<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, 1997
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)
(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: 12,663,113 Shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited Consolidated Statements of Income, Loss and Deficit for
the three and six month periods ended June 30, 1997 and June 30, 1996, the
unaudited Consolidated Statements of Changes in Financial Position for the six
month periods ended June 30, 1997 and June 30, 1996 and the unaudited
Consolidated Balance Sheets as at June 30, 1997 and December 31, 1996, of
Hariston Corporation ("Hariston" or the "Company") follow.
-2-
<PAGE> 3
HARISTON CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
======================================================================================================
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,683 $ 2,805
Short-term notes receivable 1,000 --
Receivables 308 421
Inventory 161 559
Prepaids 116 207
- ------------------------------------------------------------------------------------------------------
5,268 3,992
Investments (Note 12) 7 1,216
Furniture and equipment 244 363
Goodwill, licenses, mailing lists, and other intangibles 1,950 2,339
- ------------------------------------------------------------------------------------------------------
2,201 3,918
- ------------------------------------------------------------------------------------------------------
$ 7,469 $ 7,910
======================================================================================================
LIABILITIES
Current
Payables and accruals $ 1,559 $ 2,349
Deferred revenue 86 113
Current portion of term debt 202 3,539
- ------------------------------------------------------------------------------------------------------
1,847 6,001
Term debt 145 201
Put Option -- 300
- ------------------------------------------------------------------------------------------------------
145 501
- ------------------------------------------------------------------------------------------------------
1,992 6,502
SHAREHOLDERS' EQUITY
Capital stock 31,999 31,999
Deficit (26,522) (30,591)
- ------------------------------------------------------------------------------------------------------
5,477 1,408
- ------------------------------------------------------------------------------------------------------
$ 7,469 $ 7,910
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 4
HARISTON CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED)
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
3 MONTHS ENDED JUNE 30 1997 1996
==========================================================================================================
<S> <C> <C>
REVENUES
Software sales $ 790 $ 1,265
Book sales -- 80
Software royalties and license fees -- --
Other -- 20
- ----------------------------------------------------------------------------------------------------------
790 1,365
- ----------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 594 966
Royalties 12 23
- ----------------------------------------------------------------------------------------------------------
606 989
- ----------------------------------------------------------------------------------------------------------
GROSS MARGIN 184 376
- ----------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office and travel 195 212
Consultants and directors fees, salaries and employee benefits 359 628
Accounting, legal and other professional fees 201 265
Marketing, catalog and trade show costs (recovery) (40) 131
Depreciation and amortization 132 259
Rent 30 53
- ----------------------------------------------------------------------------------------------------------
877 1,548
- ----------------------------------------------------------------------------------------------------------
(693) (1,172)
- ----------------------------------------------------------------------------------------------------------
OTHER
Net interest income (expense) 19 (85)
Net loss on disposal of furniture and equipment (30) --
Net gain on sale of PLI shares 243 59
Foreign exchange loss (2) --
Other -- 7
- ----------------------------------------------------------------------------------------------------------
230 (19)
- ----------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (463) (1,191)
- ----------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Oil and gas working and royalty interests -- (23)
- ----------------------------------------------------------------------------------------------------------
-- (23)
- ----------------------------------------------------------------------------------------------------------
NET LOSS $ (463) $ (1,214)
DEFICIT, beginning of period (26,059) (26,421)
- ----------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (26,522) $ (27,635)
==========================================================================================================
BASIC LOSS PER SHARE (Note 10) $ (0.04) $ (0.11)
Shares used in basic computation 12,663,113 11,463,113
FULLY DILUTED LOSS PER SHARE (Note 10) $ (0.04) $ (0.11)
Shares used in fully diluted computation 12,663,113 11,463,113
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 5
HARISTON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME, LOSS AND DEFICIT (UNAUDITED)
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
6 MONTHS ENDED JUNE 30 1997 1996
==========================================================================================================
<S> <C> <C>
REVENUES
Software sales $ 1,674 $ 2,930
Book sales 18 168
Software royalties and license fees 6 79
Other -- 20
- ----------------------------------------------------------------------------------------------------------
1,698 3,197
- ----------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 1,146 2,151
Royalties 24 87
- ----------------------------------------------------------------------------------------------------------
1,170 2,238
- ----------------------------------------------------------------------------------------------------------
GROSS MARGIN 528 959
- ----------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office and travel 321 400
Consultants and directors fees, salaries and employee benefits 844 1,190
Accounting, legal and other professional fees 279 337
Marketing, catalog and trade show costs 115 302
Depreciation and amortization 317 517
Rent 70 104
- ----------------------------------------------------------------------------------------------------------
1,946 2,850
- ----------------------------------------------------------------------------------------------------------
(1,418) (1,891)
- ----------------------------------------------------------------------------------------------------------
OTHER
Net interest expense (24) (168)
Net loss on disposal of furniture and equipment (30) --
Net gain on sale of PLI shares 5,571 59
Foreign exchange loss (30) --
Other -- 14
- ----------------------------------------------------------------------------------------------------------
5,487 (95)
- ----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 4,069 (1,986)
