SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
DECEMBER 31, 1999 0-3296
ETHIKA CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
MISSISSIPPI 64-0440887
(State or other jurisdiction (IRS employer
of 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
Securities registered pursuant to section 12(g) of the Act:
Common Capital Stock par value $1 per share
(Title Of Class)
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-B IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENT TO
THIS FORM 10-KSB. [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR: $0.00
AS OF MARCH 31 2000, 28,360,346 COMMON SHARES WERE OUTSTANDING, AND THE
AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE CLOSING AVERAGE OF
THE BID AND ASKED PRICES ON THE OVER-THE-COUNTER MARKET ON March 24, 2000)OF
ETHIKA CORPORATION HELD BY NON-AFFILIATES (12,860,018 shares) WAS APPROXIMATELY
$900,200.
DOCUMENTS INCORPORATED BY REFERENCE
Certain Exhibits
<PAGE>
PART I
ITEM 1 - BUSINESS
General
Ethika Corporation ("Ethika" or the "Registrant"), for the two most recent
fiscal years has focused primarily on reducing its operating expenses and paying
its liabilities while seeking a privately held business, which seeks to become a
publicly held corporation through a change in control reorganization with the
Registrant. As of this date, the Registrant has no agreement for such a
reorganization though it has held several discussions with different parties
seeking such a reorganization. The Registrant's criteria for a reorganization
candidate is that the reorganization candidate be engaged in an attractive
revenue producing business which has audited financial statements for its most
recently completed fiscal year.
Business Developments over the Past three Fiscal Years
The discussion that follows includes forward-looking statements that involve
risks and uncertainties. The Registrant's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to those discussed in this section and
elsewhere in this report.
Settlement of Litigation and Change in Control
In December 1997 the Registrant entered into a Settlement Agreement with the
Plaintiffs of the legal action filed in U.S. District Court for the Southern
District of Mississippi Jackson Division (see Legal Proceedings). The terms of
the settlement included; the dismissal of the pending proceeding and mutual
release of any and all other claims between the parties, the sale of 7,000,000
shares of the Registrant's common stock to La Salle Investment, Ltd., one of the
Plaintiffs for $630,000, (comprised of cash ($25,000) and marketable
securities($605,000)), the resignations of three of the Registrant's directors,
and the appointment of three directors designated by the Plaintiffs. The
resignation of the Registrant's President was requested and received and Dennis
Brovarone, one of the newly appointed directors was made President. The new
management of the Registrant then embarked on the actions described below.
Agreement and Plan of Reorganization and Termination Thereof
On January 26, 1998, the Registrant entered into an Agreement and Plan Of
Reorganization (the Reorganization Agreement) with North American Digicom
Registrant ("NADC"), a privately owned company headquartered in Lakewood,
Colorado, to acquire 100% of the outstanding common stock of NADC. During
February and March of 1998, the Registrant extended loans to NADC in the amount
of $450,000.
Closing of the Reorganization Agreement was conditioned upon the Registrant
holding a Shareholders meeting to approve the Reorganization Agreement and
effect certain amendments to the Registrant's Articles of Incorporation as well
as other conditions. The Registrant was unable to hold the Shareholders Meeting
within a time period acceptable to NADC and in July, 1998 NADC unilaterally
terminated the Reorganization Agreement. Concurrent with the termination,
Phillip F. Grey, Wayne Johnson and Louis Scotti resigned from the Registrant's
board of directors. NADC defaulted upon the payment of its indebtedness and the
Registrant has filed claim against NADC.
<PAGE>
Disposition of Electronic Publishing Operating Units
Based upon analysis of the electronic publishing market and the amount of
capital that will be required to compete effectively in this marketplace,
together with the poor performance the Registrant experienced since its entry
into this industry, the Board of Directors and management determined it to be in
the best interest of the Registrant to divest itself of its electronic
publishing business unit which was comprised of Text Retrieval Systems, Inc.
Compass Data Systems, Inc. and Legislative Information Systems, Inc.
Accordingly, the accompanying financial statements reflect the decision to
dispose of this segment.
Acquisition and Disposition of Text Retrieval Systems, Inc.
On April 2, 1996 the Registrant completed the acquisition of Text Retrieval
Systems, Inc. ("TRS"), a privately-held corporation based in Ponte Vedra, Beach,
Florida. TRS published electronic reference libraries that link related data
sources for convenient access by personal computers. The Registrant had
previously acquired a 35% initial ownership interest in TRS through the issuance
of 100,000 shares of its stock to the TRS shareholders and the extension of a
line of credit during 1995. The completion of the purchase transaction included
cash paid through prior advances to TRS and the issuance of 2,500,000 shares of
contingently returnable common stock. In the fourth quarter of 1996, management
determined that earnings targets would not be met. The Registrant in March 1997
amended the agreement whereby the earnings targets were revised and extended
through December 31, 1997. Based upon this amended agreement and the
Registrant's actual performance for the year ended December 31, 1997, the number
of shares issued in this transaction were reduced to 732,640 shares. The
remaining 1,767,360 contingently returnable shares issued have been returned to
the Registrant and canceled.
