<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-13966
HARISTON CORPORATION
(Exact name of registrant as specified in its charter)
CANADA 33-0645339
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1500 WEST GEORGIA STREET, SUITE 1555, VANCOUVER, V6G 2Z6
BRITISH COLUMBIA (Zip Code)
(Address of principal executive offices)
(604) 685-8514
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
AS OF NOVEMBER 19, 1997, 12,663,113 SHARES OF THE REGISTRANT'S COMMON
STOCK WERE OUTSTANDING.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited Consolidated Statements of Income, Loss and Deficit for
the three and nine month periods ended September 30, 1997 and September 30,
1996, the unaudited Consolidated Statements of Changes in Financial Position for
the nine month periods ended September 30, 1997 and September 30, 1996 and the
unaudited Consolidated Balance Sheets as at September 30, 1997 and December 31,
1996, of Hariston Corporation ("Hariston" or the "Company") follow.
<PAGE> 3
HARISTON CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
===============================================================================================
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,828 $ 2,805
Short-term notes receivable 500 -
Receivables 169 421
Inventory 96 559
Prepaids 49 207
- -----------------------------------------------------------------------------------------------
4,642 3,992
Investments (Note 12) 7 1,216
Furniture and equipment 215 363
Goodwill, licenses, mailing lists, and other intangibles 1,073 2,339
- -----------------------------------------------------------------------------------------------
1,295 3,918
- -----------------------------------------------------------------------------------------------
$ 5,937 $ 7,910
===============================================================================================
LIABILITIES
Current
Payables and accruals $ 1,516 $ 2,349
Deferred revenue - 113
Current portion of term debt 169 3,539
- -----------------------------------------------------------------------------------------------
1,685 6,001
Term debt 127 201
Put Option - 300
- -----------------------------------------------------------------------------------------------
127 501
- -----------------------------------------------------------------------------------------------
1,812 6,502
SHAREHOLDERS' EQUITY
Capital stock 31,999 31,999
Deficit (27,874) (30,591)
- -----------------------------------------------------------------------------------------------
4,125 1,408
- -----------------------------------------------------------------------------------------------
$ 5,937 $ 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 SEPTEMBER 30 1997 1996
============================================================================================================
<S> <C> <C>
REVENUES
Software sales $ 297 $ 1,246
Book sales - 151
Software royalties and license fees 7 1
- ------------------------------------------------------------------------------------------------------------
304 1,398
- ------------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 222 944
Royalties 3 30
- ------------------------------------------------------------------------------------------------------------
225 974
- ------------------------------------------------------------------------------------------------------------
GROSS MARGIN 79 424
- ------------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office and travel 166 104
Consultants and directors fees, salaries and employee benefits 381 641
Accounting, legal and other professional fees 84 134
Marketing, catalog and trade show costs (recovery) (31) 395
Depreciation and amortization 152 309
Rent 19 44
- ------------------------------------------------------------------------------------------------------------
771 1,627
- ------------------------------------------------------------------------------------------------------------
(692) (1,203)
- ------------------------------------------------------------------------------------------------------------
OTHER
Net interest income (expense) 29 (81)
Write-down of goodwill and other intangibles (744) -
Net loss on disposal of furniture and equipment (9) -
Net gain on sale of PLI shares - 514
Provision for loss on settlement of note receivable - (179)
Foreign exchange gain 57 -
Other 8 (2)
- ------------------------------------------------------------------------------------------------------------
(659) 252
- ------------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (1,351) (951)
- ------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Oil and gas working and royalty interests - (3)
- ------------------------------------------------------------------------------------------------------------
- (3)
- ------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,351) $ (954)
DEFICIT, beginning of period (26,522) (27,635)
- ------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (27,873) $ (28,589)
============================================================================================================
BASIC LOSS PER SHARE (Note 10) $ (0.11) $ (0.08)
Shares used in basic computation 12,663,113 11,515,287
FULLY DILUTED LOSS PER SHARE (Note 10) $ (0.11) $ (0.08)
Shares used in fully diluted computation 12,663,113 11,515,287
============================================================================================================
</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>
9 MONTHS ENDED SEPTEMBER 30 1997 1996