- ----------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Oil and gas working and royalty interests -- (23)
- ----------------------------------------------------------------------------------------------------------
-- (23)
- ----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 4,069 $ (2,009)
DEFICIT, beginning of period (30,591) (25,626)
- ----------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (26,522) $ (27,635)
==========================================================================================================
BASIC INCOME (LOSS) PER SHARE (Note 10) $ 0.32 $ (0.18)
Shares used in basic computation 12,663,113 11,371,292
FULLY DILUTED INCOME (LOSS) PER SHARE (Note 10) $ 0.32 $ (0.18)
Shares used in fully diluted computation 12,663,113 11,371,292
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 6
HARISTON CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(EXPRESSED IN THOUSAND OF U.S. DOLLARS)
<TABLE>
<CAPTION>
6 MONTHS ENDED JUNE 30 1997 1996
==================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from continuing operations $ 4,069 $(1,986)
Non-cash items:
Depreciation and amortization 317 517
Gain on sale of PLI shares (5,571) (59)
- ----------------------------------------------------------------------------------
(1,185) (1,528)
Net increase in non-cash working capital items (215) (284)
- ----------------------------------------------------------------------------------
CASH USED FOR CONTINUING OPERATIONS (1,400) (1,812)
- ----------------------------------------------------------------------------------
Net loss from discontinued operations (Note 11) -- (23)
Non-cash items:
Provision for costs of disposition -- 23
- ----------------------------------------------------------------------------------
CASH PROVIDED BY DISCONTINUED OPERATIONS -- --
- ----------------------------------------------------------------------------------
CASH USED FOR OPERATING ACTIVITIES (1,400) (1,812)
- ----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net term debt (payments) issuances (3,393) 422
Amount paid upon exercise of put option (175) --
Issuance of common stock -- 913
- ----------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (3,568) 1,335
- ----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net sale (purchase) of assets 50 (738)
Net issuance of notes receivable (1,000) --
Net proceeds from sale of PLI shares 6,796 69
- ----------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 5,846 (669)
- ----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 878 (1,146)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,805 1,419
- ----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,683 $ 273
==================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 7
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1997
NOTE 1. OPERATIONS
The Company is incorporated under the Canada Business Corporations Act and has
operated historically as a diversified holding company. On August 25, 1995 the
Company focused on the multimedia CD-ROM software business with the purchase of
substantially all of the assets of a group of affiliated companies doing
business under the trade name Educorp. These affiliated companies now operate
under the name Educorp Direct ("Direct"). Direct is principally a catalog
retailer of multimedia CD-ROM titles. On January 1, 1996 the Company purchased
substantially all of the assets of HighText Publications, Inc., a book and
multimedia software developer and publisher. This business has subsequently
operated under the name HighText Interactive ("HighText"). Both Direct and
HighText are subsidiaries of Educorp Multimedia, Inc. ("Educorp"), a
wholly-owned subsidiary of Hariston. Effective January 31, 1997 HighText sold
its book publishing operations back to its former owners. The Company is
presently negotiating the sale of all or substantially all of its multimedia
software operations (see Note 11) and intends to purchase another business.
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 9. 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, 1996.
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, 1997,
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, 1996.
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.
<PAGE> 8
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1997
NOTE 3. SUMMARY OF SECURITIES ISSUED DURING THE SECOND QUARTER
None.
NOTE 4. SUMMARY OF OPTIONS GRANTED DURING THE SECOND QUARTER
None.
NOTE 5. AUTHORIZED AND ISSUED SHARE CAPITAL AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Class Par Value Authorized Number Issued Number Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common None Unlimited 12,663,113 $ 31,999,167
</TABLE>
NOTE 6. SHARES IN ESCROW OR SUBJECT TO POOLING AS OF JUNE 30, 1997
None.
NOTE 7. LIST OF DIRECTORS AS OF JUNE 30, 1997
<TABLE>
<S> <C> <C> <C> <C>
Nuno Brandolini James P. Angus Kevin R. McCarthy Neil S. MacKenzie L. James Porter
(Chairman)
</TABLE>
NOTE 8. OPTIONS AND WARRANTS OUTSTANDING AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Number of Shares Exercise Market Price Option
OPTION ISSUE TYPE under Vested Option Price on Date of Grant Expiry Date
===========================================================================================================
<S> <C> <C> <C> <C>
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 180,000 1.25 1.25 July 17, 2003
Director options 80,000 1.25 1.25 July 17, 2003
- -----------------------------------------------------------------------------------------------------------
Employee options 296,666 1.25 1.25 August 16, 2003
Director options 80,000 1.25 1.25 August 16, 2003
- -----------------------------------------------------------------------------------------------------------
676,666
=======
</TABLE>
<PAGE> 9
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Exercise Market Price Warrant
WARRANT HOLDER Number of Shares Price on Date of Grant Expiry Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dahlia Financial 150,000 1.75 1.06 September 27, 1997
Dahlia Financial 150,000 2.50 1.06 September 27, 1998
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 Finanz A.G. 250,000 2.50 2.25 August 24, 2000
Silvercreek Investments, Ltd. 150,000 1.75 1.06 September 27, 1997
Silvercreek Investments, Ltd. 150,000 2.50 1.06 September 27, 1998
Tross Ltd. 150,000 1.75 1.06 September 27, 1997
Tross Ltd. 150,000 2.50 1.06 September 27, 1998
Wallington Investments Ltd. 150,000 1.75 1.06 September 27, 1997
Wallington Investments Ltd. 150,000 2.50 1.06 September 27, 1998
Zocal Foundation 250,000 2.50 2.25 August 24, 2000
---------
2,825,000
=========
</TABLE>
NOTE 9. 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:
<TABLE>
<CAPTION>
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
SIX MONTHS ENDED JUNE 30 1997 1996
<S> <C> <C>
Net income (loss) according to Canadian GAAP $4,069 $(2,009)
Non cash compensation expense -- (42)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) ACCORDING TO U.S. GAAP $4,069 $(2,051)
</TABLE>
There would be no differences in net assets or shareholders' equity.
