<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-13966
HARISTON CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CANADA 33-0645339
------ ------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
1500 West Georgia Street, Suite 1555, Vancouver, British Columbia, V6G 2Z6
- --------------------------------------------------------------------------
(Address of principal executive offices)
(604) 685-8514
(Registrant's telephone number, including area code)
611 Anton Blvd, Suite 1270 Costa Mesa, California 92626
(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
--- ---
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
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock: 11,463,113 Shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited Consolidated Statements of Loss and Deficit for the
three and six month periods ended June 30, 1996 and June 30, 1995, the
unaudited Consolidated Statements of Changes in Financial Position for the six
month periods ended June 30, 1996 and June 30, 1995 and the unaudited
Consolidated Balance Sheets as at June 30, 1996 and December 31, 1995, of
Hariston Corporation ("Hariston" or the "Company") follow.
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<PAGE> 3
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
==============================================================================================
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $273 $1,419
Receivables 412 457
Inventory 869 1,335
Prepaids 190 147
- ----------------------------------------------------------------------------------------------
1,744 3,358
Notes Receivable - -
Investments 1,946 1,956
Furniture and equipment 445 207
Goodwill, licenses, mailing lists, and other
intangibles 4,650 4,667
- ----------------------------------------------------------------------------------------------
7,041 6,830
- ----------------------------------------------------------------------------------------------
$8,785 $10,188
==============================================================================================
LIABILITIES
Current
Payables $1,060 $1,829
Deferred revenues 225 185
Current portion of term debt 3,839 413
- ----------------------------------------------------------------------------------------------
5,124 2,427
Term debt 196 3,200
Put Option 300 300
- ----------------------------------------------------------------------------------------------
496 3,500
- ----------------------------------------------------------------------------------------------
5,620 5,927
SHAREHOLDERS' EQUITY
Capital stock 30,800 29,887
Deficit (27,635) (25,626)
- ----------------------------------------------------------------------------------------------
3,165 4,261
- ----------------------------------------------------------------------------------------------
$8,785 $10,188
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE> 4
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED)
(Expressed in thousands of U.S. dollars except per share amounts)
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<CAPTION>
3 MONTHS ENDED JUNE 30 1996 1995
===========================================================================================================
(Note 12)
<S> <C> <C>
REVENUES
Software sales $1,265 $ -
Book sales 80 -
Software royalties and license fees - -
Other 20 -
- -----------------------------------------------------------------------------------------------------------
1,365 -
- -----------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 966 -
Royalties 23 -
- -----------------------------------------------------------------------------------------------------------
989 -
- -----------------------------------------------------------------------------------------------------------
GROSS MARGIN 376 -
- -----------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office, and travel 212 114
Consultants and directors fees, salaries and employee benefits 628 174
Accounting, legal and other professional fees 265 91
Marketing, catalog and trade show costs 131 -
Depreciation and amortization 259 5
Rent 53 32
- -----------------------------------------------------------------------------------------------------------
1,548 416
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(1,172) (416)
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OTHER
Net interest (expense) income (85) (27)
Net gain on recovery of doubtful receivables 3 214
Gain on disposal of PLI shares 59 -
Other 4 -
- -----------------------------------------------------------------------------------------------------------
(19) 187
- -----------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (1,191) (229)
- -----------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Quebec industrial condominium rental property - 6
Minerals recovery project - 12
Oil and gas working and royalty interests (23) 83
- -----------------------------------------------------------------------------------------------------------
(23) 101
- -----------------------------------------------------------------------------------------------------------
NET LOSS $(1,214) $($128)
DEFICIT, beginning of period (26,421) (25,074)
- -----------------------------------------------------------------------------------------------------------
DEFICIT, end of period $(27,635) $(25,202)
===========================================================================================================
PRIMARY LOSS PER SHARE (Note 13) $(0.11) $(0.01)
Shares used in primary computation 11,463,113 10,851,476
FULLY DILUTED LOSS PER SHARE (Note 13) $(0.11) $(0.01)
Shares used in fully diluted computation 11,463,113 10,851,476
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE> 5
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED)
(Expressed in thousands of U.S. dollars except per share amounts)
<TABLE>
<CAPTION>
6 MONTHS ENDED JUNE 30 1996 1995
=============================================================================================================
(Note 12)
<S> <C> <C>
REVENUES
Software sales $2,930 $ -
Book sales 168 -
Software royalties and license fees 79 -
Other 20 -
- -------------------------------------------------------------------------------------------------------------
3,197 -
- -------------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 2,151 -
Royalties 87 -
- -------------------------------------------------------------------------------------------------------------
2,238 -
- -------------------------------------------------------------------------------------------------------------
GROSS MARGIN 959 -
- -------------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office, and travel 400 173
Consultants and directors fees, salaries and employee benefits 1,190 320
Accounting, legal and other professional fees 337 184
Marketing, catalog and trade show costs 302 -
Depreciation and amortization 517 10
Rent 104 45
- -------------------------------------------------------------------------------------------------------------
2,850 732
- -------------------------------------------------------------------------------------------------------------
(1,891) (732)
- -------------------------------------------------------------------------------------------------------------
OTHER
Net interest (expense) income (168) (18)
Net gain on recovery of doubtful receivables 10 214
Gain on disposal of PLI shares 59 -
Other 4 -
- -------------------------------------------------------------------------------------------------------------
(95) 196
- -------------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (1,986) (536)
- -------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Quebec industrial condominium rental property - 11
Minerals recovery project - (66)