As a result of the continued losses in TRS and its extensive capital needs to
achieve profitability the Registrant negotiated an agreement to sell TRS. On
February 17, 1998, the Registrant completed the sale of Text Retrieval Systems,
Inc., to TRS Acquisition Corporation, a closely held corporation for $150,000
and future royalties not to exceed $1,500,000 over the next ten years.
Acquisition and Disposition of Compass Data Systems, Inc. and Code Manager
On August 17, 1996 Ethika purchased 100% of Compass Data Systems, Inc. ("CDS"),
a privately-held corporation based in Salt Lake City, Utah for a total purchase
price of $500,000 paid as $100,000 in cash and 726,612 shares of common stock.
CDS publishes electronic information reference services to a wide variety of
industries and organizations. Among its principal product offerings are state
tax law reference libraries which keep subscribers current on tax law changes.
On November 22, 1996 the Registrant entered into an agreement with the American
Medical Association ("AMA") to cooperatively publish and distribute a newly
developed electronic reference library for medical service providers. The new
PC-based product, known as CodeManager, simplifies and speeds the coding process
of procedures and diagnoses for health insurance claim forms. The publishing,
distribution, and future development rights of the CodeManager Reference Library
were purchased from American Practice Management, Inc. ("APM") and Consulting
Concepts, Inc. in a transaction closed on January 31, 1997 in exchange for
180,000 shares of Ethika common stock.
On April 2, 1998, the Registrant completed a transaction with Ben Ezra Weinstein
and Company, Inc., a publicly held New Mexico corporation ("BNEZ") engaged in
the sale of financial software to sell CDS (including Code Manager, see below),
and its 8% interest in InfoDynamics including the note receivable from
InfoDynamics. The selling price of $850,000 was paid in convertible preferred
<PAGE>
stock of BNEZ. In September 1998, the Registrant converted its preferred stock
into 1,687,000 shares of BNEZ common stock.
Acquisition of Legislative Information Systems, Inc. and Closing Thereof
On June 10, 1997 the Registrant acquired Legislative Information Systems
Corporation ("LIS"). LIS became a wholly owned subsidiary of the Registrant
through the exchange of 1,123,433 shares of the Registrant's common stock for
all of the outstanding stock of LIS. LIS was an electronic publishing company
located in Annandale, Virginia specializing in federal aviation regulations,
banking regulations, and custom service contracts.
In July, 1998, LIS ceased operations as a result of the resignation of its
president, Donald Withrow on or before May 22, 1998. The Registrant believes
that Mr. Withrow's resignation was in violation of his employment agreement with
LIS and a breach of his fiduciary duty to LIS as an officer and director.
Settlement of Kidztime TV Litigation
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. The Third Amended
Complaint which named Ethika Corporation as a Defendant alleges that Kidztime
TV, Inc., a subsidiary of North American Digicom Corporation engaged in an
illegal enterprise whereby Kidztime TV and other Defendants obtained
approximately $50,000,000 from more than 3,000 individuals during 1996 and 1997,
including approximately $1,300,000 obtained from the Plaintiffs. The Third
Amended Complaint alleges that Ethika is jointly and severally liable with the
other Defendants in that Ethika was controlled by NADC and acted in continuation
of concealment of the illegal enterprise in violation of the Colorado Organized
Crime Control Act by its execution of a letter of intent and the Agreement and
Plan of Reorganization with NADC and by the joint press releases disseminated by
Ethika Corporation and NADC. The Third Amended Complaint does not allege that
Ethika Corporation sold securities in violation of the Colorado Securities Act
or the Colorado Consumer Protection Act. On January 6, 1999, the Registrant was
served with the Amended Complaint in an action entitled Ramona Chapman et al v.
Kidztime TV, Inc., et al in Colorado District Court, Jefferson County, Colorado.
This Complaint is virtually identical to the Jeffrey Allard, et al v. Kidztime
TV, Inc., et al, action described above. The Registrant filed its Answer to this
action on or above January 26, 1999.
The Registrant filed its Answer on October 16, 1998 denying the allegations of
participation in an illegal enterprise contained in the Third Amended Complaint
in that the sale of securities to the Plaintiffs all occurred prior to Ethika
entering into the letter of intent and the Agreement and Plan of Reorganization
with NADC and prior to the joint press releases disseminated by Ethika
Corporation and NADC. In addition the Registrant denied that it was controlled
by NADC or otherwise participated in the illegal enterprise or received any
proceeds thereof. The Registrant also filed a Cross Claim against NADC for the
$450,000 of principal and accrued interest loaned to NADC during the first
quarter of 1998. As of the date of this Report, NADC has not yet answered the
Cross Claim.
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.
<PAGE>
Employees
At December 31, 1999, the Registrant had one employee, its President.
ITEM 2 - PROPERTIES
The Registrant's office space is provided by its President without cost to the
Registrant.
ITEM 3 - LEGAL PROCEEDINGS
The Registrant is not a party to any litigation at this time.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NONE
PART II
ITEM 5- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded on the OTC Electronic Bulletin Board
under the symbol ETKA. The following table sets forth the reported high and low
sales price as reported by the OTC Electronic Bullentin Board for the quarters
indicated. This information does not include retail markups, markdowns, or
commissions.