The above variance in the 1996 net loss figure results from the difference in
the accounting treatment for employee stock options. During 1995 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. Under Canadian GAAP, the issuance or
exercise of employee or director stock options does not affect the reported
profitability of the Company. In July 1996 all outstanding option grants were
canceled. In August 1996 new option grants were made at exercise prices no less
than the traded price of the stock on the measurement date.
<PAGE> 10
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6 MONTHS ENDED JUNE 30, 1997
NOTE 10. INCOME (LOSS) PER SHARE
Basic and fully diluted income (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 the fully
diluted calculations as their impact would be antidilutive.
NOTE 11. DISCONTINUED OPERATIONS
The Company is presently negotiating the sale of all or substantially all of its
multimedia software operations. These operations are not separately reported as
discontinued or held for sale in these interim consolidated financial statements
due to these operations constituting the entire business of the Company at this
time and these operations being financially dependent for their continued
operation, until such time as they can be sold, on funding provided by Hariston,
the parent corporation.
Effective January 31, 1997 HighText sold its book publishing operations back to
its former owners. These operations have not been separately reported as
discontinued in these interim consolidated financial statements due to the
immateriality of the results of the book publishing operations and the practical
difficulty of separating out the results of the book publishing operations from
the multimedia software operations. The loss on sale of these operations was
fully provided for as of December 31, 1996.
NOTE 12. INVESTMENTS
<TABLE>
<CAPTION>
AMOUNT
===========
<S> <C>
Polish Life Improvement S.A
1,820,566 shares owned as of December 31, 1996 $ 1,208,439
1,760,000 shares sold January 1 to March 31, 1997 (1,167,382)
60,566 shares sold April 1 to June 30, 1997 (41,057)
-----------
--
Madison Holdings Limited 7,304
-----------
Investments as of June 30, 1997 $ 7,304
===========
</TABLE>
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
-11-
<PAGE> 12
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
During the first quarter of 1997 Hariston's management and Board reviewed the
fiscal 1996 results and determined that the interests of the Company and its
shareholders would be best served by Hariston selling its multimedia software
operations and investing its resources in a business or industry with higher
expected returns. This difficult decision was made in light of the continuing
drain experienced on the Company's treasury to fund the working capital needs of
the multimedia software operations, and the prospect of a continued high level
of competition and continued pricing pressure in the multimedia software
industry for the foreseeable future. In February 1997 Hariston entered into a
non-binding letter of intent to sell substantially all of the assets, and
transfer certain of the liabilities, of its multimedia software operations to
Legacy Software, Inc. ("Legacy") for proceeds of $1.8 million, such amount to be
received entirely in the form of common shares of Legacy.
During the first and second quarters, Hariston's management devoted considerable
time and attention to the sale negotiations with Legacy. However, by news
release dated June 30, 1997 Hariston announced that the negotiations to sell the
multimedia software operations to Legacy had been terminated by mutual
agreement.
Also during the first and second quarters, Hariston's management devoted
considerable time and attention to locating a business for Hariston to acquire.
As announced by a March 3, 1997 news release, Hariston entered into a
non-binding letter of intent to acquire an aerospace products manufacturer.
However, as announced by an April 29, 1997 news release, the seller subsequently
gave notice to Hariston that the aerospace products manufacturer had been
withdrawn from sale.
While Hariston's management and Board regret that the sale of the multimedia
operations to Legacy and the acquisition of the aerospace products manufacturer
did not proceed as planned, Hariston will continue to pursue its strategy of
selling its multimedia software operations and acquiring a business with higher
expected returns.
During the second quarter the Company sold the remainder of its shares in Polish
Life Improvement S.A. ("PLI"). The Company sold 60,566 PLI shares in sales on
the parallel market to the Warsaw Stock Exchange, realizing proceeds of
approximately $275,000.
Also during the second quarter, the Company continued its efforts to curtail
spending in its multimedia software operations. Staffing at Educorp Direct, Inc.
("Direct") and HighText Interactive, Inc. ("HighText") was reduced from 24 at
March 31, 1997 to 14 at June 30, 1997.
Founded in 1984, Direct is a San Diego, California based publisher and direct
mail distributor of multimedia software on CD-ROM. 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 1996, Direct mailed 2.9 million
catalogs and newsletters to its customer base. From January 1 to June 30, 1997,
Direct mailed 550,000 catalogs and newsletters to its customer base. Direct is
also involved in the development and publishing of software titles as well as
wholesale and international distribution. Approximately 50 titles are published
and distributed by Direct under exclusive license, and a further 16 titles
published by Direct are owned outright. These latter titles are mainly stock
photography, clip art and shareware compilations. Direct publishes titles under
the name Gazelle Studios.
Founded in 1990, HighText is a San Diego, California based developer and
publisher of educational CD-ROM software titles. Prior to February 1997 HighText
was also a publisher of books on mathematics, electronics and other topics of a
technical or scientific nature. Since being acquired by the Company on January
1, 1996 HighText's primary emphasis has been on the development of educational
multimedia software for the adult consumer, higher education and corporate
markets. HighText has the
<PAGE> 13
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
following CD-ROM software titles available for sale as part of its
CrashCourse(TM) product series: Algebra 1, PreCalculus, Differential Calculus,
Integral Calculus, Easy Statistics, Statistics 2, Basic Accounting, Personal
Finance and Introductory Physics. These titles are distributed by wholesale
dealers to college and specialty bookstores, computer software stores, and
through catalog retailers direct to end-users.
