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 Nine Months Ended September 30, 2000
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.)
18 Mountain Laurel Drive
Littleton, Colorado 80127
(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 20, 2000
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, 2000
and December 31, 1999 F-3
Consolidated statements of operations for the
nine months ended September 30, 2000 and 1999 F-4
Consolidated statements of cash flows for the
nine months ended September 30, 2000 and 1999 F-5
Notes to consolidated financial statements F-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K 8
Signatures 9
<PAGE>
Review Report of Independent Certified Public Accountants
Board of Directors
Ethika Corporation
We have reviewed the accompanying balance sheet of Ethika Corporation, as of
September 30, 2000, and the related statements of operations for the three and
nine month periods then ended and statement of cash flow for the nine month
period ended September 30, 2000, in accordance with Statements of Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of Ethika Corporation.
A review of interim financial statements consists principally of inquiries of
Company personnel responsible for financial matters and analytical procedures
applied to financial data. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
Miller and McCollom, CPA's
Lakewood, Colorado
November 20, 2000
F-2
<PAGE>
ETHIKA CORPORATION
Balance Sheet
<TABLE>
<CAPTION>
September 30, 2000
(Unaudited) December 31, 1999
------------------------- --------------------------
<S> <C> <C>
Cash and cash equivalents $ 20,667 $ 21,922
Note receivable - 69,515
Investment securities - trading 17,330 48,523
------------------------- --------------------------
Total current assets 37,997 139,960
------------------------- --------------------------
Total assets $ 37,997 $ 139,960
========================= ==========================
Accounts payable and accrued expenses $ 24,379 $ 30,793
------------------------- --------------------------
Common stock 28,511,458 28,511,458
Discount on common stock (16,166,028) (16,166,028)
Accumulated deficit (12,330,655) (12,235,151)
------------------------- --------------------------
14,775 110,279
Less: treasury stock (1,157) (1,112)
------------------------- --------------------------
Total stockholders' equity 13,618 109,167
------------------------- --------------------------
Total liabilities and stockholders' equity $ 37,997 $ 139,960
========================= ==========================
</TABLE>
F-3
<PAGE>
ETHIKA CORPORATION
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended
September 30,
------------------------------------- ------------------------------------
2000 1999 2000 1999
----------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
General and administrative expenses $ (16,902) $ (20,512) $ (50,851) $ (65,461)
Lawsuit settlement - - - (200,000)
Loss on disposition of leases (16,000) - (16,000) -
Royalty income - 7,244 - 7,244
Interest income 359 - 2,543 7,562
Gain (loss) on disposal of fixed assets - - (31,194) -
Gain (loss) from investment securities - 2,275 - 29,484
----------------- ---------------- -------------- ------------------
----------------- ---------------- -------------- ------------------
Loss from operations (32,543) (11,053) (95,502) (221,171)
----------------- ---------------- -------------- ------------------
----------------- ---------------- -------------- ------------------
Net loss $ (32,543) $ (11,053) $ (95,502) $ (221,171)
================= ================ ============== ==================
================= ================ ============== ==================
Basic and diluted earnings per share $ (0.002) $ (0.001) $ (0.003) $ (0.009)
================= ================ ============== ==================
</TABLE>
F-4
<PAGE>
ETHIKA CORPORATION
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------
2000 1999
------------------- -------------------
Cash flows from operating activities
<S> <C> <C>
Net loss $ (95,502) $ (221,117)
Adjustment to reconcile net (loss) to
net cash provided by operating activities
Increase in accounts receivable - (7,244)
(Gain) loss on investments 31,194 (29,484)
Sales of investment securities - trading - 100,000
(Decrease) in accounts payable (6,414) (10,999)
Loss on disposition of leases 16,000 -
Sale of investment securities - 80,000
------------------- -------------------
Net cash (used by) operating activities (54,722) (88,844)
------------------- -------------------
Cash flows from investing activities
Payment received from leases
Payment received on notes receivable 53,512 52,421
------------------- -------------------
Net cash provided by investing activities 53,512 52,421
------------------- -------------------
Cash flows from financing activities
Purchase of treasury stock (45) -
------------------- -------------------
Net cash (used by) financing activities (45) -
------------------- -------------------
Net (decrease) in cash and cash equivalents (1,255) (36,423)
Cash and cash equivalents-beginning of period 21,922 48,318
------------------- -------------------
Cash and cash equivalents-end of period $ 20,667 $ 11,895
=================== ===================
Supplemental cash flow information
Cash paid for interest $ - $ -
=================== ===================
</TABLE>
F-5
<PAGE>
ETHIKA CORPORATION
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
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 at $144,198 imputing interest at
8.00%. The Corporation recognized a loss of $27,292 on this transaction. The
final payment was received in July, 2000.
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 plaintiff's 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, 1999, the Company incurred a loss from operations of $99,963 and
had an accumulated deficit of $12,235,151 that raises substantial doubt about
its ability to continue as a going concern. An additional loss of $95,502 was
incurred for the nine months ending September 30, 2000.
F-6
<PAGE>
ETHIKA CORPORATION
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
Recent Accounting Pronouncements
In June of 1998, the FASB issued Statement of Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet at their value.
This statement, as amended by SFAS 137, is effective for financial statements
for all fiscal quarters to all fiscal years beginning after June 15, 2000. The
Company does not expect the adoption of this standards to have a material impact
on its results of operations, financial position or cash flows, as the Company
currently does not engage in any derivative or hedging activities.
F-7
<PAGE>
Item 2 - Management's Plan of Operations
The Registrant did not have any revenue from operations during the fiscal year
ended December 31, 1999 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 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 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 entered into a letter of intent
with Tradequest Inc., a Utah corporation engaged in the business of providing a
barter exchange for goods and services for business and consumers. The principal
terms of the proposed reorganization are that the Registrant will declare the
reverse split of 50 to 1, change its name to Tradequest International Inc. and
issue 2,000,000 post split shares to the shareholders of Tradequest. At closing
the current board of directors is to resign and three nominees of Tradequest be
appointed to the board of directors. Closing of the reorganization is subject to
certain conditions including payment of the Registrant's outstanding liability
of approximately $25,000, the purchase and cancellation of 5,000,000 currently
outstanding shares of the Registrant's common stock and the execution of an
Indemnity Agreement by the Registrant's principal shareholder, Fond Mondial
D'Investissement which will indemnify Tradequest against any and all potential
liabilities of Ethika which may arise due to facts and circumstances occurring
over the past two years.
Execution and closing of a definitive reorganization agreement cannot be
assured. In the event the Tradequest reorganization is not executed and closed,
the Registrant will return to its business plan of seeking a reorganization
candidate.
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 received $8,000 per month in payment of its note
receivable from Alanco Environmental Resources Corporation and received its
final payment in July, 2000. Management anticipates having sufficient cash
resources for its reduced operations for the balance of the current fiscal year
primarily through deferral of further executive compensation.
In September, 2000 the Registrant received a royalty payment of $xxxx 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.
Part II Other Information:
Item 6 - Exhibits and Reports on 8K
Exhibits: (27) Financial Data Schedule
(b) none
8
<PAGE>
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)
/s/Dennis Brovarone
-------------------
President
Date: November 20, 2000
<PAGE>