Oil and gas working and royalty interests (23) 192
- -------------------------------------------------------------------------------------------------------------
(23) 137
- -------------------------------------------------------------------------------------------------------------
NET LOSS $(2,009) $(399)
DEFICIT, beginning of period (25,626) (24,802)
- -------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $(27,635) $(25,201)
=============================================================================================================
PRIMARY LOSS PER SHARE (Note 13) $(0.18) $(0.04)
Shares used in primary computation 11,371,292 10,851,476
FULLY DILUTED LOSS PER SHARE (Note 13) $(0.18) $(0.04)
Shares used in fully diluted computation 11,371,292 10,851,476
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-5-
<PAGE> 6
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(Expressed in thousand of U.S. dollars)
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<CAPTION>
6 MONTHS ENDED JUNE 30 1996 1995
=========================================================================================================
(Note 12)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from continuing operations $ (1,986) $ (536)
Non-cash items:
Amortization and depreciation 517 10
Gain on disposal of investment (59) -
Net (increase) decrease in non-cash working capital items (284) 260
- ---------------------------------------------------------------------------------------------------------
CASH USED FOR CONTINUING OPERATIONS (1,812) (266)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) from discontinued operations (23) 137
Non-cash items:
Amortization - 107
Provision for costs of disposition 23 66
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY DISCONTINUED OPERATIONS - 310
- ---------------------------------------------------------------------------------------------------------
CASH USED FOR (PROVIDED BY) OPERATING ACTIVITIES (1,812) 44
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net term debt issuances (payments) 422 (286)
Issuance of common stock 913 -
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,335 (286)
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of HighText (641) -
Net purchase of other assets (97) (19)
Collection of notes receivable - 291
Net proceeds from disposal of investments 69 -
Minerals recovery project - (442)
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (669) (170)
- ---------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (1,146) (412)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,419 1,199
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 273 $ 787
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE> 7
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1996
===============================================================================
NOTE 1. OPERATIONS
The Company is incorporated under the Canada Business Corporations Act and has
operated, historically, as a diversified holding company. More recently, the
Company has focused on the multimedia CD-ROM software business. Effective
August 25, 1995, the Company purchased all of the assets and assumed certain
liabilities of a group of affiliated companies doing business under the trade
name Educorp. These affiliated companies now operate as part of Educorp
Multimedia, a wholly-owned multimedia software publishing and distribution
subsidiary. Effective January 1, 1996, the Company purchased substantially all
of the assets and assumed certain liabilities of HighText Publications, Inc., a
book and multimedia software developer and publisher. This business now
operates as part of Educorp Multimedia, as well.
NOTE 2. ACCOUNTING POLICIES
BASIS OF PRESENTATION
In accordance with the requirements of the Canada Business Corporations Act,
the Company's accounting and reporting policies conform to Canadian generally
accepted accounting principles ("Canadian GAAP"). Accordingly, these
consolidated financial statements have been prepared in accordance with
Canadian GAAP. These interim statements also conform in all material respects
with United States generally accepted accounting principles ("U.S. GAAP"). A
reconciliation to U.S. GAAP is presented at Note 10. For further information on
the Company's accounting policies, reference should be made to Note 2 of the
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
In the opinion of management, all adjustments necessary to fairly state the
results of operations for the three and six month periods ended June 30, 1996,
are of a normal recurring nature and have been made. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These interim
consolidated financial statements should therefore be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
PRINCIPLES OF CONSOLIDATION
These interim consolidated financial statements include the accounts of the
Company, Hariston Corporation, and its wholly-owned subsidiaries, EuroEastern
Investment Corp., Educorp Multimedia, Inc., Educorp Direct, Inc., and HighText
Interactive, Inc. All significant intercompany accounts and transactions have
been eliminated on consolidation.
NOTE 3. PURCHASE OF HIGHTEXT
Effective January 1, 1996, a newly incorporated wholly-owned subsidiary of the
Company acquired substantially all of the assets and assumed certain
liabilities of HighText Publications, Inc., a company engaged in the
development and distribution of books and multimedia CD-ROM software titles. On
January 22, 1996, the subsidiary changed its name to HighText Interactive, Inc.
("HighText").
-7-
<PAGE> 8
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1996
===============================================================================
The purchase price of $641,421 was satisfied as follows:
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<S> <C>
166,139 shares of the Company valued at approximately $2.82 per share $469,080
Assumption of current liabilities 172,341
--------
$641,421
========
The purchase price was allocated as follows:
Inventories, accounts receivable, furniture and equipment, prepaids $186,550
Customer and supplier lists 15,000
Goodwill and other intangibles 439,871
--------
$641,421
========
</TABLE>
Further consideration may become payable with respect to the purchase of the
book publishing operations. The amount will vary depending on the profitability
of the operations over a five year period commencing with the fiscal year
ending December 31, 1996, and whether these operations are sold in an arm's
length transaction prior to December 31, 2000. The minimum consideration for
the five year period will be 4,000 Hariston shares per year, or an aggregate of
20,000 shares. An estimate of this minimum amount has been booked by the
Company and is reflected in the purchase price. The maximum shares issuable
with respect to each year will be the number of shares equivalent to the
after-tax income, as defined, of the book publishing operations, based on
valuing the Hariston shares at the average closing sale price for the 20
trading days prior to December 31 of each fiscal year.
If the book publishing operations are sold prior to December 31, 2000, the
above obligation for the year of sale and subsequent periods is replaced by an
obligation to issue Hariston shares to the sellers equivalent to the after-tax
sale proceeds, still subject to the 20,000 shares minimum requirement. As
management cannot predict with reasonable assurance the net income of the book
publishing operations within the five year period, nor the selling price if
these operations were to be sold within that period, additional consideration
beyond an estimate of the value of the 20,000 shares minimum payment has not
been recorded on the Company's books at this time.