CORPORATE STRUCTURE
During June 1995 Hariston incorporated a wholly-owned California subsidiary,
CD-Soft Corporation. 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"), a wholly-owned Delaware subsidiary of Hariston formed in January
1996. Upon this merger, Educorp became the holding company for all of Hariston's
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.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996
The Company earned consolidated net income of $4,068,726 for the six months
ended June 30, 1997 as compared to a net loss of $2,009,535 for the six months
ended June 30, 1996.
However, excluding a $5,571,441 gain from the sale of PLI shares and an
associated foreign exchange loss of $30,113, the Company incurred a consolidated
net loss of $1,472,602 for the six months ended June 30, 1997. Of this loss,
$783,503 was attributable to Educorp and its subsidiaries, $634,383 to Hariston,
and $54,716 to EuroEastern. Of the $783,503 loss attributable to the Company's
multimedia software operations, $559,861 arose from the Direct operations and
$130,797 from the HighText operations. The $92,845 remainder was due to
operating and corporate expenses incurred at the Educorp legal entity level.
Of the $2,009,535 loss incurred for the six months ended June 30, 1996,
$1,258,312 was attributable to Educorp 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,
$337,157 from the HighText operations, and the $303,236 remainder was due to
operating and corporate expenses incurred at the Educorp legal entity level.
An analysis of the results is presented below, presenting 1996 comparatives as
well as 1995 comparatives where available.
<PAGE> 14
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
EDUCORP DIRECT
Direct generated revenues of $1,642,228 for the six months ended June 30, 1997,
comprised of $1,218,206 from retail sales to end-users, $417,727 from sales to
dealers and $6,295 from software royalties and license fees. By comparison,
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 royalties and license fees.
Direct realized a gross profit of $492,638 from the six months ended June 30,
1997, incurred a loss for the period of $261,914 before interest, depreciation
and amortization, and incurred a net loss after these items of $559,861. By
comparison, Direct realized a 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, 1997 of $1,218,206
declined 45% relative to retail software sales of $2,222,902 for the same period
of 1996. Comparable period 1995 sales were $2,583,306.The primary reasons for
the decline in 1997 versus 1996 sales were first, a low number of catalogs in
circulation (550,000 catalogs were mailed in 1997 versus 780,000 in the same
period of 1996), and second, an 83% decline in international retail sales.
Additionally, Direct experienced a 3.5% decline in the average CD-ROM retail
price realized by Direct in 1997 compared with the same period of 1996, $28.79
as compared to $29.84 in the same period of 1996 (and $34.60 in 1995). The
industry sales environment also remained extremely competitive during the first
six months of 1997, and the ongoing difficulties at Apple Computer continued to
depress sales of Macintosh CD-ROM titles.
International retail software sales for the first six months of 1997 were
$65,524 or 5% of total retail sales, as compared to $378,799 or 17% of total
retail sales for the six months ended June 30, 1996 (and $371,109 or 14% of
total retail sales for the comparable period of 1995). The 83% decline in
international retail software sales during the first six months of 1997 as
compared to the same period of 1996 was primarily due to first, a significant
curtailment in catalog mailings to international addresses, and second, the
increased availability of foreign language CD-ROM titles in foreign countries
causing reduced demand for U.S. sourced English language versions of the same or
equivalent titles.
DEALER SOFTWARE SALES
Dealer software sales for the six months ended June 30, 1997 of $417,727
declined 39% relative to dealer software sales of $679,412 for the same period
of 1996. Comparable period 1995 sales were $1,096,938. The decline in same
period sales from 1996 to 1997 primarily reflects first, a 66% decline in
international dealer software sales, and second, a 30% decrease in the average
CD-ROM dealer price realized by Direct. The average price realized was $18.74
for the first six months of 1997 as compared to $26.90 for the same period of
1996 (and $30.85 for the first six months of 1995).
International dealer software sales were $181,441 or 43% of total software sales
to dealers for the six months ended June 30, 1997, as compared to $538,392 or
79% of total software sales to dealers for the six months ended June 30, 1996
(and $797,063 or 73% for the comparable period of 1995). The 66% decline in
international dealer software sales for the first six months of 1997 compared to
the first six months of 1996 primarily reflects first, a number of dealers going
out of business in the last quarter of 1996 and first quarter of 1997, and
second, a continuation of the trend to smaller international order sizes due to
an increasing number of publishers seeking direct distribution to foreign
dealers.
ROYALTIES AND LICENSE FEES
Royalties and license fees of $6,295 for the six months ended June 30, 1997
decreased 92% from the $78,772 figure earned for the six months ended June 30,
1996 (as compared to $262,550 for the same period of 1995). The primary reason
for the year over year decrease was the expiration during early 1996
<PAGE> 15
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
of a bundling license with Apple Computer. Under the terms of the license, Apple
had bundled educational software titles published by the Company with sales of
certain computers.