1999 1998
--------------- ---------------
High Low High Low
---- --- ---- ---
Quarter
First 0.015 0.015 0.4375 0.25
Second 0.038 0.015 0.22 0.07
Third 0.035 0.02 0.07 0.03
Fourth 0.03 0.02 0.06 0.00
No dividends were paid on the Registrant's common stock during the last two
years, and the Registrant does not intend to pay dividends in the foreseeable
future. The number of holders of record of common stock of the Registrant on
March 31, 2000 was approximately 2,400.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Registrant did not have any revenue from operations during the fiscal year
ended December 31, 1999 nor during the first quarter of 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
<PAGE>
take advantage of the Registrant's status as a publicly held corporation. In
order to facilitate this objective, the Registrant settled the Kidztime TV legal
proceeding described above. The Registrant also 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 Registrant
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.
Results of Operation
During the fiscal year ended December 31, 1999, administrative expenses were
$94,166 as compared to $413,614 for the fiscal year ended December 31, 1998. The
fiscal year ended December 31, 1999, generated a net loss of $99,963 compared to
a loss of $1,599,461 for the fiscal year ended December 31, 1998.
The Company also revised its outstanding liabilities to remove approximately
$186,000 in liabilities which the Company had accrued for not less than the past
five fiscal years against potential claims arising from the potential claim of
approximately $157,000 by Standard Insurance against a tax refund received by
the Company prior to 1995 and a potential claim of approximately $29,000 for
sales taxes arising from the use of the Fry Guy fryers which the Company had
leased. Since no claims have been made during the past five fiscal years by any
parties relative to these booked liabilities, Management believed that removal
of these liabilities more accurately reflected the true financial condition of
the Company.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
MILLER AND MCCOLLOM
CERTIFIED PUBLIC ACCOUNTANTS
Independent Auditors' Report
Board of Directors
Ethika Corporation
We have audited the accompanying balance sheet of Ethika Corporation as of
December 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentations.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ethika Corporation
as of December 31, 1999, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss from operations of $99,963 for 1999
and it has incurred substantial net losses for each of the past two years. As of
December 31, 1999, the Company had no source of operating revenues. These
factors and the others discussed in Note 13, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
/s/ MILLER AND MCCOLLOM
Denver, Colorado
March 23, 2000
2170 South Parker Road Suite 270 - Denver Colorado 80231 - 303 745-2217 -
FAX 303 745-2265
<PAGE>
ETHIKA CORPORATION
Balance Sheet
December 31, 1999
ASSETS
Current assets
Cash and cash equivalents $ 21,922
Note receivable 69,515
Investment securities - Trading 48,523
---------
Total current assets 139,960
Note receivable -
Total assets $ 139,960
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 30,793
----------
Total current liabilities
Common stock, $1 par value authorized 50,000,000 shares;
issued 28,537,658 shares: outstanding 28,510,346 shares 28,511,458
Discount on common stock (16,166,028)
Accumulated deficit (12,235,151)
-----------
110,279
Less: 27,312 shares of treasury stock at cost (1,112)
-----------
Total stockholders' equity 109,167
-----------
Total liabilities and stockholders' equity $ 139,960
===========
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
ETHIKA CORPORATION
Statement of Operations
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998
---------------------------------------
<S> <C> <C>
General and administrative expenses $ (94,166) $ (413,614)
Allowance for bad debts - (477,292)
Settlement of lawsuit (200,000) -
Interest income 9,342 41,651
Royalty income 7,244 -
Gain (loss) on disposal of fixed assets - (35,397)
Gain (loss) from investment securities (6,477) (668,262)
Forgiveness of debt 184,091 -
Interest expense - -
------- ----------
(99,963) (1,572,914)
Income tax benefit - 3,158
Loss from continuing operations (99,963) (1,549,756)
Discontinued operations:
Loss from operations - (6,974)
Loss on disposals - (42,731)
--------- ------------
Net loss $ (99,963) $ (1,599,461)
========= =============
Basic and diluted earnings per share:
Loss from continuing operations $ (.01) $ (.076)
======= =========
Loss from discontinued operations $ - $ (.003)
======= =========
Basic and diluted net loss per share $ (.01) $ (.079)
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
ETHIKA CORPORATION
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998
---------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (99,963) $ (1,599,461)
Adjustments to reconcile net (loss)
to net cash provided by operating activities
Shares issued for settlement 100,000 -
Shares issued for services 7,500 -
Loss on disposal discontinued operations - 42,730
(Gain) loss on disposal of fixed assets - 35,987
Other - (13,168)
Realized and unrealized (gain) loss on
investment securities 6,477 668,262
Provision for bad debts - 450,000
Changes in balance sheet accounts:
Decrease in assets held for sale - 739,545
(Increase) decrease in accounts receivable 7,457 (7,457)
(Decrease) in accounts payable
and other liabilities (42,936) (214,469)
Sales of investment securities - trading 80,000 217,792
Net cash provided by (used from)
Operating activities (58,835) 319,761
Cash flows from investing activities:
Issuance of notes receivable - (450,000)
Payments on notes receivable 74,683 -
Proceeds from cash escrow 5,299 -
Proceeds from sale of fixed assets - 9,109
Payments received from leases - 108,020
Proceeds from sale of discontinued operations, net - (479,522)
