500,000 of Hariston common stock. In addition,
approximately $393,000 of acquisition costs were incurred, as well as an
obligation to repurchase from certain intermediaries engaged in connection with
the acquisition (the "Intermediaries") stock options in Direct for $300,000
within the one year period from February 25, 1997 to February 25, 1998, at the
holder's option. The Company also issued to the Intermediaries 250,000
Hariston common stock warrants expiring December 31, 1996 at an exercise price
of $2.25 per share. This transaction was accounted for as purchase.
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Direct generated revenues of $2,797,292 for the period August 25, 1995
to December 31, 1995, of which $1,869,000 was from retail sales, $806,685 was
from dealer sales and $121,607 was from software royalties and license fees.
Over the same period in 1994, the Predecessor generated revenues of $2,690,503
from retail sales, $974,096 from dealer sales and $29,700 from royalties and
license fees. The 30.5% decline in 1995 retail revenues as compared to the
1994 figure for the same period was due primarily to two factors. The first of
these was the low number of catalogs in circulation during August and September
1995, as compared to the same period a year earlier. The second factor was the
decrease in the average title price that occurred during 1995. The smaller
decline in dealer revenues, 17.2%, reflects the fact that while dealer sales
were affected by the decrease in average title price, they were less dependent
on the number of catalogs in circulation. Both retail and dealer sales were
also, to a lesser extent, adversely affected by smaller international order
sizes due to the increasing availability of software titles in foreign
countries, and by the discontinuation of computer hardware sales by Direct
during 1995.
For the period August 25, 1995 to December 31, 1995, Direct incurred a
net loss of $459,216. This loss included $297,000 of recurring noncash
depreciation and amortization expenses arising from the acquisition of Educorp
and $200,465 of a further one-time expense relating to inventory and also
arising from the application of purchase accounting on the acquisition. Taking
these noncash charges into consideration, Direct produced a positive operating
cash flow for the approximately four month period ended December 31, 1995. See
"-Results of Operations; Predecessor," below.
Although no assurance can be given concerning Direct's future
financial results, Management believes that the four month results are not
fully indicative of Direct's future prospects because of the limited operating
period between the purchase date and the end of the year, and the low number of
catalogs in circulation during the initial five weeks of this period. The
initial shortfall in the number of catalogs in circulation was caused by delays
associated with the Company's acquisition of the Predecessor.
The results of operations for the Predecessor for its fiscal years
ended February 25, 1994 and February 25, 1994, together with the combined
results of operations for Direct and the Predecessor for the ten month period
ended December 31, 1995, are discussed below
OPERATING AND CORPORATE EXPENSES. Operating and corporate expenses
were $2,584,000 and $3,436,000 for the years ended December 31, 1995 and
December 31, 1994, respectively. These figures represented 89% and 58%,
respectively, of revenues from continuing operations for those periods. The
increase in operating and corporate expenses as a percentage of revenues was
due primarily to the consolidation of PLI's results until June 24, 1994, which
increased 1994 revenues by $5,179,000 relative to 1995. The Company also
incurred significant administrative and salary costs relating to the management
and divestiture of the Company's oil and gas interests and minerals recovery
project, and the acquisition of the Direct operations. Further, significant
legal and accounting fees were incurred relating to the Company's change of
reporting status for U.S. reporting purposes, and for various tax and corporate
planning matters. Rent and other expense decreased significantly, from
$1,011,000 in 1994 to $210,000 in 1995, in large part due to the consolidation
of PLI's results in the 1994 figure.
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INVESTMENTS: POLISH LIFE IMPROVEMENT S.A. PLI is a retail operator
of eight supermarkets and four home improvement stores in Poland. PLI is a
public Polish company which during 1995 applied for its shares to be listed and
traded on the Warsaw Stock Exchange. Approval for share trading was obtained
in early 1996, and on February 5, 1996, PLI's shares began trading on the
parallel market of the Warsaw Stock Exchange.
Over three million shares of PLI are reported on the Company's balance
sheet, at an average cost of approximately $0.64 per share. These include 1.4
million shares which the Company sold to a third party and for which it has
received a promissory note that is presently in default. The promissory note
is secured by the 1.4 million shares. Management has determined that
collection on the note is not reasonably assured and is presently discussing
with the purchaser the return of the 1.4 million PLI shares.