GROSS PROFIT
Direct realized a gross profit of $492,638 for the six months ended June 20,
1997, representing 30% of revenues. This compares to $855,734 or 29% of revenues
for the same period of 1996. The improvement in gross margin from 1996 to 1997
primarily reflects the sale of previously written down software during the first
quarter of 1997 for prices higher than had been previously expected.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $1,024,019 for the six months ended June
30, 1997, representing 62% of total revenues for the period. This compares to
$1,474,649 or 49% of revenues for the six months ended June 30, 1996. These
figures include amortization of goodwill and other intangibles arising from the
August 25, 1995 acquisition of the Direct operations. After adjusting for this
amortization, operating and corporate expenses were $785,348 or 48% of revenues
for the six months ended June 30, 1997 as compared to $1,036,555 or 35% of
revenues for the same period of 1996. The increase in operating and corporate
expenses as a percentage of revenues in 1997 as compared to 1996 reflects
primarily the high level of discretionary fixed costs and overhead costs in the
Direct operation. Steps were taken to reduce these costs, primarily through
staffing cuts, during the first and second quarters of 1997.
HIGHTEXT INTERACTIVE
HighText generated revenues of $55,661 for the six months ended June 30, 1997 as
compared to $215,101 for the six months ended June 30, 1996. Of the $55,661
figure for 1997, $3,352 was from retail sales to end-users and $52,309 was from
sales to dealers. Of the $215,101 figure for 1996, $65,590 was 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 $35,236 for the six months ended June 30,
1997, and incurred a net loss of 130,797. During the same period of 1996,
HighText realized a gross profit of $103,167 and incurred a net loss of
$337,157.
SOFTWARE SALES
Software sales for the six months ended June 30, 1997 were $38,009, a 42%
increase over software sales of $26,796 for the same period of 1996. Comparable
results for 1995 are not available.
The $38,009 figure for 1997 was comprised of $524 sales to end-users and $37,485
sales to dealers. By comparison, the $26,796 figure for 1996 was comprised of
$11,866 sales to end-users and $14,930 sales to dealers.
HighText realized an average CD-ROM price of $19.01 during the first six months
of 1997, as compared to $19.23 in the same period of 1996.
HighText's first CD-ROM title was published in May 1995 followed by two
additional titles in November 1995. A suite of additional titles in the
CrashCourse(TM) series were developed over the course of 1996. Title development
ceased in the first quarter of 1997 when Hariston's management and Board made
the decision to lay off substantially all of HighText's employees and
concentrate the Company's efforts on marketing the titles that had been
developed to date. HighText has the following completed CD-ROM software titles
available for sale as part of its CrashCourse(TM) product series: Algebra 1
(Win version), PreCalculus (Win version) Differential Calculus (Win and Mac
versions), Integral Calculus (Win and Mac versions), Easy Statistics (Win and
Mac hybrid), Statistics 2 (Win version), Basic Accounting (Win and Mac version),
Personal Finance (Win version) and Introductory Physics (Win version).
<PAGE> 16
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the above discussion, "Win" refers to Microsoft Windows operating system
compatible and "Mac" refers to Apple Macintosh operating system compatible.
BOOK SALES
By agreement dated February 21, 1997 and with effect from the close of business
on January 31, 1997 HighText transferred ownership of its book publishing
operations back to the former principals of HighText Publications, Inc. In
exchange, Hariston was relieved of its obligation arising under the original
agreement by which Hariston purchased the HighText operations, to issue to the
former principals common shares of Hariston equal in value to the after-tax
income of the book publishing operations over a five year period.
Therefore, only book sales through January 31, 1997 are reported herein.
Book sales for the period January 1 to January 31, 1997 were $17,652, consisting
of $2,828 retail sales to end-users and $14,824 sales to dealers. During the
first six months of 1996, book sales were $168,043, consisting of $50,660 retail
sales to end-users and $117,383 sales to dealers. By comparison, for the six
months ended June 30, 1995 book sales were $171,025 consisting of $94,550 retail
sales and $76,475 dealer sales.
HighText published its first book title in June, 1991. As of December 31, 1996,
HighText had published sixteen book titles. During the period January 1 to
January 31, 1997 HighText published no new book titles.
OPERATING AND CORPORATE EXPENSES
The most significant components of HighText's $151,801 of operating and
corporate expenses for the first six months of 1997 were salary and consultants
costs totaling $86,658, goodwill amortization of $25,365 and rent expense of
$15,234. By comparison, HighText incurred $436,909 of operating and corporate
expenses for the six months ended June 30, 1996, consisting principally of
salary and consultants costs totaling $184,562, marketing and trade show costs
of $141,905, goodwill amortization of $36,973 and rent expense of $17,951.
HighText expensed the costs of developing new software and book titles as they
were incurred.
The reduction in operating and corporate expenses from 1996 to 1997 primarily
reflects the winding down of HighText's operations.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
Educorp incurred $84,177 of non-consolidated operating and corporate expenses
for the six months ended June 30, 1997, consisting principally of $72,108 of
consultants fees and $5,954 of corporation franchise tax. By comparison, Educorp
incurred $303,237 of non-consolidated operating and corporate expenses for the
six months ended June 30, 1996, consisting principally of $100,478 of accounting
and legal fees, $145,701 of salaries and consultants fees, and $31,250 of
recruiting fees. The reduction in costs from 1996 to 1997 reflects the decision
of Hariston's management and Board to seek a buyer for the multimedia software
operations and accordingly minimize corporate development activities at the
Educorp Multimedia level. Additionally, the 1996 figure includes legal and
accounting costs incurred to effect the January 1, 1996 acquisition of the
operations of HighText Publications, Inc. There are no comparable 1995 figures
as Educorp's predecessor, CD-Soft Corporation, was incorporated in June 1995.