Additional consideration, up to a maximum of $60,000, may become payable
contingent on a U.S. patent being issued no later than December 31, 1998 with
respect to a feature of the sellers' multimedia products. As management cannot
predict with reasonable assurance when or if this patent will be issued, the
additional consideration has not been recorded on the Company's books at this
time.
Proforma results of operations, as though the purchase of HighText had ocurred
on January 1, 1995, are not presented in these interim financial statements as
the effect on the Company's 1995 results of operations would not be material.
NOTE 4. SUMMARY OF SECURITIES ISSUED DURING THE SECOND QUARTER
On June 11 and June 24, 1996, the Company issued, for a total of $250,000 cash,
two separate 4 month promissory notes payable, in the amout of $125,000 each.
The proceeds were used in the Educorp Multimedia operations.
NOTE 5. SUMMARY OF OPTIONS GRANTED DURING THE SECOND QUARTER
None.
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<PAGE> 9
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1996
===============================================================================
NOTE 6. AUTHORIZED AND ISSUED SHARE CAPITAL AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Class Par Value Authorized Number Issued Number Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common None Unlimited 11,463,113 $30,799,167
</TABLE>
NOTE 7. SHARES IN ESCROW OR SUBJECT TO POOLING AS OF JUNE 30, 1996
None.
NOTE 8. LIST OF DIRECTORS AS OF JUNE 30, 1996 (Note 14)
J.V. McGoodwin James P. Angus Nuno Brandolini
(Chairman) Neil S. MacKenzie L. James Porter
NOTE 9. OPTIONS AND WARRANTS OUTSTANDING AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Number of Shares Exercise Market Price Expiry Date
OPTION ISSUE TYPE under Vested Option Price on Date of Grant (Note 14)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee options 35,000 0.93 0.93 September 15, 1996
Employee options 10,000 1.86 2.49 November 30, 1997
Employee options 10,000 3.15 4.57 February 17, 1998
Director options 20,000 3.53 4.57 March 31, 1998
- --------------------------------------------------------------------------------------------------------
Employee options 62,625 2.50 2.87 August 2, 2002
Employee options 23,438 2.50 3.12 August 2, 2002
Director options 28,125 2.50 2.87 August 2, 2002
- --------------------------------------------------------------------------------------------------------
Employee options 78,125 3.75 2.87 August 2, 2002
Employee options 23,437 3.75 3.12 August 2, 2002
Director options 28,125 3.75 2.87 August 2, 2002
- --------------------------------------------------------------------------------------------------------
Employee options 78,125 5.00 2.87 August 2, 2002
Employee options 23,438 5.00 3.12 August 2, 2002
Director options 28,125 5.00 2.87 August 2, 2002
- --------------------------------------------------------------------------------------------------------
Employee options 78,125 6.25 2.87 August 2, 2002
Employee options 23,437 6.25 3.12 August 2, 2002
Director options 28,125 6.25 2.87 August 2, 2002
---------
578,250
=========
</TABLE>
<TABLE>
<CAPTION>
Exercise Market Price
WARRANT HOLDER Number of Shares Price on Date of Grant Expiry Date
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commonwealth Consulting Corporation 125,000 2.25 2.62 December 31, 1996
Daryl Jamison 125,000 2.25 2.62 December 31, 1996
Near East Commercial Bank SAL 625,000 4.00 5.00 November 21,1997
Kinaro S.A. 250,000 2.50 2.25 August 24, 2000
Neval Management Ltd. 250,000 2.50 2.25 August 24, 2000
Privatim Finaz A.G. 250,000 2.50 2.25 August 24, 2000
Zocal Foundation 250,000 2.50 2.25 August 24, 2000
---------
1,875,000
=========
</TABLE>
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<PAGE> 10
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1996
===============================================================================
NOTE 10. RECONCILIATION TO U.S. GAAP
In certain respects, Canadian generally accepted accounting principles differ
from U.S. generally accepted accounting principles. If U.S. GAAP were to be
applied, the following difference would exist:
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(Expressed in thousands of U.S. dollars)
SIX MONTHS ENDED JUNE 30, 1996
Net loss according to Canadian GAAP $(2,009)
Non cash compensation expense (42)
- --------------------------------------------------------------------------------------------------
NET LOSS ACCORDING TO U.S. GAAP $(2,051)
</TABLE>
There would be no differences in net assets or shareholders' equity.
The above variance in the net loss figure results from the difference in the
accounting treatment for employee stock options. Options to purchase shares of
the Company were issued to employees and directors at prices below the traded
price of the stock on the measurement date. Under U.S. GAAP, the difference in
value must be recognized as a non-cash compensation expense over the period
during which the options vest, regardless of whether the options expire or are
cancelled before exercise (Note 14). Under Canadian GAAP, the issuance,
exercise, expiration or cancellation of employee stock options does not affect
the reported profitability of the Company.
NOTE 11. DISCONTINUED OPERATIONS
Effective April 29, 1995 the Company sold its Metanetix minerals recovery
operations. On July 20, 1995 the Company sold its Quebec industrial condominium
rental property. Effective August 1, 1995, the Company sold its Canadian oil
and gas working and royalty interests. Accordingly, these operations are
presented as discontinued operations for purposes of the 1995 comparatives in
these interim financial statements.
NOTE 12. FUNCTIONAL CURRENCY
Effective August 25, 1995 the Company's functional currency changed from the
Canadian dollar to the U.S. dollar. For comparison purposes, all June 30, 1995
amounts have been restated into U.S. dollars.