After accounting for the Company's obligation to transfer 613,684 PLI
shares under the terms of a stock sale agreement, and not including the 1.4
million PLI shares discussed above, which Hariston does not presently control
or vote, Hariston's percentage ownership in PLI is approximately 23%.
Management is of the opinion that due to the Company's minority
ownership position in PLI over the period January 1, 1995 to December 31, 1995,
the Company has not been able to exercise significant influence over the
operating, investment, and financial policies of PLI and therefore Hariston's
investment in the PLI shares was accounted for using the cost method. As a
result, the Company has not included in its results for the year ended December
31, 1995, a proportionate share of PLI's results for the year.
During 1995, PLI reported, on an unaudited consolidated basis, a
nominal profit on revenues of $33.4 million, as compared to loss of
approximately $2,200,000, on revenues of $14,700,000, during 1994.
As a first step towards achieving liquidity for its PLI shares
holding, Hariston announced in October 1995, its intention to contribute its
PLI shares to a newly formed wholly-owned subsidiary, EuroEastern Investment
Corporation ("EIC"). Subsequent to this announcement, PLI announced that its
shares had been approved for trading on the parallel market of the Warsaw Stock
Exchange. Due to this development, Hariston has put its planned contribution
of PLI shares of EIC on hold and is exploring other possibilities for
maximizing value from its share holding in PLI.
INVESTMENTS: MADISON PARTNERS LIMITED. Madison Partners Limited
("Madison") was formerly a supplier of proprietary home medical products. A
public company, Madison's shares are traded on the Canadian Dealing Network, a
division of the Toronto Stock Exchange.
Hariston owns 800,000 shares of Madison common stock, representing
less than a 5% interest in that company. These shares were previously recorded
on Hariston's balance sheet at a cost of approximately $0.07 per share.
However, as at December 31, 1995, the investment in Madison shares was fully
written off due to the seizure of Madison's assets in January 1996 by its
secured lenders. Madison was left with no significant assets other than its
publicly traded status and several million dollars of estimated tax loss
balances. Madison's management has
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indicated that it is committed to creating value for Madison's shareholders and
has undertaken steps to locate profitable businesses that may be acquired by
Madison. However, at this time there is no reasonable assurance that Madison's
management will be successful in its endeavor.
During the third quarter, Hariston sold 375,000 Madison shares at an
average price (after sales commissions) of $0.40 per share, realizing a gain on
sale of $123,000.
Although Madison's shares remain eligible for trading, they last
traded in January 1996, at a price of $0.05 per share on extremely low trading
volume relative to Hariston's share holding.
As a result of an advance to Madison in 1993 and interest accrued
thereon, Hariston was owed approximately $133,000 as at December 31, 1995,
after accounting for approximately $37,000 of payments received during 1995.
Madison's management has indicated that as part of the proposed restructuring
of that company, it will seek to convert the amount owing into additional
shares in Madison. As there is no reasonable assurance at this time that
Madison's restructuring efforts will be successful, Hariston fully reserved the
receivable as at December 31, 1995.
DISCONTINUED OPERATIONS
OIL AND GAS INTERESTS. On August 14, 1995, Hariston disposed of its
oil and gas royalty and working interests for cash proceeds of approximately
$2.4 million and the assumption by the purchaser of approximately $979,000 of
debt.
Under the terms of the sale, royalties and working interest payments
received after July 31, 1995 were held for the account of the purchaser. Given
that production payments are received from the well operators several months
after the associated production month, all receipts received up to July 31,
1995 were applied to the account of production months prior to July, 1995.
In 1995, Hariston earned net income of approximately $166,000 from its
oil and gas royalty and working interests prior to their disposition.
METANETIX DIVISION. On July 28, 1995, Hariston reached an agreement
to sell its Metanetix Division and related technology to Consolidated Western
and Pacific Corporation ("Consolidated") for a purchase price of up to $9
million, to be paid as a royalty from any profits that may be generated from
Consolidated's use of the Metanetix metal recovery process and the Butte,
Montana recovery plant. Consolidated subsequently informed Hariston that it
did not wish to acquire the related technology license, thereby reducing the
maximum purchase price to $7 million. No proceeds have been recognized on the
sale of the Metanetix Division due to management's belief that the ultimate
realization of proceeds cannot be reasonably determined at this time.