<PAGE> 17
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Hariston incurred $631,531 of non-consolidated operating and corporate expenses
during the first six months of 1997, compared to $575,637 for the same period of
1996 and $732,000 for the same period of 1995.
The majority of Hariston's non-consolidated operating and corporate expenses for
the first six months of 1997 were $212,837 of salaries and consultants fees,
$180,451 of legal fees, $68,553 of accounting, audit and tax return preparation
fees, $46,536 of shareholder communications costs, $36,199 of insurance costs,
$9,387 of office rent, $10,984 of directors fees and $25,778 of travel costs.
By comparison, the majority of Hariston's non-consolidated operating and
corporate expenses during the first six months of 1996 were $147,461 of salaries
and consultants fees, $121,611 of legal fees, $96,995 of accounting, audit and
tax return preparation fees, $64,589 of shareholder communications costs,
$40,688 of insurance costs, $38,949 of office rent, $14,821 of directors fees
and $21,517 of travel costs.
Salaries and consultants costs were lower in 1996 than 1997 principally due to
the allocation of certain salaries in 1996 to Educorp. Legal fees were higher in
1997 than 1996 principally due to fees incurred with respect to the uncompleted
purchase of the aerospace products manufacturer and sale of the multimedia
software operations to Legacy.
EuroEastern incurred $54,716 of operating and corporate expenses for the six
months ended June 30, 1997, consisting principally of $34,875 of consultant's
fees including travel costs reimbursement, $5,049 of secretarial fees and
$10,250 of office rent. During the same period of 1996, EuroEastern incurred
$60,456 of operating and corporate expenses, consisting principally of $32,580
of consultants fees, $4,208 of secretarial fees and $18,186 of office rent.
There are no 1995 comparable figures for EuroEastern as it was incorporated in
October, 1995. The reduction in EuroEastern's operating and corporate expenses
from 1996 to 1997 primarily reflects the winding down of its operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1996
The Company incurred a consolidated net loss of $463,089 for the three months
ended June 30, 1997 as compared to $1,214,285 for the three months ended June
30, 1996. Excluding the $242,984 gain realized from the sale of PLI shares in
the second quarter and an associated foreign exchange loss of $2,066, the
Company incurred a consolidated net loss of $704,007 for the second quarter of
1997. Of this $704,007 loss, $309,953 was attributable to Educorp and its
subsidiaries, $378,065 to Hariston and $15,989 to EuroEastern. Of the $309,953
loss attributable to the Company's multimedia software operations, $222,631
arose from the Direct operations and $50,261 from the HighText operations. The
$37,061 remainder was due to operating and corporate expenses incurred at the
Educorp level.
Of the $1,214,285 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
software operations, $358,488 arose from the Direct operations and $230,778 from
the HighText operations. The $294,769 remainder was due to operating and
corporate expenses incurred at the Educorp level.
An analysis of the results is presented below, presenting 1996 comparatives as
well as 1995 comparatives where available.
<PAGE> 18
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
EDUCORP DIRECT
Direct generated revenues of $768,007 for the three months ended June 30, 1997,
comprised of $566,608 from retail sales to end-users, $201,364 from sales to
dealers and $35 from software royalties. By comparison, Direct generated
revenues of $1,249,450 for the second quarter of 1996, comprised of $999,346
from retail sales to end-users, $250,080 from sales to dealers, and $24 from
software royalties.
Direct realized a gross profit of $182,144 for the three months ended June 30,
1997, as compared to $322,990 for the second quarter of 1996. Direct incurred a
second quarter 1997 loss before interest, depreciation and amortization of
$96,863 and a net loss after these items of $222,631, as compared to a second
quarter 1996 loss before interest, depreciation and amortization of $127,671,
and a net loss after these items of $358,488.
RETAIL SOFTWARE SALES
Retail software sales for the quarter ended June 30, 1997 of $566,608 declined
43% relative to retail software sales of $999,346 for the same period of 1996.
Comparable period 1995 sales were $1,335,389. The primary reasons for the
decline in 1997 versus 1996 sales were, first, the low number of catalogs in
circulation (200,000 catalogs were mailed in the second quarter of 1997 versus
250,000 in the same period of 1996), and second an 83% decline in international
retail sales. Additionally, Direct experienced a decline in the average realized
CD-ROM retail price. Other factors adversely affecting sales included the
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 $25,796 or 5% of total retail sales for
the three months ended June 30, 1997 as compared to $153,258 or 15% of total
retail sales for the second quarter of 1996 (and $180,172 or 13% of total retail
sales for the comparable period of 1995). The 83% decline in international
retail sales during the second quarter of 1997 as compared to the second quarter
of 1996 was primarily due to first, a significant curtailment in catalog
mailings to international addresses, and second, the increased availability of
foreign language CD-ROM titles in foreign countries causing reduced demand for
U.S. sourced English language versions of the same or equivalent titles.
DEALER SOFTWARE SALES
Dealer software sales for the quarter ended June 30, 1997 of $201,364 declined
19% relative to dealer software sales of $250,080 for the same period of 1996.
Comparable period 1995 sales were $507,780. The decline in same period sales
from 1996 to 1997 reflects primarily first, a 60% decline in international
dealer software sales, and second, the decrease in the average CD-ROM dealer
price realized by Direct.