NOTE 13. LOSS PER SHARE
Primary and fully diluted loss per share have been computed using the weighted
average number of shares of common stock outstanding during the periods
presented. Stock options and warrants have not been included in these
calculations as their impact would be antidilutive.
NOTE 14. SUBSEQUENT EVENTS
On July 17, 1996 the Board approved the cancellation of the Stock Option Plan
originally adopted on July 20, 1995, and the cancellation of all unexercised
options issued thereunder. Concurrently, the Board approved the adoption of a
new Stock Option Plan and the grant of director and employee stock options
under the terms of the new plan.
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<PAGE> 11
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1996
===============================================================================
As announced in a news release dated July 18, 1996, effective July 19, 1996
J.V. McGoodwin resigned from the positions of President, Chief Executive
Officer and a Director of the Company. Concurrently, Nuno Brandolini was
appointed Chief Executive Officer and elected Chairman of the Board, and Kevin
McCarthy was appointed President and elected to the Board.
During July, 1996, the Company sold in excess of 88,000 shares in Polish Life
Improvement S.A., realizing net proceeds of approximately $440,000. The shares
were sold through public trades on the parallel market of the Warsaw Stock
Exchange.
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
-12-
<PAGE> 13
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
OVERVIEW
During the second quarter of 1996, Hariston continued its transformation begun
during 1995. During 1995, the Company divested substantially all of the
businesses and investments which were unrelated to its new focus on multimedia
software publishing and distribution. On August 25, 1995 the Company purchased
substantially all of the assets and assumed certain liabilities of a group of
affiliated businesses operating under the trade name Educorp. These affiliated
businesses now operate under the name Educorp Direct ("Direct"), as part of the
Company's wholly-owned subsidiary Educorp Multimedia. Effective January 1, 1996
the Company acquired substantially all of the assets and selected liabilities
of HighText Publications, Inc. This business now operates under the name
HighText Interactive ("HighText"), also as part of Educorp Multimedia.
Founded in 1984, Direct is a San Diego, California based publisher and direct
mail distributor of CD-ROM multimedia software. Through its catalogs, Direct
offers what is believed to be one of the largest selections of consumer CD-ROM
software titles in the industry. In fiscal 1995, Direct mailed more than two
million catalogs and newsletters to its customer base. From January 1 to June
30, 1996, Direct mailed 780,000 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.
Founded in 1990, HighText is a San Diego, California based developer and
publisher of books and educational CD-ROM software titles. HighText's primary
emphasis is on the development of educational multimedia software for the adult
consumer, higher education, and corporate markets. HighText has developed ten
software titles to date as part of its Crash Course product series. These
titles are distributed by wholesale dealers to college and specialty
bookstores, computer software stores, and through catalog retailers direct to
end-users.
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
all of these alternatives, no assurance can be given that these or any other
activities will be successful.
The company continues to retain a sizable investment, directly and through a
collateral position for a note receivable, in Polish Life Improvement S.A
("PLI"). During and subsequent to the second quarter, the Company established
the liquidity of its investment in PLI by selling a limited number of shares on
the parallel market of the Warsaw Stock Exchange.
CORPORATE STRUCTURE
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. In July, 1995, CD-Soft Corporation incorporated a
wholly-owned California subsidiary, for the purpose of acquiring substantially
all of the assets and selected liabilities of a group of businesses operating
under the trade name Educorp. Effective March 8, 1996, this subsidiary was
renamed Educorp Direct, Inc.
In December, 1995, CD-Soft Corporation formed a second wholly-owned California
subsidiary, for the purpose of acquiring substantially all of the assets and
selected liabilities of HighText Publications, Inc. Effective January 22, 1996,
this subsidiary was renamed HighText Interactive, Inc.
In March, 1996, CD-Soft Corporation was merged into Educorp Multimedia, Inc.
("Educorp Multimedia"), a wholly-owned Delaware subsidiary of Hariston formed
in January, 1996. Upon this merger, Educorp
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<PAGE> 14
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
Multimedia, Inc. became the holding company for all of Hariston's book and
multimedia CD-ROM development, publishing, and distribution operations.
In October, 1995, Hariston formed a wholly-owned Delaware subsidiary,
EuroEastern Investment Corp. ("EuroEastern"), for the purpose of pursuing
investment opportunities in central and eastern Europe. This company has been
largely inactive to date.
MANAGEMENT AND BOARD OF DIRECTORS
Subsequent to the second quarter and as announced in a news release dated July
18, 1996, James V. McGoodwin resigned as Hariston's President and Chief
Executive Officer. He also resigned from the Company's Board and from his
positions with Hariston's affiliated and subsidiary companies. Concurrently,
Nuno Brandolini, a Hariston Director and President of Hariston's wholly-owned
subsidiary EuroEastern Investment Corporation, was appointed as Hariston's
Chief Executive Officer and was elected Chairman of the Board. Kevin McCarthy
was appointed as Hariston's President and was elected to the Board. The
foregoing resignations and appointments became effective July 19, 1996.
Mr. McGoodwin had served as a Director and Officer of the Company since
December, 1994 and left to pursue other interests. Mr. McGoodwin has agreed to
assist with an orderly management transition, for which the Company has agreed
to pay Mr. McGoodwin, through his private company, McGoodwin James & Co.,
payments through the period ending December 31, 1996.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995
The Company incurred a consolidated net loss of $2,009,535 for the six months
ended June 30, 1996. Of this loss, $1,258,312 was attributable to Educorp
Multimedia and its subsidiaries, $690,767 to Hariston, and $60,456 to
EuroEastern. Of the $1,258,312 loss attributable to the Company's multimedia
operations, $617,919 arose from the Direct operations and $337,157 from the
HighText operations. The remainder was due to operating and corporate expenses
incurred at the Educorp Multimedia legal entity level. Of the $690,767 loss
incurred at the Hariston legal entity level, $163,475 was attributable to
interest expense on debt, and the remainder related primarily to corporate
administration and overhead costs.