============================================================================================================
<S> <C> <C>
REVENUES
Software sales $ 1,970 $ 4,176
Book sales 17 319
Software royalties and license fees 14 80
Other - 20
- ------------------------------------------------------------------------------------------------------------
2,001 4,595
- ------------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 1,368 3,095
Royalties 27 117
- ------------------------------------------------------------------------------------------------------------
1,395 3,212
- ------------------------------------------------------------------------------------------------------------
GROSS MARGIN 606 1,383
- ------------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office and travel 497 504
Consultants and directors fees, salaries and employee benefits 1,230 1,831
Accounting, legal and other professional fees 362 471
Marketing, catalog and trade show costs 84 697
Depreciation and amortization 469 826
Rent 78 148
- ------------------------------------------------------------------------------------------------------------
2,720 4,477
- ------------------------------------------------------------------------------------------------------------
(2,114) (3,094)
- ------------------------------------------------------------------------------------------------------------
OTHER
Net interest income (expense) 5 (249)
Write-down of goodwill and other intangibles (744) -
Net loss on disposal of furniture and equipment (39) -
Net gain on sale of PLI shares 5,571 573
Provision for loss on settlement of note receivable - (179)
Foreign exchange gain 27 -
Other 11 12
- ------------------------------------------------------------------------------------------------------------
4,831 157
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 2,717 (2,937)
- ------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Oil and gas working and royalty interests - (26)
- ------------------------------------------------------------------------------------------------------------
- (26)
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2,717 $ (2,963)
DEFICIT, beginning of period (30,591) (25,626)
- ------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (27,874) $ (28,589)
============================================================================================================
BASIC INCOME (LOSS) PER SHARE (Note 10) $ 0.21 $ (0.26)
Shares used in basic computation 12,663,113 11,421,313
FULLY DILUTED INCOME (LOSS) PER SHARE (Note 10) $ 0.21 $ (0.26)
Shares used in fully diluted computation 12,663,113 11,421,313
============================================================================================================
</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 THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
9 MONTHS ENDED SEPTEMBER 30 1997 1996
========================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from continuing operations $ 2,717 $(2,937)
Non-cash items:
Depreciation and amortization 469 826
Write-down of goodwill and other intangibles 744 -
Gain on sale of PLI shares (5,571) (573)
Net loss on disposal of furniture and equipment 39 -
Provision for loss on settlement of note receivable - 179
- ----------------------------------------------------------------------------------------
(1,602) (2,505)
Net increase in non-cash working capital items (73) (178)
- ----------------------------------------------------------------------------------------
CASH USED FOR CONTINUING OPERATIONS (1,675) (2,683)
- ----------------------------------------------------------------------------------------
Net loss from discontinued operations (Note 11) - (26)
Non-cash items:
Provision for costs of disposition - 26
- ----------------------------------------------------------------------------------------
CASH PROVIDED BY DISCONTINUED OPERATIONS - -
- ----------------------------------------------------------------------------------------
CASH USED FOR OPERATING ACTIVITIES (1,675) (2,683)
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net term debt (payments) issuances (3,473) 534
Amount paid upon exercise of put option (175) -
Issuance of common stock - 2,113
- ----------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (3,648) 2,647
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of HighText multimedia software business - (641)
Net sale (purchase) of other assets 50 (97)
Issuance of notes receivable (500) -
Net proceeds from sale of PLI shares 6,796 670
Purchase of Madison shares - (7)
- ----------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 6,346 (75)
- ----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 1,023 (111)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,805 1,419
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,828 $ 1,308
========================================================================================
</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)
9 MONTHS ENDED SEPTEMBER 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 nine month periods ended September 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)
9 MONTHS ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 3. SUMMARY OF SECURITIES ISSUED DURING THE THIRD QUARTER
None.
NOTE 4. SUMMARY OF OPTIONS GRANTED DURING THE THIRD QUARTER
None.
NOTE 5. AUTHORIZED AND ISSUED SHARE CAPITAL AS OF SEPTEMBER 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 SEPTEMBER 30, 1997
None.