The sale to Consolidated became effective on April 29, 1995. However,
the Metanetix Division was accounted for as a discontinued operation in
Hariston's fiscal 1994 financial statements. Consequently, there are no
results from Metanetix operations for 1995, only further
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provision for costs of disposition. Substantially all of the costs of
disposition of the Metanetix operations were provided for in the 1994 financial
statements. A further $321,000 of disposition costs have been booked to 1995
results.
In order to retain its interest in the technology license referred to
above, Hariston was required to pay by December 31, 1995, an advance royalty
payment of approximately $183,000 to an agency of the Government of Ontario.
As a result of Consolidated's decision, management determined that the
technology license has limited commercial value to Hariston and provided
written notification to the agency that no payment would be made.
PREDECESSOR OPERATIONS
Audited financial statements were prepared for the Predecessor's
fiscal years ending February 28, 1994, February 28, 1995 and for the stub
period March 1, 1995 to August 24, 1995. To assist with comparability, for
purposes of this discussion and the selected financial information disclosure
presented elsewhere in this Report, the Predecessor's stub period results have
been combined with Direct's results for the period August 25, 1995 to December
31, 1995. Such combined results are presented on the same basis as the
Predecessor's audited statements for the prior years.
COMPARISON OF TEN MONTH PERIOD ENDED DECEMBER 31, 1995 TO TEN MONTH
PERIOD ENDED DECEMBER 31, 1994
RETAIL SOFTWARE SALES. Sales for the ten month period ended December
31, 1995 of $4,232,841 declined approximately 14% relative to sales of
$4,905,405 for the same period during 1994. Retail sales for the full fiscal
year ended February 28, 1995 were $5,832,202. There were three primary reasons
for the decline in same period sales. First, there were a low number of
catalogs in circulation during August and September 1995 as compared to the
same period a year earlier. Second, the average CD-ROM retail price in 1995
decreased to $42.90 as compared to $49.60 in 1994. Third, and related to the
second reason, a particularly competitive environment existed during 1995 as a
result of the liquidation during that year of inventories by competitors which
had entered the industry in the previous several years, particularly 1994, and
exited the industry during 1995. Because international sales were not as
dependent on catalogs in circulation and were unaffected by the competitive
U.S. environment, international sales did not decline, and in fact marginally
increased. International sales were $692,802, or 16% of total retail sales,
for the 10 months ended December 31, 1995, versus $593,172 and 12% for the
comparable prior year period.
DEALER SOFTWARE SALES. Sales for the ten month period ended December
31, 1995 of $1,814,133 declined 10% relative to sales of $2,006,438 for the
same period during 1994. Dealer sales for the full fiscal year ended February
28, 1995 were $2,407,725. The primary reason for the decline in same period
sales was the decrease in the average 1995 CD-ROM dealer price to $25.78, as
compared to $28.65 in 1994. Total international sales were $1,369,441, or 75%
of total software sales to dealers, for the 10 month period ended December 31,
1995, versus $1,347,523 and 67%% for the comparable prior year period.
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HARDWARE SALES. Dealer hardware sales were not a significant
component of total computer hardware sales, due to the ability of dealers to
purchase hardware directly from the manufacturer. The following discusses only
retail hardware sales.
The Company decided in early 1995 to discontinue selling computer
hardware and, as a result, retail sales of hardware for the ten month period
ended December 31, 1995 declined 95%, to $38,442, as compared to retail
hardware sales of $749,240 for the same period during 1994. Retail hardware
sales for the full fiscal year ended February 28, 1995 were $953,373. Hardware
inventories were eliminated during 1995 through returns to suppliers or sales
at a discount. The decision to terminate this product line was based on the
relatively low gross profit margins realized by hardware relative to CD-ROM
software titles, and the relatively high inventory maintenance costs as
compared to those of CD-ROM software titles.
ROYALTIES AND LICENSE FEES. Royalties and license fees of $391,907
for the ten month period ended December 31, 1995 increased 684% relative to
royalty and license fees of $49,987 for the same period during 1994. Royalties
and license fees for the full fiscal year ended February 28, 1995 were
$107,300. The primary reason for the increase was the Company's December 1,
1994 arrangement with Apple Computer to bundle several of the Company's
self-published educational titles with sales of Apple computers.
