SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For Six Months Ended June 30, 1999
Commission File Number 0-3296
ETHIKA CORPORATION
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0440887
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11249 W. 103rd Drive
Westminster, Colorado 80021
(Address of Principal Executive Office)
Registrant's telephone number including area code: (303) 637 2351
107 The Executive Center
Hilton Head Island, South Carolina 29928
Former name, former address, and former fiscal year, if changed since last
report: NONE.
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.
CLASS Outstanding at August 10, 1999
Common Stock, $1.00 par value 28,360,346
<PAGE>
ETHIKA CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1999
and December 31, 1998 3
Consolidated statements of operations for
the three and six months ended June 30, 1999 and 1998 4
Consolidated statements of cash flows for the six months
ended June 30, 1999 and 1998 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 8
Item 6. Reports of Form 8-K 8
Signatures 8
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Ethika Corporation and Subsidiaries
Consolidated Balance Sheet June 30, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(Unaudited) June 30, 1999 Dec. 31, 1998
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 86,453 $ 48,318
Accounts receivable, net of allowance
for doubtful accounts 7,457 7,457
Investment securities- Trading
Note Receivable 84,482 135,000
80,802 74,683
Total Current Assets
268,194 265,458
------- -------
Note Receivable - Non current 23,664 69,515
------ ------
Total Assets $291,858 $ 334,973
======== =========
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LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 400,344 $ 233,343
--------- ----------
Total Current Liabilities 400,344 233,343
------- -------
Stockholders' Equity
Common Stock, $1 par value authorized 50,000,000 shares;
issued 23,387,658 shares and 20,387,658;
outstanding 23,360,346 shares and
20,387,658 shares; 23,361,458 20,361,458
Discount on Common Stock ( 8,123,528) ( 8,123,528)
Accumulated Deficit (12,345,306) (12,135,188)
Less: 27,312 shares of Treasury stock at cost ( 1,112) ( 1,112)
------------ ------------
Total Stockholders' Equity (108,486) 101,630
-------- -------
Total Liabilities and Stockholders' Equity $ 291,858 $ 334,973
============= =============
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<TABLE>
<CAPTION>
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Ethika Corporation and Subsidiaries
Consolidated Statement of Operations
For the six months ended June 30, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
Three Months ended Three Months ended Six Months ended Six Months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
General and administrative expenses $27,038 $136,005 $44,889 $329,127
Lawsuit Settlement 200,000 - 200,000 -
Interest income 5,273 10,056 5,287 27,770
Gain (loss) on disposal of fixed Assets - (35,397) - (32,995)
Gain (loss) from investment securities 29,484 (297,518) 29,484 (282,263)
Income tax benefit - - - -
Net loss ($192,281) ($448,864) ($210,118) $(616,609)
========= ========= ========= =========
Basic and diluted net loss per share $(.01) $(.023) $(.01) $(.041
===== ====== ===== ======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Accompanying notes are an integral part of these Consolidated Financial
Statements
<PAGE>
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Ethika Corporation and Subsidiaries Consolidated
Statement of Cash Flows For the six months
ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss ($ 210,118) ($616,609)
Adjustments to reconcile net (loss)
to net cash provided by operating activities - -
Loss on Disposal of Fixed Assets - 35,397
Realized and unrealized (gain)loss on
investment securities (29,484) 282,263
Changes in balance sheet accounts:
Decrease in Assets held for sale - 739,545
Increase ( decrease) in accounts payable
and other liabilities 167,001 (233,901)
Sales of investment securities - trading 80,000 171,847
Net cash provided by (used from)
Operating activities 7,401 388,542
-----
Cash flows from investing activities:
Payments received from leases - 54,199
Disposal of fixed assets - 9,700
Note Receivable - (450,000)
Net cash (used from) provided by
Investing activities 30,734 (421,368)
Cash flows from financing activities:
Net cash used from financing activities 0 0
Increase (decrease) in cash and cash
Equivalents 38,135 (473,631)
Cash and cash equivalents - beginning of
Period 48,318 535,651
Cash and cash equivalents - end of period $ 86,453 $ 62,020
Supplemental Cash Flow Information:
Cash payments for interest 0 0
Cash payment for income taxes: 0 0
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
ETHIKA CORPORATION
Notes to Unaudited Consolidated Financial
Statements For the six months ended June
30, 1999.
NATURE OF OPERATIONS
Ethika Corporation (the "Corporation") has no present operations other than the
holding of certain assets. The Corporation is seeking a privately held business
with whom it can reorganize so as to take advantage of the Corporation's status
as publicly held corporation.
BASIS OF PRESENTATION
The un-audited financial statements contain all adjustments considered necessary
by Management to make the financial statements not misleading.