NOTE 7. LIST OF DIRECTORS AS OF SEPTEMBER 30, 1997
Nuno Brandolini James P. Angus Kevin R. McCarthy Neil S. MacKenzie
L. James Porter (Chairman)
NOTE 8. OPTIONS AND WARRANTS OUTSTANDING AS OF SEPTEMBER 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 593,332 1.25 1.25 August 16, 2003
Director options 160,000 1.25 1.25 August 16, 2003
- -----------------------------------------------------------------------------------------------
1,053,332
==========
</TABLE>
<PAGE> 9
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 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>
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
Zocal Foundation 250,000 2.50 2.25 August 24, 2000
----------
1,625,000
==========
</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)
NINE MONTHS ENDED SEPTEMBER 30 1997 1996
<S> <C> <C>
Net income (loss) according to Canadian GAAP $ 2,717 $ (2,963)
Non cash compensation expense - (59)
- --------------------------------------------------------------------------------------------
NET INCOME (LOSS) ACCORDING TO U.S. GAAP $ 2,717 $ (3,022)
</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.
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.
<PAGE> 10
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
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 discontinued or 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 September 30, 1997 $ 7,304
===========
</TABLE>
<PAGE> 11
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
OVERVIEW
During the third quarter of 1997 Hariston's management and Board continued their
efforts to sell the Company's multimedia software operations. During the
quarter, the financial position of the multimedia software operations continued
to deteriorate such that the current value of these operations was reduced.
Accordingly, as of September 30, 1997 the Company booked $744,294 of write-downs
of intangible assets associated with the multimedia software operations.
During the quarter, the Company continued its efforts to curtail spending in its
multimedia software operations, since these operations have been slated for sale
or discontinuance. Staffing at Educorp Direct Inc. ("Direct") and HighText
Interactive, Inc. ("HighText") was reduced from 14 persons at June 30, 1997 to 7
persons at September 30, 1997. Additionally, Direct vacated one-half of its
previous premises, reducing its lease costs. Further, Direct severely curtailed
its catalog mailings and inventory purchases.
During the quarter, the Company entered into a non-binding letter of intent to
sell substantially all of the assets of HighText for proceeds of approximately
$229,500, consisting of 150,000 shares of common stock of Byron Preiss
Multimedia ("Preiss") subject to adjustment intended to provide $1.33 in
proceeds per share for shares sold during the six months period beginning on
the first anniversary of the closing of the sale of HighText, and the
assumption by Preiss of up to $30,000 of liabilities. Preiss is a public company
whose common shares trade on the Nasdaq SmallCap Market in the United States,
under the symbol "CDRM". This sale transaction is currently anticipated to
close in December 1997.
Subsequent to the quarter, in October 1997, Hariston entered into a non-binding
letter of intent to sell substantially all of the assets, and transfer certain
of the liabilities, of Direct for consideration to consist solely of a 15%
equity interest in Arch Publishers Group, Inc. ("APG"), the purchaser. APG is a
private company such that the valuation of the 15% equity interest is not
determinable at this time. Completion of this sale transaction will require a
further $75,000 cash infusion by Hariston into Direct and is subject to APG
successfully negotiating terms with certain of Direct's trade creditors. This
sale transaction is currently anticipated to close prior to the end of the
first quarter of 1998.
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.
<PAGE> 12
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
The Company earned consolidated net income of $2,716,994 for the nine months
ended September 30, 1997 as compared to a net loss of $2,963,822 for the nine
months ended September 30, 1996.
However, excluding a $5,571,441 gain from the sale of PLI shares and an
associated foreign exchange gain of $27,498, the Company incurred a consolidated
net loss of $2,881,945 for the nine months ended September 30, 1997. Of this
loss, $1,949,644 was attributable to Educorp and its subsidiaries, $874,350 to
Hariston, and $57,951 to EuroEastern. Of the $1,949,644 loss attributable to the
Company's multimedia software operations, $1,552,034 arose from the Direct
operations and $138,791 from the HighText operations. The $258,819 remainder was
due to operating and corporate expenses incurred at the Educorp legal entity
level. Excluding the $744,294 of intangible asset write-offs at the Direct
level, Direct incurred a loss of $807,740.
Of the $2,963,822 loss incurred for the nine months ended September 30, 1996,
$2,081,694 was attributable to Educorp and its subsidiaries, $778,002 to
Hariston and $104,126 to EuroEastern. Of the $2,081,694 loss attributable to the
Company's multimedia operations, $976,575 arose from the Direct operations,
$610,340 from the HighText operations, and the $494,779 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.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year ending December 31, 1997.
EDUCORP DIRECT
Direct generated revenues of $1,934,907 for the nine months ended September 30,
1997, comprised of $1,476,989 from retail sales to end-users, $444,281 from
sales to dealers and $13,637 from software royalties and license fees. By
comparison, Direct generated revenues of $4,180,498 for the nine months ended
September 30, 1996, comprised of $3,098,376 from retail sales to end-users,
$1,001,848 from sales to dealers, and $80,274 from software royalties and
license fees.