GROSS PROFIT. The Company realized gross profit of $1,892,719 for the
ten month period ended December 31, 1995, a 53% decrease as compared to gross
profit of $4,056,083 for the same period of 1994. Gross profit for the year
ended February 28, 1995 was $4,400,000. Total gross profit declined primarily
because of reduced total sales of CD-ROM titles and the discontinuation of
hardware sales. Gross profit as a percentage of revenues for the ten month
period ended December 31, 1995 was 28%, as compared to approximately 45% for
the same period of 1994 and 45% for the year ended February 28, 1995. The
amortization of the inventory write-up relating to inventory on hand at the
time of the purchase of the Direct operations contributed 3% to the decline.
The remaining decline was due primarily to a reduction in percentage markups
due to the increased competitive environment, as well as to discontinued sales
of a line of mature adult titles on which markups had been particularly high.
These factors were somewhat offset by the Company's decision to discontinue
selling hardware, which earned a lower margin than CD-ROM titles.
OPERATING AND CORPORATE EXPENSES. Operating and corporate expenses
were $2,587,597 and approximately $2,880,000 for the ten month periods ended
December 31, 1995 and December 31,1994, respectively, and $3,4607,000 for the
year ended February 28, 1995. These figures represented approximately 38%,
36%, and 35% of revenues for those periods, respectively. The increase in
operating expenses as a percentage of revenues was due primarily to the
incurrence of approximately $200,000 of nonrecurring legal and professional
fees during the ten month period to December 31, 1995 in connection with the
purchase of Direct. After adjusting for these nonrecurring fees, operating and
corporate expenses would be 35% of total revenues for the ten month period to
December 31, 1995.
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COMPARISON OF TWELVE MONTH PERIOD ENDED FEBRUARY 28, 1995 TO TWELVE
MONTH PERIOD ENDED FEBRUARY 28, 1994.
RETAIL SOFTWARE SALES. Sales for the year ended February 28, 1995 of
$5,832,202 increased 5% relative to retail software sales of $5,613,609 for the
year ended February 28, 1994. The primary reason for the increase in same
period sales was higher unit volume sales due to the rapid increase in the
installed base of CD-ROM drives during 1995. This unit volume increase more
than offset the effect of the decline in the average CD-ROM title price. The
average CD-ROM retail price during the year ended February 28, 1995 decreased
40% to $47.06 as compared to $78.51 for the prior year. To a lesser extent,
sales were adversely affected by smaller international order sizes due to the
increasing availability of software titles in foreign countries. International
sales were $876,922, or 11% of total retail sales, for the year ended February
28, 1995 versus $978,918 or 13% for the prior year.
DEALER SOFTWARE SALES. Sales for the year ended February 28, 1995 of
$2,746,039 declined 24% relative to dealer software sales of $3,590,605 for the
year ended February 28, 1994. The decline in same period sales was
attributable in part to a decrease in the average CD-ROM dealer price during
the year ended February 28, 1995, to $28.10, as compared to $31.98 during the
prior year, and to increased competition. During calendar year 1994 many new
distribution channels were opened for the supply of CD-ROM titles to dealers.
These new channels included a trend towards publishers selling their titles
directly to dealers, and large software distributors commencing to sell CD-ROM
titles.
HARDWARE SALES. Dealer hardware sales are not a significant component
of total computer hardware sales, due to the ability of dealers to purchase
hardware directly from the manufacturer. The following discusses only retail
hardware sales.
Retail hardware sales for the year ended February 28, 1995 of
$1,043,440 declined 61% relative to retail hardware sales of $2,662,968 for the
year ended February 28, 1994. The primary reason for the decline in same
period sales was a 69% reduction in the average retail sales price of computer
hardware products sold by the Company due to a shift in inventory mix. The
average retail price for hardware products sold during the year ended February
28, 1995 was $198, as compared to $642 during the year ended February 28, 1994.
ROYALTIES AND LICENSE FEES. Royalties and license fees of $107,300
for the year ended February 28, 1995 increased 445% relative to fees of $19,700
for the year ended February 28, 1994. The primary reason for the increase was
the Company's December 1, 1994 arrangement with Apple Computer to bundle
several of the Company's self-published educational titles with sales of Apple
computers.