Net cash (used from) provided by
Investing activities 79,982 (812,393)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
ETHIKA CORPORATION
Statement of Cash Flows, Continued
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998
--------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net cash used from financing activities - -
------- --------
Net increase (decrease) in cash and cash
equivalents (21,147) (492,632)
Cash and cash equivalents - beginning of period 43,019 535,651
-------- ---------
Cash and cash equivalents - end of period $ 21,872 $ 43,019
======== =========
Supplemental cash flow information:
Cash payments for interest $ - $ 89
======== =========
Supplemental schedule of non-cash
Investing and financing activities:
Common stock issued for equity
Settlement of lawsuit $ 100,000 $ -
========= =========
Common stock issued for services $ 7,500 $ -
========= =========
Assigned lease receivable for
promissory note $ - $144,198
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
ETHIKA CORPORATION
Statement of Changes in Shareholders' Equity
For the Years Ending December 31, 1999, and 1998
<TABLE>
<CAPTION>
Retained
Discount on Earnings/ Total
Common Common Accumulated Shareholders'
Stock Shares Amount Stock Deficit Equity
------------ ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 20,360,346 $ 20,361,458 $(8,123,528) $ (10,535,727) $ 1,702,203
Net loss - - - (1,599,461) (1,599,461)
---------- ---------- ---------- ---------- ---------
Balance at December 31, 1998 20,360,346 20,361,458 (8,123,528) (12,135,188) 102,742
Replacement certificate 150,000 150,000 (150,000) - -
Shares issued for services 3,000,000 3,000,000 (2,992,500) - 7,500
Shares issued in settlement of lawsuit 5,000,000 5,000,000 (4,900,000) - 100,000
Net loss - - - (99,963) (99,963)
---------- ------------ ------------ ------------- ---------
Balance at December 31, 1999 28,510,346 $ 28,511,458 $ (16,166,028) $ (12,235,151) $ 110,279
========== ============ ============= ============= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 1 - Business and Significant Accounting Policies
Nature of Operations
Ethika Corporation (the "Corporation" "Registrant") had operated as an applied
technology company through its formerly wholly-owned subsidiaries, Text
Retrieval Systems, Inc. ("TRS"), Compass Data Systems, Inc. ("CDS") and
Legislative Information Systems, Inc. ("LIS"). See business combination
information in Note 5. TRS, CDS and LIS are engaged in publishing electronic
libraries that link related data sources for convenient access by personal
computers. Certain products of TRS, CDS, and LIS are sold nationally, while
others are specific to states such as Florida, Missouri, and Kansas.
Basis of Presentation
During the first quarter of 1998, the Board of Directors and management began to
implement a plan of disposition for the Corporation's operating units; TRS, CDS
and LIS. Accordingly, the operations of these segments have been presented as
discontinued operations in the accompanying financial statements.
On February 17, 1998, the Corporation completed the sale of Text Retrieval
Systems, Inc. to TRS Acquisition Corporation, a closely held corporation for
$150,000 cash and future royalties not to exceed $1,500,000 over the next ten
years. Moreover on April 2, 1998, the Corporation completed a transaction with
Ben Ezra Weinstein and Company, Inc., a publicly held New Mexico corporation
("BNEZ") engaged in the electronic publishing of financial software to sell CDS
and its 8% equity interest in InfoDynamics, Inc., including the note receivable
from InfoDynamics, Inc. The selling price of $850,000 was paid in convertible
preferred stock BNEZ which has not resulted in any impairment of the net assets.
On or about July 1, 1998, management closed the business of LIS and have taken
appropriate action to dissolve the LIS Corporation.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and money market investments,
which carry no withdrawal restrictions, and that have original maturity of
ninety days or less.
7
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 1 - Business and Significant Accounting Policies
Investments
At December 31, 1999, and 1998 marketable securities were classified as trading,
which, under the provisions of Statement of Financial Accounting Standards No.
115 - Accounting for Certain Investments in Debt and Equity Securities, were
reported at market value with unrealized market gains or losses being reflected
in the statement of operations. During the years ended December 31, 1999, and
1998, the reported unrealized losses of $20,816 and $648,888 and $14,339
realized gain and $19,296 realized losses in 1999 and 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their income tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for changes in tax laws and rates on the date of enactment.
Concentration of Risk
Financial instruments that potentially subject the Corporation to concentrations
of credit risk consist principally of trade accounts receivable. The Corporation
extends credit to its customers based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on accounts receivables is primarily dependent on each customer's financial
condition. The Corporation monitors its exposure for credit losses and maintains
allowances for such losses.
8
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 2 - Business and Significant Accounting Policies, Continued
Earnings Per Share
The Corporation adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") during 1997. SFAS No. 128 provides for new
accounting principles to be used in the calculation of earnings per share and
was effective for financial statements for both interim and annual periods ended
after December 15, 1997. Basic and diluted earnings per share are based on the
weighted average number of common shares outstanding of 26,010,346 and
20,360,346 and for the years ended December 31, 1999, and 1998, respectively.