International dealer software sales were $72,000 or 36% of total software sales
to dealers for the second quarter of 1997, as compared to 181,553 or 73% of
total software sales to dealers for the three months ended June 30, 1996 (and
$373,326 or 74% for the comparable period of 1995). The 60% decline in
international dealer software sales from 1996 to 1997 reflects first, a number
of foreign dealers going out of business in the last quarter of 1996 and first
quarter of 1997, and second, a continuation of the trend towards smaller
international order sizes due to an increasing number of publishers seeking
direct distribution to foreign dealers.
GROSS PROFIT
Direct realized a gross profit of $182,144 for the quarter ended June 30, 1997,
representing 24% of revenues. This compares to $322,990 or 26% of revenues for
the same period of 1996. The decline in gross margin from 1996 to 1997 primarily
reflects the lower realized prices per title as a result of increased
competition.
<PAGE> 19
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $384,727 for the quarter ended June 30,
1997, representing 50% of total revenues for the period. This compares to
$684,554 or 55% of revenues for the quarter ended June 30, 1996. These figures
include amortization of goodwill and other intangibles arising from the August
25, 1995 acquisition of the Direct operations. After adjusting for this
amortization, operating and corporate expenses were $295,570 or 38% of revenues
for second quarter of 1997, compared to $464,539 or 37% of revenues for the
second quarter of 1996.
HIGHTEXT INTERACTIVE
HighText generated revenues of $21,928 for the three months ended June 30, 1997
as compared to $115,191 for the three months ended June 30, 1996. All of the
$21,928 figure for 1997 was comprised of sales to dealers. Of the $115,191
figure for 1996, $50,996 arose 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 $2,264 for the second quarter of 1997, and
incurred a net loss of $37,061. During the second quarter of 1996, HighText
realized a gross profit of $53,119 and incurred a net loss of $230,778.
SOFTWARE SALES
Software sales for the quarter ended June 30, 1997 were $21,928, a 49% increase
over software sales of $14,733 for the same period of 1996. Comparable results
for 1995 are not available.
The $21,928 figure comprises sales to dealers. By comparison, the $14,733 figure
consisted of $6,923 sales to end-users and $7,810 sales to dealers.
BOOK SALES
No book sales were made in the second quarter of 1997 as the book publishing
operations were sold effective January 31, 1997. Book sales during the second
quarter of 1996 were $80,196, consisting of $41,009 retail sales to end-users
and $39,187 sales to dealers.
OPERATING AND CORPORATE EXPENSES
The most significant components of HighText's $38,293 of operating and corporate
expenses for the second quarter of 1997 were salary and consultants costs
totaling $13,010, goodwill amortization of $12,683 and rent expense of $6,345.
By comparison, HighText incurred $282,135 of operating and corporate expenses
for the quarter ended June 30, 1996, consisting principally of salary and
consultants costs of $124,409, marketing and trade show costs of $91,912, and
goodwill amortization expense of $18,486. HighText expensed the costs of
developing new software and book titles as they were incurred.
The reduction in operating and corporate expenses from 1996 to 1997 primarily
reflects the winding down of HighText's operations.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
The majority of Educorp's $37,061 of non-consolidated operating and corporate
expenses for the second quarter of 1997 were consultants fees and franchise tax.
By comparison, Educorp incurred $295,148 of non-consolidated operating and
corporate expenses for the second quarter of 1996, consisting principally of
salaries and consultants fees, recruiting fees, and legal and accounting costs.
The consultants fees in both years were largely attributable to contractual
obligations arising from the August 25, 1995 purchase of the Direct operations.
The recruiting fees in 1996 were attributable to the building of a management
structure. The legal and accounting costs in 1996 were incurred in connection
with the January 1, 1996 acquisition of HighText. There are no 1995 comparable
figures for Educorp as its predecessor, CD-Soft Corporation, was incorporated in
June 1995.
<PAGE> 20
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The reduction in operating and corporate expenses from 1996 to 1997 primarily
reflects the winding down of Educorp's activities.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Hariston incurred $405,715 of non-consolidated operating and corporate expenses
during the second quarter of 1997, compared to $259,160 for the same period of
1996 and $415,271 for the same period of 1995.
The majority of Hariston's non-consolidated operating and corporate expenses for
the second quarter of 1997 were $113,184 of salaries and consultants fees,
$132,346 of legal fees, $48,730 of accounting, audit and tax return preparation
fees, $38,532 of shareholder communications costs, $15,806 of insurance costs,
$6,430 of office rent, $5,045 of directors fees and $23,197 of travel costs.
The majority of Hariston's non-consolidated operating and corporate expenses for
the second quarter of 1996 were $72,907 of legal fees, $74,656 of accounting,
audit and tax return preparation fees, $47,873 of shareholder communications
costs, $14,453 of insurance costs, $17,967 of office rent, $6,599 of directors
fees and $18,859 of travel costs. Salaries and consultants fees of approximately
$110,000 were incurred prior to the allocation of a portion of these costs to
Educorp.
The large increase in legal costs from 1996 to 1997 reflects significant costs
incurred with respect to the negotiations for the sale of the multimedia
software operations to Legacy and the purchase of the aerospace products
manufacturer.