Direct realized a gross profit of $558,535 for the nine months ended September
30, 1997, incurred a loss for the period of $354,596 before write-offs,
interest, depreciation and amortization, and incurred a net loss after these
items of $1,552,034. By comparison, Direct realized a gross profit of $1,218,349
for the nine months ended September 30, 1996, incurred a loss for the period of
$281,168 before write-offs, interest, depreciation and amortization, and
incurred a net loss after these items of $976,575.
RETAIL SOFTWARE SALES
Retail software sales for the nine months ended September 30, 1997 of $1,476,989
declined 52% relative to retail software sales of $3,098,299 for the same period
of 1996. Comparable period 1995 sales were $3,618,299.The primary reasons for
the decline in 1997 versus 1996 sales were first, a 49% decline in the number of
catalogs in circulation (550,000 catalogs were mailed in 1997 versus 1,080,000
in the same period of 1996), second, an 84% decline in international retail
sales, and third, a 12% decline in the average CD-ROM retail price realized by
Direct in 1997 compared with the same period of 1996, $26.22 as compared to
$29.80 in the same period of 1996 (and $34.56 in 1995). The industry sales
environment also remained extremely competitive during the first nine months of
1997, and the ongoing difficulties at Apple Computer continued to depress sales
of Macintosh CD-ROM titles.
<PAGE> 13
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
International retail software sales for the first nine months of 1997 were
$85,309 or 6% of total retail sales, as compared to $525,754 or 17% of total
retail sales for the nine months ended September 30, 1996 (and $524,487 or 15%
of total retail sales for the comparable period of 1995). The 84% decline in
international retail software sales during the first nine months of 1997 as
compared to the same period of 1996 was primarily due to first, severe
curtailment in catalog mailings to international addresses (a cost minimization
measure), 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 nine months ended September 30, 1997 of $444,281
declined 56% relative to dealer software sales of $1,001,848 for the same period
of 1996. Comparable period 1995 sales were $1,586,570. The decline in same
period sales from 1996 to 1997 primarily reflects first, a 73% decline in
international dealer software sales, and second, a 10% decrease in the average
CD-ROM dealer price realized by Direct. The average CD-ROM price realized was
$24.20 for the nine months ended September 30, 1997 as compared to $26.90 for
the same period of 1996 (and $30.85 for the same period of 1995).
International dealer software sales were $223,229 or 50% of total software sales
to dealers for the nine months ended September 30, 1997, as compared to $813,822
or 81% of total software sales to dealers for the nine months ended September
30, 1996 (and $1,198,094 or 76% for the same period of 1995). The 73% decline in
international dealer software sales for the nine months ended September 30, 1997
compared to the same period of 1996 primarily reflects first, a number of
dealers going out of business in the last quarter of 1996 and first quarter of
1997, second, a continuation of the trend to smaller international order sizes
due to an increasing number of publishers seeking direct distribution to foreign
dealers, and third, some constraint on Direct's ability to fill third quarter
orders due to a curtailment in its inventory purchases during the quarter.
ROYALTIES AND LICENSE FEES
Royalties and license fees of $13,637 for the nine months ended September 30,
1997 decreased 83% from the $80,274 figure earned for the nine months ended
September 30, 1996 (as compared to $334,120 for the same period of 1995). The
primary reason for the year over year decrease was the expiration during early
1996 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 $558,535 for the nine months ended September
30, 1997, representing 29% of revenues. This compares to $1,218,349 or 29% of
revenues for the same period of 1996.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $1,336,027 for the nine months ended
September 30, 1997, representing 69% of total revenues for the period. This
compares to $2,189,324 or 52% of revenues for the nine months ended September
30, 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
progressively taken to reduce these costs, primarily through staffing cuts,
during 1997, but at a slower pace than the rate at which revenues declined.
HIGHTEXT INTERACTIVE
HighText generated revenues of $66,891 for the nine months ended September 30,
1997 as compared to $414,730 for the nine months ended September 30, 1996. Of
the $66,891 figure for 1997, $3,352 was from retail sales to end-users and
$63,539 was from sales to dealers. Of the $414,730 figure for 1996, $115,933 was
from retail sales to end-users, $278,535 from sales to dealers, and $20,262 from
technical documentation fees.