Note 3 - Office Lease
During 1998, Ethika's corporate office space is leased from a former member of
the Board of Directors at the rate of approximately $1,400 per month. For the
years ended December 31, 1999, and payments on all operating leases were $0 and
$11,994.
Note 4 - Business Combinations
On April 2, 1996, the Corporation completed the acquisition of Text Retrieval
Systems, Inc. ("TRS"), a privately-held corporation based in Ponte Vedra Beach,
Florida. The transaction has been accounted for as a purchase and accordingly
the results of operations of TRS since April 2, 1996, have been included in the
Corporation's Results of Operations. TRS publishes electronic reference
libraries that link related data sources for convenient access by personal
computers. The Corporation had previously acquired a 35% initial ownership
interest in TRS through the issuance of 100,000 shares of its stock to the TRS
shareholders and the extension of a line of credit during 1995. The completion
of the purchase transaction included cash paid through prior advances to TRS and
the issuance of 2,500,000 shares of contingently returnable common stock.
Management originally believed it was probable that the established targets
would be met in total; accordingly, as of April 2, 1996, the fair value of the
2,500,000 contingently returnable shares ($1,991,250) was included in the
purchase price resulting in a total estimated purchase price at acquisition of
$2,659,482. In the fourth quarter of 1996, management determined that earnings
targets would not be met in total and accordingly, recorded an adjustment to the
purchase price reducing intangible assets by the remaining unamortized balance
related to the contingent shares of $1,792,125. The Corporation in March 1997,
amended the agreement whereby the earnings targets were revised and extended
through December 31, 1997. Based upon this amended agreement and the
Corporation's actual performance for the year ended December 31, 1997, the
number of shares issued in this transaction were reduced to 732,640 shares. The
remaining 1,767,360 contingently returnable shares issued have been returned to
the Corporation and canceled. The issuance of the additional shares resulted in
recording of additional goodwill in 1997 of $181,571.
9
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 4- Business Combinations, Continued
On February 17, 1998, the Corporation completed the sale of Text Retrieval
Systems, Inc. to TRS Acquisition Corporation, a closely held corporation for
$150,000 cash and future royalties not to exceed $1,500,000 over the next ten
years.
Effective August 17, 1996, the Corporation purchased 100% of the outstanding
common stock of CDS, a privately-held corporation based in Salt Lake City, Utah
for a total purchase price of $500,000 which included the issuance of 726,612
shares of the Corporation's common stock with a fair market value of $400,000.
On June 10, 1997, the Corporation acquired Legislative Information Systems
Corporation ("LIS") in a business combination accounted for as a pooling of
interests. LIS became a wholly owned subsidiary of the Corporation through the
exchange of 1,123,433 shares ($616,203) of the Corporation's common stock for
all of the outstanding stock of LIS.
Note 5 - Income Taxes
The Corporation files a federal income tax return and state income returns in
various states as required by the applicable state income tax laws.
Net deferred tax liabilities (assets) from continuing operations consist of the
following components as of December 31:
1999 1998
---------- -----------
Deferred tax assets:
Unrealized loss on equity investment $ 357,410 $ 357,410
Allowance for bad debts 153,000 153,000
Net operating loss carry-forward 1,279,764 1,258,003
Unrealized loss in marketable securities 167,631 220,622
--------- ---------
1,957,805 1,989,053
Valuation allowance 1,957,805 (1,989,035)
--------- ---------
Deferred tax asset - -
--------- ---------
Net deferred tax liability $ - $ -
========= =========
The Corporation recorded a valuation allowance of $1,957,805 and $1,989,035 as
of December 31, 1999, and 1998 respectively, due to the uncertainty of the
Corporation's ability to realize future benefits of net operating loss
carry-forwards or other future tax deductions.
10
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 5 - Income Taxes
The (provision for) benefit from income taxes for the year ended December 31 is
summarized as follows:
1999 1998
-------- ---------
Current $ 33,987 $ 402,503
Deferred (33,987) (399,345)
-------- ---------
$ - $ 3,158
======== =========
The Corporation has net operating loss carry-forwards at December 31, 1999, of
approximately $3,800,000 which expire through 2019 and capital loss carrforward
of approximately $1,700,000.
The Corporation's effective income tax (provision) benefit from continuing
operations differs from amounts applying the statutory federal income tax rate
of 34% as follows:
1999 1998
--------- ---------
Expected tax benefit $ 33,987 $ 543,817
Valuation allowance (31,230) (543,990)
Other (2,757) 4,331
-------- ---------
Total income tax benefit $ - $ 3,158
======== =========
Note 6 - Discontinued Operations
In February 1998, the Corporation's Board of Directors and management adopted a
formal plan to divest itself of its electronic publishing business, consisting
of TRS, CDS and LIS (collectively the "Segment"), based upon an analysis of the
electronic publishing market and the amount of capital that management expects
will be required to compete effectively in that market, together with the recent
poor performance that the Corporation has experienced since its entry into the
industry. The Segment represents virtually all of the Corporation's assets and
operations. The Segment has been accounted for as a discontinued operation in
accordance with APB 30, which among other provisions requires the plan of
disposal to be carried out within one year. Accordingly, the financial
statements have been restated for this transaction. A provision of $80,000 has
been recorded in the financial statements related to anticipated losses from the
operations of the Segment through the actual disposal dates. Further, net assets
consisting primarily of accounts receivable, notes receivable, property and
equipment, intangibles, accounts payable and deferred revenue of this segment
have been reclassified to net assets held for sale.