GROSS PROFIT. The Company realized gross profit of $4,400,000 for the
year ended February 28, 1995, a 15% decrease as compared to gross profit of
$5,204,200 for the year ended February 28, 1994. Gross profit declined
primarily because of the reduced sales, as described above. Gross profit as a
percentage of revenues was approximately 45% for each of the years ended
February 28, 1995 and 1994. Even though average title prices declined, the
Company was able to maintain its margins, in large part due to two factors:
price protection agreements that the Company had negotiated with its suppliers,
and increased royalty and license fee revenue earned in the year ended February
28, 1995 as compared to the prior year.
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OPERATING AND CORPORATE EXPENSES. Operating and corporate expenses
totaled $3,460,700 and $5,216,700 for the years ended February 28, 1995 and
1994, respectively, and represented approximately 35% and 45% of revenues. The
10% decrease in operating and corporate expenses as a percentage of revenues
was due primarily to exceptionally high compensation paid to the former owner
of the Predecessor during 1994. Owner's compensation for the year ended
February 28, 1994 totaled $2,424,000, as compared to $709,600 for the year
ended February 28, 1995.
After eliminating owner's compensation, operating and corporate
expenses as a percentage of revenues was 28% for the year ended February 28,
1995 and 24% for the year ended February 28, 1994. The increase in this figure
as compared to the figure for 1994 was due primarily to the increased cost of
catalog operations, including increased paper and postage costs.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash balances in excess of $1.4
million, a working capital ratio of 1.38 and a debt/equity ratio of 1.39. This
compares to December 31, 1994 figures of $1.1 million, 1.14 and 0.72,
respectively. While the cash balances and working capital ratio showed
marginal improvement (increases) for the year, the debt/equity ratio increased
primarily as a result of $3.2 million of new debt incurred and $374,000 of
short-term notes issued to effect the acquisition of Direct. All of the
Company's term debt existing at December 31, 1994 was repaid during the year.
The Company's principal capital requirements include working capital
to finance the internal expansion of Educorp Multimedia, and costs which may be
incurred in connection with the acquisition of businesses in the future.
Historically, the Company has also required capital to finance
operating losses, having incurred operating losses in each year after 1990. As
of December 31, 1995, the Company had an accumulated deficit of $25,626,000.
By December 31, 1995, however, the Company had disposed of or written off
substantially all of the operations and investments that gave rise to this
accumulated deficit, retaining only the Company's investment in shares of PLI
and the recently purchased Direct operations.
PLI does not require the financial assistance of the Company. Based
on historical results, the positive cash flow generated in the approximately
four month period ended December 31, 1995, and management's expectations for
future operations, the Company expects the Direct operations to generate
sufficient cash flow to cover their operating requirements for the immediate
future. With the subsequent acquisition of HighText, and the need to finance
product development and general corporate expenses until both Direct and
HighText earn a sufficient profit, the Company will have to raise additional
equity and/or debt capital in 1996. To the extent excess cash is generated
from operations, the Company intends to reinvest it in the growth and
development of its multimedia software publishing and distribution operations.
There is no assurance that cash flows from operations will be sufficient to
meet operating requirements or, if required, that additional debt or financing
will be available at all, or will be available on terms acceptable to the
Company.
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To finance the acquisition of Direct, the Company borrowed $3.2
million under the terms of a series of term notes, issued $374,000 of notes to
the seller and issued 200,000 shares of Hariston stock valued at $2.50 per
share, all effective as of the purchase date, August 25, 1995.
SEASONALITY OF BUSINESS
Historically, the Direct operations have been subject to a seasonal
effect during the "back to school" and year-end holiday buying seasons,
commencing in August and increasing over the period November through January.
To generate Christmas gift sales, Direct has historically timed the mailing of
its catalogs to be received by potential customers during November and early
December. In addition, catalogs are mailed in January to generate sales from
those who may have received computers as gifts. Management expects that this
seasonal effect will continue to have an impact on Direct's operations for the
foreseeable future.
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K includes forward-looking information,
including information concerning the Company's business strategies, plans and
objectives for product development and releases, and marketing plans. These
forward-looking statements are subject to risks and uncertainties, including
technological uncertainties in the development and testing of new products, the
impact of competitive products and pricing and the Company's ability to recruit
and retain qualified personnel, which could cause actual results to differ from
those projected.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Amendment No. 2 to be signed on
its behalf by the undersigned, thereunto duly authorized.
HARISTON CORPORATION
Dated: June 26, 1996 By: James V. McGoodwin
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James V. McGoodwin,
Chief Executive Officer
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