<PAGE> 14
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
HighText realized a gross profit of $47,745 for the nine months ended September
30, 1997, and incurred a net loss of $138,791. During the same period of 1996,
HighText realized a gross profit of $164,562 and incurred a net loss of
$610,340.
SOFTWARE SALES
Software sales for the nine months ended September 30, 1997 were $49,239, a 35%
decrease from software sales of $75,529 for the same period of 1996.
The $49,239 figure for 1997 was comprised of $524 sales to end-users and $48,715
sales to dealers. By comparison, the $75,529 figure for 1996 was comprised of
$35,799 sales to end-users and $39,730 sales to dealers. While dealer sales
increased by 22% from 1996 to 1997, end-user sales declined 99% reflecting the
fact that HighText has operated without the capability to market its product to
end-users for substantially all of 1997 to date.
HighText realized an average CD-ROM price of $19.43 during the first nine months
of 1997, as compared to $21.59 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 (a cost
minimization measure). 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).
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 nine months of 1996, book sales were $318,939, consisting of $80,134
retail sales to end-users and $238,805 sales to dealers. By comparison, for the
nine months ended September 30, 1995 book sales were $303,706, consisting of
$202,659 retail sales to end-users and $101,047 sales to dealers.
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 $171,504 of operating and
corporate expenses for the nine months ended September 30, 1997 were salary and
consultants costs totaling $86,934, depreciation and
<PAGE> 15
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
amortization of $40,419 and rent expense of $15,234. By comparison, HighText
incurred $771,102 of operating and corporate expenses for the nine months ended
September 30, 1996, consisting principally of salary and consultants costs
totaling $331,014, marketing and trade show costs of $227,811, depreciation and
amortization of $116,103 and rent expense of $27,228. HighText expensed the
costs of developing new software and book titles as they were incurred. During
the period January 1 to September 30, 1996 HighText had fourteen software and
four book titles under development.
The reduction in operating and corporate expenses from 1996 to 1997 primarily
reflects the winding down of substantially all of HighText's operations in the
first quarter of 1997.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
Educorp incurred $241,578 of non-consolidated operating and corporate expenses
for the nine months ended September 30, 1997, consisting principally of $230,441
of consultants fees. By comparison, Educorp incurred $487,057 of
non-consolidated operating and corporate expenses for the nine months ended
September 30, 1996, consisting principally of $314,196 of salaries and
consultants fees, $101,849 of accounting and legal 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 level. Additionally, substantially all of the 1997 consulting fees
expense at the Educorp level results from a contractual obligation that arose in
connection with the August 25, 1995 purchase of the Direct operations.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Hariston incurred $923,822 of non-consolidated operating and corporate expenses
during the nine months ended September 30, 1997, compared to $925,979 for the
same period of 1996 and $885,000 for the same period of 1995.
The majority of Hariston's non-consolidated operating and corporate expenses for
the nine months ended September 30, 1997 were $328,595 of salaries, directors
fees and consultants fees, $211,099 of legal fees, $106,146 of accounting, audit
and tax return preparation fees, $78,372 of shareholder communications costs,
$52,005 of insurance costs, $11,112 of office rent and $53,681 of travel costs.
By comparison, the majority of Hariston's non-consolidated operating and
corporate expenses during the comparable period of 1996 were $283,392 of
salaries, directors fees and consultants fees, $215,824 of legal fees, $113,460
of accounting, audit and tax return preparation fees, $108,606 of shareholder
communications costs, $53,724 of insurance costs, $39,212 of office rent,
$37,131 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.
EuroEastern incurred $57,951 of operating and corporate expenses for the nine
months ended September 30, 1997, consisting principally of $37,875 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 $104,126 of operating and corporate expenses, consisting principally of
$50,647 of consultants fees including travel costs reimbursement, $14,306 of
secretarial fees and $31,852 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 in connection with the sale by
Hariston of the last of its shares in PLI. It is not anticipated that
EuroEastern will be used for any purpose going forward.
<PAGE> 16
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1996
The Company incurred a consolidated net loss of $1,351,731 for the three months
ended September 30, 1997 as compared to $954,287 for the three months ended
September 30, 1996. Excluding the $744,294 write-off of intangibles assets taken
by Direct, the Company incurred a consolidated net loss of $607,437 for the
third quarter of 1997. Of this $607,437 loss, $421,847 was attributable to
Educorp and its subsidiaries, $182,355 to Hariston and $3,235 to EuroEastern. Of
the $421,847 loss attributable to the Company's multimedia software operations,
$247,879 arose from the Direct operations and $7,994 from the HighText
operations. The $165,974 remainder was due to operating and corporate expenses
incurred at the Educorp level.