11
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 6 - Discontinued Operations, Continued
Revenues for the Segment approximated $510,767 for the year ended December 31,
1998.
As a part of the plan of disposal, the Corporation completed the sale of TRS to
TRS Acquisition Corporation, a closely held corporation, for $150,000 in cash
and future royalties not to exceed $1,500,000 over the next ten years. The
Corporation placed $50,000 in escrow to pay unrecorded liabilities and other
items. As of December 31, 1999, all of these funds has been disbursed.
On April 2, 1998, the Corporation completed a transaction with Ben Ezra
Weinstein and Company, Inc. ("BNEZ"), a publicly held New Mexico corporation
engaged in the electronic publishing of financial software, to sell CDS and its
8% equity interest in InfoDynamics, including the note receivable from
InfoDynamics. The selling price of $850,000 was paid in convertible preferred
stock of BNEZ which has not resulted in any impairment of the net assets.
Note 7 - Stock Options and Stock-Based Compensation
On May 26, 1995, the Corporation created the 1995 Stock Option Plan (the "Plan")
with a maximum amount of 500,000 common stock shares reserved for options
eligible to be granted under the Plan during its ten-year life. The Corporation
granted various stock options to Employees and Directors during 1998. As of
December 31, 1999, there were no remaining common stock shares reserved for
granting and there were 1,500,000 options outstanding from the Plan. Employees
vest in stock options granted at the rate of 20% each year on a cumulative basis
commencing one year after the date of grant. Members of the Corporation's Board
of Directors vest in stock options at the grant date. If an optionee is
involuntarily terminated for reasons other than justifiable cause, all
outstanding options become vested and may be executed within three (3) months of
termination.
12
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 7 - Stock Options and Stock-Based Compensation, Continued
As permitted by SFAS 123, "Accounting for Stock-Based Compensation," the
Corporation has elected not to record compensation cost for stock options in the
accompanying statement of operations. The compensation cost for the
Corporation's stock options have been determined based on the fair value at the
grant dates consistent with the methodology prescribed by SFAS 123. The
Corporation's net loss and loss per share would have been increased to the pro
forma amounts indicated below if these amounts had been recorded in the
financial statements:
1999 1998
--------- ------------
Net loss As reported $ (99,963) $ (1,599,461)
Proforma $ (99,963) $ (1,608,557)
Loss per share As reported $ (.01) $ (.076)
Proforma $ (.01) $ (.079)
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998:
Dividend yields 0%
Expected volatility 137%
Risk-free interest rate 6.26%
Expected life of option 4 years
The fair value of options granted during 1999, and 1998 was $0 and $9,096
respectively.
The following table summarized the changes in the number of options included
under the Plan:
Weighted
Average
Exercise Exercise
Shares Price Range Price
---------- ------------ ----------
Outstanding at December 31, 1996 250,000 $.50 - $.91 $.70
Granted 125,000 $.32 - $.42 $.41
Expired (20,000) $.68 $.68
---------
Outstanding at December 31, 1997 355,000 $.35 - $.91 $.60
Granted 1,500,000 $.02 $.02
Expired (355,000) $.35 - $.91 $.60
---------
Outstanding at December 31, 1998 1,500,000 $.02 $.02
Granted - - -
Expired 500,000 $.02 $.02
---------
Outstanding at December 31, 1999 1,000,000 $.02 $.02
=========
13
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 7 - Stock Options and Stock-Based Compensation, Continued
In addition to 500,000 exercisable stock options issued to current directors, on
December 30, 1998, the Board of Directors authorized the issuance of 1,000,000
shares of the Corporation's common stock to each current directors. Such shares
shall vest in their entirety earlier of one year from date of issuance or on the
date of closing of any reorganization or merger.
Note 8 - 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. All of the Corporation's leases are classified as direct financing
leases. Under the direct financing method of accounting for leases, the total
net rental receivable under the lease contracts are recorded as a net investment
in direct financing leases, and the unearned income on each lease is recognized
each month at a constant periodic rate of return on the unrecovered investment.
At December 31, 1998, the Corporation had a net investment in direct financing
leases of $171,490.
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. At December 31, 1999, the
outstanding balance was $69,515.
Note 9 - Contingencies
The Corporation was notified by Standard Management Corporation on June 26,
1997, that its subsidiary, Standard Life Insurance of Indiana, had received a
Citation and Original Petition captioned "Rilla Lindley versus Standard Life
Insurance Company of Indiana, Dixie National Life Insurance Company, Randy
Owens" filed in 2nd Judicial District Court, Parish of Brenville, State of
Louisiana. Standard's notification constituted a claim notice pursuant to
Section 10.3 of the Second Restated Stock Purchase Agreement dated August 30,
1995, by and among Standard Life and Dixie National Life and Dixie National
Corporation (now Ethika Corporation) in which Ethika agreed to indemnify
Standard under certain conditions against qualified third-party claims
originating prior to the sale of Dixie National Life to Standard. The scope of
Ethika's indemnity obligation, if any, under the Agreement is limited to claims
predicated upon occurrences prior to closing based on actions or inactions of
Dixie National Life Insurance Company.
