SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For Nine Months Ended September 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 (Identification No.)
IRS Employer incorporation or organization)
11249 W. 103rd Drive
Westminster, Colorado 80021
(Address of Principal Executive Office)
Registrant's telephone number including area code: (303) 637 2351
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 November 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 - September 30, 1999 and December 31, 1998......3
Consolidated statements of operations for the three and nine months
ended September 30, 1999 and 1998..........................................4
Consolidated statements of cash flows for the nine months
ended September 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..............................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K.......................................8
Signatures.....................................................................8
2
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
<TABLE>
Ethika Corporation and Subsidiaries
Consolidated Balance Sheet Sept 30, 1999 and December 31, 1998
<CAPTION>
(Unaudited) Sept 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,895 $ 48,318
Accounts receivable, net of allowance
for doubtful accounts 14,701 7,457
Investment securities- Trading
Note Receivable 84,482 135,000
91,724 74,683
-------------- -------------
Total Current Assets
202,802 265,458
Note Receivable - Non current - 69,515
-------------- -------------
Total Assets $ 202,802 $ 334,973
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable and accrued expenses $ 222,344 $ 233,343
-------------- -------------
Total Current Liabilities 222,344 233,343
-------------- -------------
Stockholders' Equity
Common Stock, $1 par value authorized 50,000,000 shares;
issued 28,387,658 shares and 20,387,658;
outstanding 28,360,346 shares and 20,387,658 shares; 25,361,458 20,361,458
Discount on Common Stock (13,023,528) (8,123,528)
Accumulated Deficit (12,356,359) (12,135,188)
Less: 27,312 shares of Treasury stock at cost (1,112) (1,112)
-------------- -------------
Total Stockholders' Equity (19,541) 101,630
-------------- -------------
Total Liabilities and Stockholders' Equity $ 202,803 $ 334,973
============== =============
</TABLE>
3
<PAGE>
<TABLE>
Ethika Corporation and Subsidiaries
Consolidated Statement of Operations
For the nine months ended Sept. 30, 1999 and 1998
(Unaudited)
<CAPTION>
Three Months Three Months Nine Months Nine Months
ended Sept 30, ended Sept 30, ended Sept 30, ended Sept 30,
1999 1998 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
General and administrative expenses $ 20,572 $ 53,410 $ 65,461 $ 382,508
Royalty Income 7,244 - 7,244 -
Interest income 2,275 7,872 7,562 36,030
Gain (loss) on disposal of fixed Assets - - - (35,987)
Gain (loss) from investment securities - (46,266) 29,484 (326,205)
Income tax benefit - - - -
-------------- -------------- -------------- --------------
Net loss $ (11,056) $ (541,804) $ (22,117) $(1,158,740)
============== ============== ============== ==============
Basic and diluted net loss per share $ (.01) $ (.023) $ (.01) $ (0.04)
============== ============== ============== ==============
</TABLE>
The Accompanying notes are an integral part of
these Consolidated Financial Statements
4
<PAGE>
<TABLE>
Ethika Corporation and Subsidiaries Consolidated
Statement of Cash Flows For the nine months
ended Sept 30, 1999 and 1998
<CAPTION>
Sept 30, 1999 Sept 30, 1998
---------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (22,117) $ (1,165,714)
Adjustments to reconcile net (loss)
to net cash provided by operating activities
Settlement of legal action by issuance of common stock 100,000 -
Loss on Disposal of Fixed Assets - 35,397
Realized and unrealized (gain)loss on
investment securities (29,484) 326,127
Changes in balance sheet accounts:
Increase in accounts receivable (7,244) -
Decrease in Assets held for sale - 739,545
Increase ( decrease) in accounts payable (10,999) (208,863)
and other liabilities
Sales of investment securities B trading 80,000 206,616
--------------- ---------------
Net cash provided by (used from)
Operating activities (88,844) 383,698
--------------- ---------------
Cash flows from investing activities:
Payments received from leases - 84,165
Disposal of fixed assets - 9,109
Proceeds from sale of CDS - (479,522)
Note Receivable 52,421 (450,000)
--------------- ---------------
Net cash (used from) provided by 52,421 (836,248)
--------------- ---------------
Investing activities
Cash flows from financing activities:
Net cash used from financing activities 0 0
--------------- ---------------
Net increase (decrease) in cash and cash
Equivalents (36,423) (452,550)
Cash and cash equivalents B beginning of
Period 48,318 535,651
--------------- ---------------
Cash and cash equivalents B end of period $ 11,895 $ 83,101
=============== ===============
Supplemental Cash Flow Information:
Cash payments for interest 0 0
=============== ===============
Cash payment for income taxes: 0 0
=============== ===============
</TABLE>
The Accompanying notes are an integral part of
these Consolidated Financial Statements
5
<PAGE>
ETHIKA CORPORATION
Notes to Unaudited Consolidated Financial
Statements For the nine months ended
September 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.
6
<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.
In September, 1999 the Registrant received a royalty payment of $7,244 from Text
Retrieval Systems, Inc., pursuant to the Registrant=s February, 1998 sale of its
former subsidiary. The royalty payment is on each subscription of Text Retrieval
Systems, Inc.'s HR Comply product and will continue until such time that the
Registrant has been paid a total of $1,500,000.
7
<PAGE>
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on 8K
- -----------------------------------
(a) Exhibits: (27) Financial Data Schedule
(b) none
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: November 10, 1999 /s/Dennis Brovarone
-------------------
President
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,895
<SECURITIES> 84,482
<RECEIVABLES> 91,724
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 202,802
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 202,802
<CURRENT-LIABILITIES> 222,344
<BONDS> 0
0
0
<COMMON> (19,541)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 202,802
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,056)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,056)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