Of the $954,287 third quarter 1996 loss, $823,382 was attributable to Educorp
and its subsidiaries, $87,235 to Hariston, and $43,670 to EuroEastern. Of the
$823,382 loss attributable to the Company's multimedia software operations,
$358,656 arose from the Direct operations and $273,183 from the HighText
operations. The $191,543 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.
The results of operations for the three months ended September 30, 1997 are not
necessarily indicative of the results of operations to be expected for the three
months ended December 31, 1997.
EDUCORP DIRECT
Direct generated revenues of $292,679 for the three months ended September 30,
1997, comprised of $258,783 from retail sales to end-users, $26,554 from sales
to dealers and $7,342 from software royalties and license fees. By comparison,
Direct generated revenues of $1,199,412 for the third quarter of 1996, comprised
of $875,474 from retail sales to end-users, $322,436 from sales to dealers, and
$1,502 from software royalties and license fees.
Direct realized a gross profit of $65,897 for the three months ended September
30, 1997, as compared to $362,615 for the third quarter of 1996. Direct incurred
a third quarter 1997 loss before write-offs, interest, depreciation and
amortization of $92,682 and a net loss after these items of $992,173, as
compared to a third quarter 1996 loss before write-offs, interest, depreciation
and amortization of $125,459, and a net loss after these items of $358,656.
RETAIL SOFTWARE SALES
Retail software sales for the quarter ended September 30, 1997 of $258,783
declined 70% relative to retail software sales of $875,474 for the same period
of 1996. Comparable period 1995 sales were $1,034,993. The primary reasons for
the decline in 1997 versus 1996 sales were, first, the low number of catalogs in
circulation (no catalogs were mailed in the third quarter of 1997 versus 300,000
in the same period of 1996), second, an 89% decline in international retail
sales and third, some constraint on Direct's ability to fill orders due to a
significant curtailment in inventory purchases during the third quarter of 1997.
Other factors adversely affecting sales included a decline in the average
realized CD-ROM retail price and with respect to sales of Macintosh CD-ROM
titles, the widely publicized problems at Apple Computer.
International retail software sales were $15,724 or 6% of total retail sales for
the three months ended September 30, 1997 as compared to $146,955 or 17% of
total retail sales for the third quarter of 1996 (and $153,378 or 15% of total
retail sales for the comparable period of 1995). The 89% decline in
<PAGE> 17
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
international retail sales during the third quarter of 1997 as compared to the
third quarter of 1996 was primarily due to first, no catalog mailings being made
to international addresses in the quarter and there being severely reduced
catalog mailings to international addresses in the previous quarter, second,
some constraint on Direct's ability to fill orders due to a significant
curtailment in inventory purchases during the third quarter of 1997 and third,
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 September 30, 1997 of $26,554
declined 92% relative to dealer software sales of $322,436 for the same period
of 1996. Comparable period 1995 sales were $489,632. This decline in same period
sales from 1996 to 1997 reflects primarily first, a 95% decline in international
dealer software sales, second, some constraint on Direct's ability to fill
orders due to a significant curtailment in inventory purchases during the third
quarter of 1997 and third, a continuation of the trend for publishers to sell
directly to dealers. Other factors adversely affecting sales included a decline
in the average realized CD-ROM dealer price and with respect to sales of
Macintosh CD-ROM titles, the widely publicized problems at Apple Computer.
International dealer software sales were $12,870 or 48% of total software sales
to dealers for the third quarter of 1997, as compared to $275,430 or 85% of
total software sales to dealers for the three months ended September 30, 1996
(and $401,021 or 82% for the comparable period of 1995). The 95% decline in
international dealer software sales from 1996 to 1997 reflects first, a number
of dealers going out of business in the last quarter of 1996 and first quarter
of 1997, second, a continuation of the trend for publishers to sell directly to
foreign dealers, and third, some constraints on Direct's ability to fill orders
due to a significant curtailment in inventory purchases during the third quarter
of 1997.