NOTE RECEIVABLE
During 1995, the Corporation entered into leasing activities which consist of
the leasing of fry cook units to be placed in various locations and operated by
the lessee. On March 12, 1999, the Corporation entered into an agreement with
the Parent Corporation of the lessee, whereby the Corporation assigned its
leases to the Parent Corporation for a non interest bearing promissory note in
the amount of $128,000 plus a $12,000 cash payment. The note provides for
sixteen monthly installments of $8,000 beginning on April 15, 1999. The
Corporation recorded the note at present value of $144,198 imputing interest at
8.00%. The Corporation recognized a loss of $27,292 on this transaction.
LAWSUIT SETTLEMENT
On September 20, 1998, the Registrant was served with the Third Amended
Complaint in an action entitled Jeffrey Allard, et al v. Kidztime TV, Inc., et
al in Colorado District Court, Jefferson County, Colorado. On July 6, 1999, the
Registrant entered into and closed a settlement agreement on its previously
disclosed Legal Proceedings of Jeffrey Allard, et al v. Kidztime TV, Inc., et al
in Colorado District Court, Jefferson County, Colorado. The settlement releases
all of the plaintiffs claims against the Registrant and any potential claims
against the Registrant's management. The terms of the offer were the payment of
$100,000 and the issuance of 5,000,000 shares of restricted common stock. The
legal proceedings are to be dismissed with prejudice.
GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. For the twelve month period ended
December 31, 1998, the Company incurred a loss from operations of $1,599,461 and
had an accumulated deficit of $12,135,188 that raise substantial doubt about its
ability to continue as a going concern.
<PAGE>
Item 2 - Management's Plan of Operations
The Registrant did not have any revenue from operations during the fiscal year
ended December 31, 1998 nor during the current fiscal year. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. Having investment income as its only source of income,
raises substantial doubt about the ability of the Company to continue as a going
concern.
The Registrant's plan of operations for the remainder of the fiscal year is seek
out a privately held business with whom the Registrant can reorganize so as to
take advantage of the Registrant's status as a publicly held corporation. In
order to facilitate this objective, the Registrant has settled the Kidztime TV
legal proceeding described below and held a Shareholder's Meeting in June 1999
and adopted certain measures to facilitate a reorganization. The measures
approved by the Shareholders authorized the Board of Directors to take the
following actions pursuant to a reorganization of the Registrant:
1. Increase the size of the Board of Directors to seven members
2. Amend the Articles of Incorporation to Change the Name of the
Corporation
3. Declare a reverse split of up to 50 to 1.
As of the date of this report, Management has evaluated several potential
reorganizations. However as of the date of this report, there has been no
decision to proceed on any reorganization nor has any agreement been reached on
even principal terms of such a reorganization.
Liquidity and Capital Resources
The Registrant has reduced its overhead expenses to approximately $6,000 per
month and is paying $1,000 per month against its account payable to its former
auditor. The Registrant receives $8,000 per month in payment of its note
receivable from Alanco Environmental Resources Corporation and from these funds
the Registrant expects to have sufficient cash resources for its reduced
operations.
In order to fund the settlement of the legal proceeding described below, the
Registrant sold 820,513 shares of its Ben Ezra Weinstein and Company, Inc.,
common stock for $80,000 in cash. The Registrant paid a total of $100,000 to
settle the action. The Registrant retains 866,487 shares of its Ben Ezra
Weinstein and Company, Inc., common stock and expects to continue to hold these
shares as a reserve against future needs.
<PAGE>
Part II Other Information:
Item 1. Legal Proceedings
On July 6, 1999, the Registrant entered into and closed a settlement agreement
on its previously disclosed Legal Proceedings of Jeffrey Allard, et al v.
Kidztime TV, Inc., et al in Colorado District Court, Jefferson County, Colorado.
The settlement releases all of the plaintiffs claims against the Registrant and
any potential claims against the Registrant's management. The terms of the offer
were the payment of $100,000 and the issuance of 5,000,000 shares of restricted
common stock. The legal proceedings are to be dismissed with prejudice.
Item 6 - Exhibits and Reports on 8K
Exhibits:
(27) Financial Data Schedule
(b) 8-K filed July 12, 1999 regarding settlement of
Kidztime TV legal proceeding.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ethika Corporation
------------------
(Registrant)
Date: August 10, 1999 /s/Dennis Brovarone
-------------------
President
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<CASH> 86,453
<SECURITIES> 84,428
<RECEIVABLES> 80,802
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 268,194
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 291,858
<CURRENT-LIABILITIES> 400,344
<BONDS> 0
0
0
<COMMON> (108,486)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 291,858
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 227,038
<LOSS-PROVISION> (450,000)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (192,281)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,281)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
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