14
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 9 - Contingencies, Continued
The third-party claim involves, among other things, allegations regarding a
vanishing premium life insurance policy issued by Dixie National Life which was
purchased by the plaintiff in August 1989 from defendant Owens, an employee of a
general insurance agency in Louisiana. The claim appears to be styled in the
form of a class action. An investigation into the Citation's allegations by the
defendants, including legal representation of the Corporation, has been
initiated. Potential liabilities, if any, of the various defendants have not
been determined.
Pursuant to agreements with Plaintiff counsel no answer would be filed pending
settlement discussions and the filing of an amended complaint properly pleading
as a class action suit. In January 1998, the Corporation informed SMC that it
could not defend the action. To the Corporation's knowledge, no further
settlement discussions have been held and no amended complaint has been filed.
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. The Third Amended
Complaint which named Ethika Corporation as a Defendant alleges that Kidztime
TV, Inc., a subsidiary of North American Digicom Corporation engaged in an
illegal enterprise whereby Kidztime TV and other Defendants obtained
approximately $50,000,000 from more than 3,000 individuals during 1996 and 1997,
including approximately $1,300,000 obtained from the Plaintiffs. The Third
Amended Complaint alleges that Ethikka is jointly and severally liable with the
other Defendants in that Ethika was controlled by NADC and acted in continuation
of concealment of the illegal enterprise in violation of the Colorado Organized
Crime Control Act by its execution of a letter of intent and the Agreement and
Plan of Reorganization with NADC and by the joint press releases disseminated by
Ethika Corporation and NADC. The Third Amended Compliant does not allege that
Ethika Corporation sold securities in violation of the Colorado Securities Act
or the Colorado Consumer Protection Act.
The Registrant filed its Answer on October 16, 1998, denying the allegations of
participation in an illegal enterprise contained in the Third Amended Complaint
in that the sale of securities to the Plaintiffs all occurred prior to Ethika
entering into the letter of intent and the Agreement and Plan of Reorganization
with NADC and prior to the joint press releases disseminated by Ethika
Corporation and NADC. In addition the Registrant denied that it was controlled
by NADC or otherwise participated in the illegal enterprise or received any
proceeds thereof. The Registrant believes that it has substantial defenses to
all allegations made against it.
15
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 9 - Contingencies, Continued
On January 6, 1999, the Registrant was served with an Amended Complaint in an
action entitled Romona Chapman et al v. Kidztime TV, Inc., et al in Colorado
District Court, Jefferson County, Colorado. This complaint is virtually
identical to the action described above. On July 5, 1999, the Registrant settled
this lawsuit by issuing the plaintiffs 5,000,000 shares of the Company's common
stock and paying $100,000 in cash.
The Registrant also filed a Cross Claim against NADC for the $450,000 of
principal and accrued interest loaned to NADC during the first quarter of 1998.
Note 10 - Reorganization Agreement
On January 26, 1998, the Corporation entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with the North American Digicom
Corporation ("NADC"), a privately owned company headquartered in Lakewood,
Colorado, to acquire 100% of the outstanding common stock of NADC in exchange
for Ethika common stock. The NADC shareholders would have received approximately
95% of the then outstanding shares.
Subsequent to the approval of the Reorganization Agreement by the Board of
Directors of Ethika and NADC, Ethika extended a line of credit to NADC not to
exceed $500,000 to be secured by NADC's equipment and accounts receivable. As of
March 31, 1999, $450,000 with interest at 6% had been advanced against this line
of credit.
The Registrant has provided $450,000 allowance against this Note.
On July 30, 1998, the Registrant received notification from North American
Digicom Corporation (NADC) that it had abandoned its Reorganization Plan with
the Registrant. Concurrent with its termination, Phillip F. Grey, Wayne Johnson
and Louis Scotti resigned from the Registrant's board of directors. The
Registrant and NADC had previously agreed to extend the closing of the Agreement
and Plan of Reorganization until August 31, 1998. However, due to the inability
of either party to satisfy the terms of the agreement on or before such date,
NADC chose to terminate the Reorganization Plan.
Note 11 - 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 raise substantial doubt about its
ability to continue as a going concern.
16
<PAGE>
ETHIKA CORPORATION
Notes to Financial Statements
December 31, 1999
Note 12 - Year 2000 Compliance
The only software program the Company utilizes is a general ledger program. The
Company does not anticipate any compliance problems with its software programs
or vendors.
Note 13 - Forgiveness of Debt
At the end of 1999, the Company removed $184,091 of liabilities from the books.
These liabilities were setup over the last five years and no claims for payment
have been made.