GROSS PROFIT
Direct realized a gross profit of $65,897 for the quarter ended September 30,
1997, representing 23% of revenues. This compares to $362,615 or 30% of revenues
for the same period of 1996. The decline in gross margin from 1996 to 1997
primarily reflects several bulk sales of old inventory for reduced prices during
the third quarter of 1997.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $312,008 for the quarter ended September
30, 1997, representing 106% of revenues for the period. This compares to
$714,675 or 60% of revenues for the quarter ended September 30, 1996. The
increase in operating and corporate expenses as percentage of revenues from 1996
to 1997 primarily reflects Direct's high level of discretionary fixed costs and
overhead costs relative to the revenues that Direct was able to realize for the
quarter. While steps were progressively taken to reduce these costs, primarily
through staffing cuts, during 1997, this occurred at a slower pace than the rate
at which revenues declined.
HIGHTEXT INTERACTIVE
HighText generated revenues of $11,230 for the three months ended September 30,
1997 as compared to $199,629 for the three months ended September 30, 1996. All
of the $11,230 figure for 1997 was comprised of sales to dealers. Of the
$199,629 figure for 1996, $50,343 arose from retail sales to end-users and
$149,286 from sales to dealers.
HighText realized a gross profit of $12,509 for the third quarter of 1997, and
incurred a net loss of $7,994. During the third quarter of 1996, HighText
realized a gross profit of $61,395 and incurred a net loss of $273,183.
<PAGE> 18
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SOFTWARE SALES
Software sales for the quarter ended June 30, 1997 were $11,230, a 77% decline
from software sales of $48,733 for the same period of 1996.
The $11,230 figure comprises sales to dealers. By comparison, the $48,733 figure
consisted of $23,933 sales to end-users and $24,800 sales to dealers.
BOOK SALES
No book sales were made in the third quarter of 1997 as the book publishing
operations were sold effective January 31, 1997. Book sales during the third
quarter of 1996 were $150,896, consisting of $29,474 retail sales to end-users
and $121,422 sales to dealers.
OPERATING AND CORPORATE EXPENSES
The most significant component of HighText's $19,703 of operating and corporate
expenses for the third quarter of 1997 was depreciation and amortization of
$14,404. By comparison, HighText incurred $334,193 of operating and corporate
expenses for the quarter ended September 30, 1996, consisting principally of
salary and consultants costs of $146,452, marketing and trade show costs of
$85,906, and depreciation and amortization expense of $75,945. 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 substantially all of HighText's operations in the
first quarter of 1997.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
The majority of Educorp's $157,401 of non-consolidated operating and corporate
expenses for the third quarter of 1997 were consultants fees. By comparison,
Educorp incurred $183,820 of non-consolidated operating and corporate expenses
for the third quarter of 1996, consisting principally of salaries and
consultants fees. The consultants fees in both years were largely attributable
to contractual obligations arising from the August 25, 1995 purchase of the
Direct operations.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Hariston incurred $292,290 of non-consolidated operating and corporate expenses
during the third quarter of 1997, compared to $350,342 for the same period of
1996.
The majority of Hariston's non-consolidated operating and corporate expenses for
the third quarter of 1997 were $104,773 of salaries, directors fees and
consultants fees, $76,476 of legal and accounting fees, $41,258 of shareholder
communications costs, $27,904 of travel costs and $15,806 of insurance costs.
The majority of Hariston's non-consolidated operating and corporate expenses for
the third quarter of 1996 were $112,907 of salaries, directors fees and
consultants fees, $110,678 of legal and accounting fees, $48,596 of shareholder
communications costs, $27,309 of travel costs and $13,035 of insurance costs.
EuroEastern incurred only $3,235 of non-consolidated operating and corporate
expenses in the third quarter of 1997, as compared to $43,670 in the third
quarter of 1996. The reduction in EuroEastern's operating and corporate expenses
from 1996 to 1997 reflects the winding down of its activities.
<PAGE> 19
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
INVESTMENTS
POLISH LIFE IMPROVEMENT S.A.
PLI is a Kielce, Poland based company engaged in the operation of home
improvement stores. Hariston co-founded PLI in 1993 and initially held an 80%
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 1,820,566 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 a $1.5 million
short-term note receivable. In the second quarter of 1997, Hariston sold its
remaining 60,566 PLI shares for proceeds of approximately $275,000.