An analysis of the results is presented below. For comparative purposes, the
analysis of Direct considers the comparable results during 1995, where
available, of the operations of its predecessor, Gazelle Technologies, Inc. and
its affiliates, which had been doing business under the trade name Educorp.
Similarly, the analysis of HighText considers the comparable results during
1995, where available, of the operations of its predecessor, HighText
Publications, Inc.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year ending December 31, 1996.
EDUCORP DIRECT
On August 25, 1995, Hariston, through a wholly-owned subsidiary, acquired
substantially all of the assets and assumed certain liabilities of a group of
businesses now operated under the name Educorp Direct for a purchase price of
$6,067,000. This transaction was accounted for as a purchase.
Direct generated revenues of $2,981,086 for the six months ended June 30, 1996,
comprised of $2,222,902 from retail sales to end-users, $679,412 from sales to
dealers, and $78,772 from software
-14-
<PAGE> 15
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
royalties and license fees. Direct realized gross profit of $855,734 for the
six months ended June 30, 1996, incurred a loss for the period of $155,709
before interest, depreciation and amortization, and incurred a net loss after
these items of $617,919.
RETAIL SOFTWARE SALES
Retail software sales for the six months ended June 30, 1996 of $2,222,902
declined 14% relative to retail software sales of $2,583,306 for the same
period during 1995. The primary reasons for the decline in same period sales
were, first, the 14% decline in the average CD-ROM retail price realized by
Direct in 1996, $29.84 as compared to $34.60 in the same period in 1995; and
second, the discontinuance, in the second half of 1995, of sales of certain
software titles that were incompatible with the Company's future business
plans.
Sales were also adversely affected by a delay in the mailing of a catalog, due
to the implementation of a new Management Information System by Direct during
the second quarter. Implementation of the new system required an allocation of
resources, for both training and problem resolution. Management believes the
benefits of the new MIS system will become apparent through increased
productivity in future quarters.
Other factors adversely affecting sales included a significant slowdown in the
software industry in general during the first half of 1996, and with respect to
sales of Macintosh CD-ROM titles, the widely publicized problems at Apple
Computer.
International retail software sales were $378,799, or 17% of total retail
sales, for the six months ended June 30, 1996, versus $371,109 or 14% of total
retail sales for the comparable prior year period. The increase in
international retail sales as a percentage of total retail sales was primarily
due to the decline of domestic software sales as described above.
DEALER SOFTWARE SALES
Dealer software sales for the six months ended June 30, 1996 of $679,412
declined 38% relative to dealer software sales of $1,096,938 for the same
period during 1995. The decline in same period sales primarily reflects lower
unit sales volume due to an increased level of competition, arising partly from
new distribution channels that have opened for the supply of CD-ROM titles to
dealers. These new channels include a trend towards publishers selling their
titles directly to dealers. Additionally, there was a 13% decrease in the
average CD-ROM dealer price realized by Direct. The average price realized was
$26.90 for the first six months of 1996 as compared to $30.85 for the first six
months of 1995.
International dealer software sales were $538,392, or 79% of total software
sales to dealers, for the six months ended June 30, 1996, versus $797,063 or
73% for the comparable prior year period. The 32% decline in international
dealer sales reflected smaller international order sizes due to an increasing
number of publishers seeking direct distribution to foreign dealers. However,
international dealer sales represented a larger percentage of the Company's
sales to dealers reflecting the fact that there were more distribution sources
available to domestic dealers than to foreign dealers.
HARDWARE SALES
The Company decided in early 1995 to discontinue selling computer hardware. As
a result, there were no retail sales of hardware for the six months ended June
30, 1996. During the comparable period of 1995, retail hardware sales were
$107,900. The decision to terminate this product line was based on the
relatively low gross profit margins realized by hardware relative to CD-ROM
software, and the relatively high inventory maintenance costs of hardware as
compared to those of CD-ROM software.
-15-
<PAGE> 16
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
ROYALTIES AND LICENSE FEES
Royalties and license fees of $78,772 for the six months ended June 30, 1996
decreased 70% relative to royalty and license fees of $262,550 for the same
period during 1995. The primary reason for the decrease was the expiration
during 1996 of a bundling license the Company had negotiated with Apple
Computer. Under the terms of the license, Apple Computer had bundled
educational software titles published by the Company with sales of certain
computers.
GROSS PROFIT
Direct realized a gross profit of $855,734 for the six months ended June 30,
1996, representing 29% of revenues. Comparative figures for 1995 (i.e. prior to
Educorp's acquisition by Hariston) are not readily available; however,
historically the Educorp operations realized a higher gross profit. The decline
from historical levels primarily reflects the lower realized prices per title
as a result of increased competition, the discontinuance of a higher margin
product line that was incompatible with the Company's business plans, and the
reduced share of higher margin self-published titles.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $1,474,649 for the six months ended June
30, 1996, representing approximately 49% of revenues for the period. This
figure includes amortization of goodwill and other intangibles arising from the
August 25, 1995 acquisition of the Direct operations. After adjusting for this
amortization expense of $438,094, operating and corporate expenses were
$1,036,555 or 35% of total revenues for the period.
HIGHTEXT INTERACTIVE
Effective January 1, 1996, the Company, through a wholly-owned subsidiary,
purchased substantially all of the assets and assumed certain liabilities of
HighText Publications, Inc., for a purchase price of $641,421. This transaction
was accounted for as a purchase.
