Hariston Corp. Hopes to Leave Its Past Behind : Corporations: CEO strives to revive firm’s shady reputation with make-over, including move to Costa Mesa. Some still wary.
When people are desperate to get a fresh start, they sometimes move to a new town, change jobs, buy new clothes, maybe even get a little plastic surgery.
When companies are desperate for a fresh start, it’s not all that different.
Consider Hariston Corp., a Costa Mesa-based publisher and distributor of computer games and other CD-ROM software.
Just two years ago, Hariston was a Vancouver, B.C.-based company whose primary assets were oil and gas properties. It was also beset by allegations that its stock price was being manipulated by a promoter who had been convicted of fraud.
For a short time, the company’s stock price soared while executives raised the hopes of an entire Montana town with promises that they had found a way to clean polluted mining waters and sellb the extracted minerals for a profit.
Those plans washed out amid criticism that the operation was a scam. And since then, Hariston has undergone what its executives insist is a complete make-over, dumping all its top management, jettisoning its mining holdings and jumping into the multimedia industry.
Hariston’s new chief executive acknowledges the company still has one tenuous connection to its unsavory past, but promises that everything is on the up-and-up.
“My mandate was to clean house,” said J.V. McGoodwin, a longtime venture capitalist in Orange County who was hired as CEO of Hariston last November. “We have a heritage that isn’t particularly pretty. But I’ve got to move forward.”
Former associates say McGoodwin can be trusted. “He’s hard-working, he’s honest, he’s very bright,” said Jeff Brown, a local venture capitalist who during the 1980s worked with McGoodwin at the Security Pacific Venture Capital Group in Costa Mesa. “I have the utmost confidence in his business ethics,” he said.
Nevertheless, followers of Hariston remain deeply suspicious.
“It’s always possible that the leopard has changed its spots, but it isn’t likely,” said John Woods, who has followed the company as editor of Stockwatch, a Vancouver-based stock newsletter.
McGoodwin, 41, who works in a 12th-floor office in a Costa Mesa high-rise, knows credibility may be tough to come by for awhile. So he is blunt when he explains why he agreed to tackle Hariston.
“I have enough [stock] options that I can make a substantial amount of money,” he said, adding that there is also the challenge of undertaking what he calls “the ultimate turnaround.”
Turnaround indeed. In terms of its business holdings, about the only thing Hariston Corp. of 1995 has in common with Hariston Corp. of 1993 is an interest in a small chain of supermarkets in Poland. Of course, the company name is still the same, but McGoodwin said even that will probably change when Hariston completes its move to Costa Mesa.
The centerpiece of the company in 1993, and the root of many of its problems, was a division in Butte, Mont., called Metanetix.
In the early part of this century, Butte’s mines supplied much of the copper needed for wiring to bring electricity to the nation. But when the mines disappeared, they left behind a ground water supply polluted with metals and minerals.
In 1993, Metanetix came to town claiming it had a new technology that could not only clean the water, but also extract the minerals and sell them for a profit. The promise of clean water and up to 100 new jobs elated local residents.
What residents did not know was that a similar scheme, backed by many of the same players, had been unsuccessful in Europe. Nor did they know that Hariston was being touted by a Beverly Hills-based brokerage firm, Reynolds Kendrick & Stratton, that had ties to a stock promoter named Irving J. Kott.
Kott had been convicted in Canada of stock fraud in 1976, and was accused of being involved in other suspicious ventures, including the previous minerals extraction scheme in Europe. Kott could not be reached for comment.
Also troublesome were the tangled interrelationships between Hariston and Reynolds Kendrick. At a time when Reynolds Kendrick handled much of the trading in Hariston’s stock, major investors in Hariston were serving on the brokerage’s board of directors. Hariston and the brokerage firm were never targets of regulatory action, government officials said.
With Reynolds Kendrick brokers touting Hariston, its stock price tripled to $10.75 per share in about a year, as even Butte residents started buying shares. But by late last year the minerals extraction operation was sputtering, the stock had dropped to under $5, and the company was searching for more cash to pump into the Butte project.
Hariston turned to one of its more prominent shareholders, Pierre Caland, a resident of Switzerland who manages a European investment group. Before agreeing to pump in more cash, Caland, 39, asked McGoodwin to take a look at the company.
McGoodwin “and I had been partners in venture capital deals for three years,” Caland said. “I said these gentlemen [at Hariston] want some money. He said the company had poor management, no direction.”
Caland finally did agree to inject $2 million into Hariston, but only if all five board members resigned, and McGoodwin could run the company. With few options, the board agreed.