The majority of EuroEastern's non-consolidated operating and corporate expenses,
totaling $15,988 in the second quarter of 1997 as compared to $25,867 in the
second quarter of 1996, were salary, consultant's fees and travel costs. There
are no 1995 comparable figures for EuroEastern as it was incorporated in
October, 1995. The reduction in EuroEastern's operating and corporate expenses
from 1996 to 1997 primarily reflects the winding down of its activities.
INVESTMENTS
POLISH LIFE IMPROVEMENT S.A.
PLI is a Kielce, Poland based company formed in February 1993 for the purpose of
engaging in various retail businesses in Poland. PLI is a retail operator of
home improvement stores and was also previously the operator of a chain of
supermarkets. Hariston co-founded PLI and initially held a controlling interest
in it. In December 1994 PLI completed its initial public offering and on
February 5, 1996 PLI's shares began trading on the parallel market to the Warsaw
Stock Exchange. Due to private and public market sales of its PLI shares in 1994
and 1996 and dilution associated with PLI's public offering, as of December 31,
1996 Hariston owned 1,820,000 PLI common shares or a 25.8% interest in PLI.
During the first quarter of 1997 Hariston sold 1,500,000 PLI shares in private
transactions and a further 260,000 PLI shares in public trades, realizing
proceeds of approximately $6,522,000 including $1.5 million in short-term notes
receivable of which $500,000 had been received in cash by quarter's end. The $1
million in short-term notes receivable remaining are due in two $500,000
installments to be received in September 1997 and March 1998. In the second
quarter of 1997 Hariston sold its remaining 60,566 PLI shares for proceeds of
approximately $275,000.
<PAGE> 21
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
MADISON HOLDINGS LIMITED
Madison was formerly a Burlington, Ontario based supplier of proprietary home
medical products. Madison is currently a Toronto, Ontario based shell company
whose shares are eligible for trading on the Canadian Dealing Network, an
over-the-counter market affiliated with the Toronto Stock Exchange, subject to
Madison first acquiring an operating business. Madison's shares last traded in
January 1996. Hariston owns 233,591 Madison common shares or an 8.6% interest in
that company. In January 1996 Madison's secured creditors seized its assets,
leaving Madison with no significant assets other than its publicly traded status
and several million dollars of tax loss balances. Madison's management have
informed Hariston that they are currently negotiating to acquire an operating
business. Such an acquisition is likely to be made through the issuance of a
substantial number of shares from treasury. There is no assurance that Madison
will be successful in its endeavor to acquire an operating business.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997 the Company had cash balances of $3,683,449, a working
capital ratio of 2.85 and a debt/equity ratio of 0.36. This compares favorably
with June 30, 1996 cash of $203,877, 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 multimedia software operations until they can be
sold, 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, 1997
the Company had an accumulated deficit of $26,522,253, as compared to an
accumulated deficit of $27,634,519 at June 30, 1996.
From January 1 to July 31, 1997 the Company advanced $242,287 to fund the
working capital needs of the multimedia software operations. Additionally, the
Company made payments totaling $154,104 with respect to repayment of principal
and interest on debt originally incurred in June 1996 to provide working capital
to the multimedia software operations.
Based on historical results and management's expectations for future operations
and events, the Company expects that the multimedia software operations will not
require significant further capital infusion before sale. However, there is no
assurance that a significant capital infusion will not be required to effect a
sale. There is additionally no assurance that a sale may be arranged on terms
acceptable to the Company, or at all.
The ability of the Company to continue to effectively manage its working capital
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, access to investment capital and the Company's ability
to conclude transactions on terms favorable to the Company.
SEASONALITY OF BUSINESS
Historically, the multimedia software 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.
Management expects that this seasonal effect will continue to have an impact on
the multimedia software operations for the foreseeable future.
<PAGE> 22
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, financing plans and the proposed sale of the multimedia software
operations. These forward-looking statements are subject to risks and
uncertainties, including uncertainty as to whether the proposed sale of the
multimedia software operations will occur, uncertainty as to whether the Company
will be able to locate and acquire a business meeting the Company's selection
criteria, risks and uncertainties as to the Company's projected cash flows and
cash requirements, risks and uncertainty as to whether the Company will be able
to raise any necessary financing on fair or favorable terms or at all, risk and
uncertainty as to the Company's ability to recruit and retain qualified
personnel, and risk and uncertainty as to other factors that could cause actual
results to differ from those projected.
<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, 1997 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 Form 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(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, 1997 By: L. JAMES PORTER
---------------------------------
L. James Porter, Chief
Financial Officer (duly
authorized officer)
Dated: August 14, 1997 By: /S/ L. JAMES PORTER
---------------------------------
L. James Porter, Chief
Financial Officer (Principal
Financial Officer and
Principal Accounting
Officer)
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,683
<SECURITIES> 0
<RECEIVABLES> 1,348
<ALLOWANCES> 40
<INVENTORY> 161
<CURRENT-ASSETS> 5,268
<PP&E> 430
<DEPRECIATION> 186
<TOTAL-ASSETS> 7,469
<CURRENT-LIABILITIES> 1,847
<BONDS> 145
0
0
<COMMON> 31,999
<OTHER-SE> (26,522)
<TOTAL-LIABILITY-AND-EQUITY> 7,469
<SALES> 1,692
<TOTAL-REVENUES> 1,698
<CGS> 1,146
<TOTAL-COSTS> 1,170
<OTHER-EXPENSES> 1,946
<LOSS-PROVISION> (3)
<INTEREST-EXPENSE> (24)
<INCOME-PRETAX> 4,069
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,069
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