HighText generated revenues of $215,101 for the six months ended June 30, 1996,
comprised of $65,590 from retail sales to end-users, $129,249 from sales to
dealers, and $20,262 from technical documentation fees. HighText realized a
gross profit of $103,167 for the six months ended June 30, 1996, and incurred a
net loss for the period of $337,157.
SOFTWARE SALES
Software sales for the six months ended June 30, 1996 were $26,796, comprised
of $11,866 sales to end-users and $14,930 sales to dealers. HighText realized
an average CD-ROM title price of $19.23. Comparable results for 1995 are not
available.
HighText's first CD-ROM title was published in May, 1995, followed by two
additional titles in November, 1995. During the first quarter of 1996, HighText
focused on the development of seven additional titles, at the expense of
developing distribution for existing products. As a result, software sales
during the first quarter were limited to $12,063. Software sales increased to
$14,733 in the second quarter. During the second quarter, HighText
substantially completed the development of seven software titles and commenced
the development of seven new software titles. As of June 30, 1996, HighText had
ten software titles in beta testing or available for sale, and a further seven
new software titles under development.
BOOK SALES
Sales for the six months ended June 30, 1996 were $168,043, consisting of
$50,660 retail sales to end-users and $117,383 sales to dealers. HighText
realized an average book price of $12.45 during the six months ended June 30,
1996. By comparison, for the six months ended June 30, 1995, retail sales were
$94,550, and dealer sales were $76,475.
-16-
<PAGE> 17
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
HighText published its first book title in June, 1991. As of January 1, 1996,
HighText had published fifteen book titles. During the six months ended June
30, 1996, HighText published one additional book title. As of June 30, 1996,
HighText had three book titles under development.
OPERATING AND CORPORATE EXPENSES
The most significant components of HighText's $436,909 of operating and
corporate expenses for the six months ended June 30, 1996, were salary costs
totaling $184,562, marketing and trade show costs of $141,905, and depreciation
and amortization expense of $40,158. HighText expenses the costs of developing
new software and book titles as they are incurred. During the period January 1
to June 30, 1996, HighText had fourteen software and four book titles under
development.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
The majority of Educorp Multimedia's $303,237 of non-consolidated operating and
corporate expenses for the six months ended June 30, 1996 arose from general,
administrative and salary costs, including $100,478 of accounting and legal
fees, $145,701 of salaries and consultants fees, and $31,250 of recruiting
fees. These costs reflected legal and accounting costs incurred in connection
with the January 1, 1996 acquisition of HighText, and costs attributable to the
building of a management structure at the Educorp Multimedia level. There are
no prior year comparable figures for Educorp Multimedia as it was incorporated
in January, 1996 and its predecessor, CD-Soft Corporation, was incorporated in
June, 1995.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Due to the divestitures during 1995 of Hariston's operating businesses and the
subsequent acquisition of new businesses, Hariston's non-consolidated
operating and corporate expenses for the six months ended June 30, 1996 of
$575,637 are not directly comparable to the $732,000 of costs for the same
period of a year earlier. The majority of Hariston's non-consolidated operating
and corporate expenses for the first and second quarters of 1996 were general,
administrative and salary costs, including $218,606 of accounting and legal
fees, $162,282 of salaries, directors fees and consultants fees, $64,589 of
shareholder communications costs including transfer agent fees, $38,949 of rent
expense and $14,629 of other professional fees. Hariston incurred exceptional
non-recurring legal, accounting and other professional fees during the six
month period to June 30, 1996 as a consequence of both the restructuring
proposals under examination by the Company, and the filings and disclosures
required in connection with the August 25, 1995 acquisition of Direct and the
January 1, 1996 acquisition of HighText.
The majority of EuroEastern's non-consolidated operating and corporate
expenses, totaling $60,456, were also general, administrative and salary costs.
There are no prior year comparable figures for EuroEastern as it was
incorporated in October, 1995.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1995
The Company incurred a consolidated net loss of $1,214,285 for the three months
ended June 30, 1996, as compared to $128,000 for the same period of the prior
year. Of the second quarter, 1996 loss, $884,414 was attributable to Educorp
Multimedia and its subsidiaries, $304,004 to Hariston, and $25,867 to
EuroEastern. Of the $884,414 loss attributable to the Company's multimedia
operations, $358,488 arose from the Direct operations and $230,778 from the
HighText operations. The remainder was due to operating and corporate expenses
incurred at the Educorp Multimedia level. Of the $304,004 loss incurred at the
Hariston legal entity level, $84,908 was attributable to interest expense on
debt, and the remainder related primarily to corporate administration and
overhead costs.
-17-
<PAGE> 18
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
An analysis of the results is presented below. For comparative purposes, the
analysis of Direct considers the comparable results during 1995, where
available, of the operations of its predecessor, Gazelle Technologies, Inc. and
its affiliates, which had been doing business under the trade name Educorp.
Similarly, the analysis of HighText considers the comparable results during
1995, where available, of the operations of its predecessor, HighText
Publications, Inc.
The results of operations for the three months ended June 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year ending December 31, 1996.
EDUCORP DIRECT
Direct generated revenues of $1,249,450 for the three months ended June 30,
1996, comprised of $999,346 from retail sales to end users, $250,080 from sales
to dealers, and $24 from software license fees. Direct realized gross profit of
$322,990 for the second quarter, 1996, incurred a loss of $127,671 before
interest, depreciation and amortization, and a net loss for the quarter of
$358,488.