Payments totaling $1 million have been received on the short-term note
receivable, leaving a $500,000 balance receivable as of the end of the third
quarter. This remaining balance is due to be collected in March 1998.
MADISON HOLDINGS LIMITED
Madison is a Toronto, Ontario based company engaged in various marketing
businesses. Hariston initially acquired a 31% interest in Madison in 1992. Due
to limited share sales by Hariston in 1995, treasury share issuances by Madison
in each year from 1993 to 1997, and a one for ten share consolidation that
occurred in 1996, Hariston currently owns 233,591 Madison common shares
representing less than a 3% interest in Madison. Trading in Madison's shares was
suspended in January, 1996 when its secured creditors seized substantially all
of its assets including ownership of its only operating subsidiary. Madison
subsequently remained inactive until it acquired two operating businesses in the
third quarter of 1997, both businesses engaged in marketing products to the home
based business market. Madison is currently seeking approval for its shares to
resume trading on the Canadian Dealing Network, an over-the-counter market
affiliated with the Toronto Stock Exchange.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997 the Company had cash balances of $3,828,454, a working
capital ratio of 2.76 and a debt/equity ratio of 0.44. This compares favorably
with September 30, 1996 cash of $1,307,761, working capital ratio of 0.52 and a
debt/equity ratio of 1.80. The Company's principal capital requirements include
working capital to finance the multimedia software operations until they can be
sold or discontinued, 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 September 30,
1997 the Company had an accumulated deficit of $27,873,987, as compared to an
accumulated deficit of $28,588,806 at September 30, 1996.
From January 1 to November 15, 1997 the Company advanced $400,282 to fund the
working capital needs of the multimedia software operations. Additionally, the
Company made payments totaling $239,897 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, the letters of intent to sell substantially all of
the assets of the multimedia software operations, and management's expectations
for future events, the Company does not expect that the multimedia software
operations will require significant further capital infusion before sale or
<PAGE> 20
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
discontinuance over and above the $75,000 cash infusion called for by the letter
of intent with APG. However, there is no assurance that the multimedia software
operations will be sold as proposed, or that a significant capital infusion will
not be required to effect a sale or discontinuance.
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. However, the
impact of this seasonal effect may not be significant relative to a number of
other factors that affect the results of the multimedia software operations,
such as the number of catalogs in circulation, the number of marketing, sales
and order fulfillment personnel employed in the multimedia software operations
and general competitive conditions in the industry.
FORWARD-LOOKING INFORMATION
This Quarterly Report 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 or discontinuance 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> 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In August 1997, the Company received a documents demand from the
British Columbia Securities Commission (the "BCSC"), which requires that the
Company provide various records to the BCSC for use in connection with an
investigation involving Reynolds Kendrick Stratton, Inc. ("RKS") and others.
The Company is aware that the BCSC has sent similar demands to the Company's
current and former auditors. Additionally, the Company's former U.S. legal
counsel, and certain current and former officers have received subpoenas from
the United States Securities and Exchange Commission (the "SEC"), requesting
documents in connection with a related investigation. RKS and its successor,
J.B. Oxford & Co. ("JBO"), were formerly market makers in the stock of the
Company, and JBO remains one of the larger registered shareholders of the
Company, holding approximately 934,508 shares of Common Stock, or approximately
7.4% of the issued and outstanding shares of Common Stock. The Company is
cooperating with the BCSC and the SEC, and intends to continue to comply with
the documents demand referenced above.
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 September 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
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -----------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K: None
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page
- ----------- ----------------------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<PAGE> 23
SIGNATURE
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: November 19, 1997 By: /s/ L. James Porter
-----------------------------
L. James Porter,
Chief Financial Officer
(Duly authorized officer and Principal
Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,828
<SECURITIES> 0
<RECEIVABLES> 695
<ALLOWANCES> 26
<INVENTORY> 96
<CURRENT-ASSETS> 4,642
<PP&E> 419
<DEPRECIATION> 204
<TOTAL-ASSETS> 5,937
<CURRENT-LIABILITIES> 1,685
<BONDS> 127
0
0
<COMMON> 31,999
<OTHER-SE> (27,874)
<TOTAL-LIABILITY-AND-EQUITY> 5,937
<SALES> 1,987
<TOTAL-REVENUES> 2,001
<CGS> 1,395
<TOTAL-COSTS> 1,395
<OTHER-EXPENSES> 2,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5)
<INCOME-PRETAX> 2,717
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,717
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