McGoodwin moved quickly, recruiting new board members who he says were recommended by the Arthur Andersen accounting firm’s consulting offices in Vancouver. He also hired a new chief financial officer, James Porter, who had been a senior tax manager with Arthur Andersen.
McGoodwin halted further spending on the minerals extraction operation and in May sold the Metanetix division. A month later, the company also unloaded its oil and gas holdings.
Then, in August, Hariston used the proceeds from these sales to acquire Educorp Multimedia, a CD-ROM mail-order company in San Diego with sales of about $10 million last year, McGoodwin said. The shift in direction at Hariston certainly appeared jarring, but McGoodwin says it only looked that way from the outside.
“My background had nothing to do with what Hariston had done,” he said. “The multimedia business offered opportunity . . . a path to recapture the shareholder value that had clearly been lost by the antics of the past.”
The pullout from Butte came as a deep disappointment to the city’s residents, but McGoodwin is quick to point out that Metanetix did employ 80 people in Butte, and pumped about $15 million into the local economy while trying to make the minerals extraction technology viable.
“That it didn’t work is unfortunate,” McGoodwin said. “But my obligation is to the shareholders of Hariston.”
As for the Butte residents and others who bought stock in Hariston based on the promise of the Butte venture, McGoodwin said, “Ultimately I can help those people better by repositioning the company and going forward.”
Critics question just how forward the company has moved, pointing out that although Hariston has changed directions, it still has at least one connection to Kott.
The Reynolds Kendrick brokerage did some housecleaning of its own last year and changed its name to J.B. Oxford & Co. The company boasts a new board of directors and a new discount-oriented strategy--but the same old relationship with Kott.
Tim Tyrrell, manager of the trading room at J.B. Oxford, said the firm still sells Hariston stock and employs Kott as a consultant--the same relationship he had with the company two years ago.
Tyrrell insisted that the brokerage doesn’t promote specific stocks anymore, but said he could not explain why Kott was still around. “I don’t get involved in that,” he said. A spokesman for the brokerage, who asked not to be identified, explained the connection simply by saying Kott “knows a lot of people.”
McGoodwin says J.B. Oxford is one of 20 or more brokerages trading Hariston stock, and points out that the company’s stock price has been fairly steady over the past year. It has traded in the $3 to $5 range, showing none of the wild swings that would signal the kind of price manipulation Kott had been accused of orchestrating, McGoodwin said. Lately, Hariston stock has been trading at about $3.25 on the Nasdaq market.
Kott’s affiliation with J.B. Oxford and that firm’s role as a market maker for Hariston “is undoubtedly an unfortunate situation,” McGoodwin said. “But public companies really don’t have a lot of control over who their market makers are. As we become a stronger company, we will attract other market makers, firms more to our liking.”
Critics say investors should wait and see. “I would never touch any company that Irving Kott has been associated with,” said Woods, editor of the Stockwatch newsletter. “Kott has been around Hariston for so long, Hariston without Irving Kott is like a boy without his slingshot.”
McGoodwin winces at such remarks, but stresses that he is concentrating on distancing Hariston from what he calls its “ugly” past.
He sees Educorp, a company founded in 1984, as the first of several acquisitions he hopes to make in building Hariston into a developer, publisher and distributor of CD-ROMs. That process has been hampered, he admits, by Hariston’s checkered past.
“If we’re going to create a new company, we have to distance ourselves from Irving Kott,” he said. “That’s just one of the many burdens I have to bear.”
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From Oil and Gas to CD--ROMs
Hariston Corp., a former Canadian firm now based in Costa Mesa, left the oil and gas business to become a CD-ROM publisher and distributor with its purchase of Educorp Multimedia. Details on the two firms:
Former headquarters: Vancouver, B.C.
Current headquarters: Costa Mesa
President/CEO: J.V. McGoodwin
Employees: Four in Costa Mesa
Former business: Diversified holding company with oil and gas properties in Western Canada and a mineral extraction business in Butte, Mont.
Current business: CD-ROM distributor and owner of a supermarket and home-improvement chain in Poland
Status: Public; traded on Nasdaq
President: Nick Mosich
Fiscal 1995 sales: Approximately $10 million
Headquarters: San Diego
Status: Private; acquired by Hariston Corp. in August for $5.5 million
Business: CD-ROM publisher and distributor
Other divisions: CD-Soft Supply, wholesale sales; Gazelle Studios, software publishing; Soft Net, electronic sales catalogue
Source: Hariston Corp., Educorp MultiMedia
Researched by JANICE L. JONES / Los Angeles Times