RETAIL SOFTWARE SALES
Retail software sales for the quarter ended June 30, 1996 of $999,346 declined
25% relative to retail software sales of $1,335,389 for the same period during
1995. The primary reasons for the decline in same period sales were, first, the
decline in the average CD-ROM retail price realized by Direct in 1996; second,
the discontinuance, in the second half of 1995, of sales of certain software
titles that were incompatible with the Company's future business plans; and
third, a delay in the mailing of a catalog due to the implementation of a new
Management Information System by Direct during the second quarter. Management
believes the benefits of the new MIS system will become apparent through
increased productivity in future quarters.
Other factors adversely affecting sales included a significant slowdown in the
software industry in general, and with respect to sales of Macintosh CD-ROM
titles, the widely publicized problems at Apple Computer.
International retail software sales were $144,258, or 14% of total retail
sales, for the three months ended June 30, 1996, versus $180,172 or 13% of
total retail sales for the comparable prior year period. The increase in
international retail sales as a percentage of total retail sales was primarily
due to the decline of domestic software sales as described above.
DEALER SOFTWARE SALES
Dealer software sales for the quarter ended June 30, 1996 of $250,080 declined
51% relative to dealer software sales of $507,780 for the same period during
1995. The decline in same period sales primarily reflects lower unit sales
volume due to an increased level of competition, arising partly from new
distribution channels that have opened for the supply of CD-ROM titles to
dealers. These new channels include a trend towards publishers selling their
titles directly to dealers. Additionally, there was a decrease in the average
CD-ROM dealer price realized by Direct.
International dealer software sales were $181,553, or 73% of total software
sales to dealers, for the three months ended June 30, 1996, versus $377,326 or
74% for the comparable prior year period. The 52% decline in international
dealer sales reflected smaller international order sizes due to an increasing
number of publishers seeking direct distribution to foreign dealers.
HARDWARE SALES
The Company decided in early 1995 to discontinue selling computer hardware. As
a result, there were no retail sales of hardware for the three months ended
June 30, 1996. During the comparable period of 1995, retail hardware sales were
$6,718.
-18-
<PAGE> 19
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
ROYALTIES AND LICENSE FEES
Royalties and license fees of $24 for the quarter ended June 30, 1996 compare
to royalty and license fees of $146,170 for the same period during 1995. The
primary reason for the decrease was the expiration during 1996 of a bundling
license with Apple Computer.
GROSS PROFIT
Direct realized a gross profit of $322,990 for the quarter ended June 30, 1996,
representing 26% of revenues. Comparative figures for 1995 (i.e. prior to
Educorp's acquisition by Hariston) are not readily available; however,
historically the Educorp operations realized a higher gross profit. The decline
from historical levels primarily reflects the lower realized prices per title
as a result of increased competition, the discontinuance of a higher margin
product line that was incompatible with the Company's business plans, and the
reduced share of higher margin self-published titles.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $684,554 for the quarter ended June 30,
1996, representing approximately 55% of revenues for the quarter. This figure
includes amortization of goodwill and other intangibles arising from the August
25, 1995 acquisition of the Direct operations. After adjusting for this
amortization expense of $220,015, operating and corporate expenses were
$464,539 or 37% of total revenues for the quarter.
HIGHTEXT INTERACTIVE
Effective January 1, 1996, the Company, through a wholly-owned subsidiary,
purchased substantially all of the assets and assumed certain liabilities of
HighText Publications, Inc.
HighText generated revenues of $115,191 for the three months ended June 30,
1996, comprised of $50,996 from retail sales to end-users, $43,933 from sales
to dealers, and $20,262 from technical documentation fees. HighText realized a
gross profit of $53,119 for the second quarter, 1996, and incurred a net loss
for the quarter of $230,778.
SOFTWARE SALES
Software sales for the quarter ended June 30, 1996 were $14,733, consisting of
$6,923 sales to end-users and $7,810 sales to dealers. Comparable results for
1995 are not available.
During the second quarter, 1996, HighText substantially completed the
development of seven software titles and commenced the development of seven new
software titles. As of June 30, 1996, HighText had ten software titles in beta
testing or available for sale, and a further seven new software titles under
development.
BOOK SALES
Sales for the quarter ended June 30, 1996 were $80,196, consisting of $41,009
retail sales to end-users and $39,187 sales to dealers. By comparison, for the
three months ended June 30, 1995, retail sales were $94,550, and dealer sales
were $76,475.
During the second quarter, 1996, HighText published one book title. As of June
30, 1996, HighText had three book titles under development.
OPERATING AND CORPORATE EXPENSES
The most significant components of HighText's $282,135 of operating and
corporate expenses for the quarter ended June 30, 1996, were salary costs
totaling $124,409, marketing and trade show costs of
-19-
<PAGE> 20
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
$91,912, and depreciation and amortization expense of $20,549. HighText
expenses the costs of developing new software and book titles as they are
incurred.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
The majority of Educorp Multimedia's $295,148 of non-consolidated operating and
corporate expenses for the quarter ended June 30, 1996 arose from general,
administrative and salary costs. These costs included legal and accounting
costs incurred in connection with the January 1, 1996 acquisition of HighText,
and costs attributable to the building of a management structure at the Educorp
Multimedia level. There are no prior year comparable figures for Educorp
Multimedia as it was incorporated in January, 1996 and its predecessor, CD-Soft
Corporation, was incorporated in June, 1995.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Due to the divestitures during 1995 of Hariston's operating businesses and the
subsequent acquisition of new businesses, Hariston's non-consolidated
operating and corporate expenses for the quarter ended June 30, 1996 of
$259,160 are not directly comparable to the $415,271 of costs for the same
period of a year earlier. The majority of Hariston's non-consolidated operating
and corporate expenses for the second quarter, 1996, were general,
administrative and salary costs. Hariston incurred exceptional non-recurring
legal, accounting and other professional fees during the quarter as a
consequence of both the restructuring proposals under examination by the
Company, and the filings and disclosures required in connection with the
January 1, 1996 acquisition of HighText.
The majority of EuroEastern's non-consolidated operating and corporate
expenses, totaling $25,867, were also general, administrative and salary costs.
There are no prior year comparable figures for EuroEastern as it was
incorporated in October, 1995.
INVESTMENTS
POLISH LIFE IMPROVEMENT S.A.
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. Hariston co-founded PLI in
1993, and currently holds a large minority interest in the company.
PLI is a retail operator of four home improvement stores in Poland, operated
under the name NOMI, and was previously also the operator of eight supermarkets
in Poland, operated under the name MAX.
As announced during the first quarter, in December, 1995 PLI sold a 51%
interest in its former supermarket subsidiary for $10.5 million, to a joint
venture controlled by Royal Ahold NV, one of the world's largest food retailers
with headquarters in the Netherlands. As announced subsequent to the second
quarter, PLI has additionally sold its remaining 49% interest to the Royal
Ahold joint venture for $9.4 million.
As of June 30, 1996, 3,042,070 shares in PLI were reported on Hariston's
balance sheet, at an average cost of approximately $0.64 per share. These
include 1.4 million shares which the Company agreed to sell to a third party
and for which it 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 discussing with
the purchaser arrangements for the return of the shares.
-20-
<PAGE> 21
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
Hariston also holds an additional 613,684 PLI shares which are not reported on
Hariston's balance sheet as they are required to be transferred to a purchaser
under the terms of a stock sale agreement. After accounting for this transfer
obligation, and not including the 1.4 million PLI shares discussed above which
Hariston does not 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, Hariston has not been able to exercise significant influence
over the operating, investing, and financial policies of PLI and therefore the
investment in PLI shares is accounted for on the cost method.
During and subsequent to the second quarter, the Company sold a limited number
of PLI shares on the parallel market of the Warsaw Stock Exchange. The Company
sold 15,135 PLI shares prior to June 30, 1996, realizing net proceeds of
approximately $69,000. During July, 1996, the Company further sold 88,635 PLI
shares, realizing net proceeds of approximately $440,000
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash balances of $273,448, a working
capital ratio of 0.34 and a debt/equity ratio of 1.77. The Company's principal
capital requirements include working capital to finance the internal expansion
of Educorp Multimedia, including the development of new multimedia CD-ROM
titles, 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 June
30, 1996, the Company had an accumulated deficit of $27,634,519. The Company
has continued to experience negative operating cash flows.
Based on historical results and management's expectations for future
operations, the Company expects that the Direct operations will generate
sufficient cash flow to cover their operating requirements for the immediate
future or will require modest capital infusion. However, with the January 1,
1996 acquisition of HighText and the need to finance product development and
general corporate expenses until Educorp Multimedia is sufficiently profitable,
the Company will have to raise additional equity and/or debt capital in 1996.
The Company is currently considering a number of financing proposals. There is
no assurance that cash flows from operations will be sufficient to meet
operating requirements, or that additional debt or equity financing will be
available on terms acceptable to the Company.
In order to finance Educorp Multimedia's working capital needs, during the
second quarter the Company borrowed $250,000 from McGoodwin James & Co. under
the terms of two $125,000 short-term notes.
Also during the second quarter, the Company commenced limited sales of PLI
shares on the parallel market of the Warsaw Stock Exchange. To July 31, 1996,
more than 100,000 PLI shares were sold raising net proceeds in excess of
$500,000. The proceeds of sales to date have been primarily invested in the
operations of Educorp Multimedia and its subsidiaries. Importantly, these share
sales have also served to demonstrate the liquidity and value of the Company's
investment in PLI. The Company continues to own outright in excess of 1.5
million PLI shares, after accounting for a transfer obligation, and has a claim
on a further 1.4 million shares pledged as collateral on a note receivable that
is in default.
The ability of the Company to continue to effectively manage its working
capital and to attain profitability is dependent upon a number of factors,
including, but not limited to, competitive conditions in the marketplace,
general economic conditions, the efficiency of the Company's operations, the
timely development and introduction of new products which address market needs,
and access to investment capital.
-21-
<PAGE> 22
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
SEASONALITY OF BUSINESS
Historically, the Educorp Multimedia operations have been subject to a seasonal
effect during the "back to school" and year-end holiday buying seasons,
commencing in August and peaking during the period November through January. To
generate gift sales, Direct has historically timed the mailing of its catalogs
to be received by potential customers during November and early December.
Management expects that this seasonal effect will continue to have an impact on
HighText's and Direct's operations for the foreseeable future.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes forward-looking information, which
may include but is not limited to information concerning the Company's business
strategies, plans and objectives for product development and releases, marketing
plans and financing 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, the
Company's ability to recruit and retain qualified personnel, and the Company's
ability to raise financing, which could cause actual results to differ from
those projected.
-22-
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended June 30, 1996 the Company did not submit any
matters to a vote of the Company's shareholders.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on From 8-K.
(a) Exhibits.
None filed with this Report.
(b) Reports on Form 8-K: None
-23-
<PAGE> 24
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.
HARISTON CORPORATION
Dated: August 14, 1996 By: L. JAMES PORTER
---------------------------------
L. James Porter, Chief
Financial Officer (duly
authorized officer)
Dated: August 14, 1996 By: /S/ L. JAMES PORTER
---------------------------------
L. James Porter, Chief
Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer)
-24-
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 273
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<RECEIVABLES> 451
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