17
<PAGE>
<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors of the Registrant are:
Director
Name Age Since
Dennis Brovarone 44 1997
Dennis P. Nielsen 57 1997
Each director holds office until the next annual meeting of shareholders or
until a successor shall be duly elected and qualified.
The executive officer of the Registrant is:
Executive Officer
Name Age Since
Dennis Brovarone 44 1997
Chairman and President,
Chief Executive Officer
The Registrant's officer serves at the pleasure of the Board of Directors.
BUSINESS EXPERIENCE
The principal occupations and business experience for the last five years or
more of the directors and executive officer of the Registrant are as follows:
Dennis Brovarone - Mr. Brovarone, 43, has been practicing corporate and
securities law since 1986 and as a sole practitioner since 1990. He was elected
to the Board in December 1997 and is Chairman of the Registrant's Board of
Directors. Mr. Brovarone also serves as President. Prior to 1990, Mr. Brovarone
served as in-house counsel to R.B. Marich, Inc.; a Denver, Colorado based
brokerage firm. Mr. Brovarone served as President (Chairman) of the Board of
Directors of The Community Involved Charter School, from January 1995 to March
1998, a four-year old K-12 independently chartered public school located in
Lakewood, Colorado. He also serves as a Director of Innovative Medical Services,
a publicly held corporation located in San Diego, California.
Dennis Nielsen - Mr. Nielsen, 56, has been a director since March 1993, he has
been self employed as a business consultant offering assistance to business on
restructuring, financing or assisting with possible mergers or acquisitions.
Previously he was owner of P&N, Inc. and Hufburn Sales, Inc., both automobile
dealerships.
In 1992 the Registrant was the subject of an investigation by the Securities and
Exchange Commission ("SEC"), which was resolved by means of a settlement.
Pursuant to the settlement, on March 9, 1994, the United States District Court
for the District of Columbia entered final judgment of permanent injunction
against the Registrant. The judgment was entered on the basis of a complaint
filed by the SEC. The Registrant consented to the entry of final judgment of
permanent injunction without admitting or denying the allegations contained in
the SEC's complaint. The final judgment to which the Registrant consented enjoin
it from violating or aiding and abetting future violations of sections of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and certain rules
thereunder.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Registrant's
Executive Officers and Directors and persons who own more than 10% of its common
stock to file reports of ownership and changes in ownership with the SEC. Such
persons are required by SEC regulations to furnish the Registrant with copies of
all Section 16(a) forms filed by such person. Based upon a review of the initial
and annual statements of beneficial ownership, the Registrant's Executive
Officer and Directors have timely filed their reports of ownership.
ITEM 10 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table sets forth information concerning the
total compensation paid or awarded to the Registrant's Chief Executive Officer
for services rendered in all capacities to the Registrant and its subsidiaries.
Number of
Annual Securities
Name and Compensation Underlying
Principal Position Year Salary Bonus Options
Dennis Brovarone 1999 $60,000 $0 500,000
President and Chairman
Option Grants in 1998
The following table sets forth information concerning options to purchase shares
of common stock which were granted during 1998 to the individuals named in the
Summary Compensation table.
Date Number of Shares Exercise Date
Name Granted Underlying Option(1) Price(1) Exercisable
- --------------------------------------------------------------------------------
Dennis Brovarone 12/30/98 500,000 $0.02 (2)
Dennis Nielsen 12/30/98 500,000 $0.02 (2)
(1) Not subject to adjustment as a result of any reverse split of the
outstanding common stock
(2) Exercisable ninety days from the date of closing of any reorganization or
merger agreement which results in a change in control of the Registrant and
expiring if unexercised by December 31, 2004.
Fiscal Year End Option Value Table: Omitted as the Options granted have not
vested and are not exercisable
COMPENSATION OF DIRECTORS
Directors who are not employees of the Registrant received no cash compensation
or reimbursement of expenses.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth pertinent information as to the beneficial
ownership of the Registrant's common stock as of March 31, 2000 of persons known
by the Registrant to be holders of 5% or more of the outstanding common stock
(28,360,346). Information as to the number of shares beneficially owned has been
furnished by the persons named in the table as the holders of 5% or more of such
common stock.
Name and Address Shares
Of Beneficial Owner Beneficially Owned Percent of Class
Alfred Peeper (1) 10,500,428 37.0%
Calle Hamburg 22
Benidorm, Spain ALC 03500
Fond Mondial D'Investissement(1)(2) 9,890,038 34.9%
c/o SAGEM
Route Des Acacia 54
1127 Carouge, Switzerland
Noel Guardi and 5,000,000 17.6%
The Boyle Partnership
1175 Sherman St. # 1375
Denver, CO 80203
Eur-Am B.V. (1)(3) 610,100 2.2%
Calle Hamburg 22
Benidorm, Spain ALC 03500
(1) Alfred Peeper is an investment manager headquartered and operating in
Benidorm, Spain. Mr. Peeper holds a power of attorney for each following
person which gives him authority to purchase, sell, and exercise all voting
rights relating to each "Group Member." This Reporting Person represents
37% of the total outstanding shares of Ethika common stock.
(2) Fond Mondial D'Investissement is a British Virgin Islands corporation.
Beverly Hunt and Darlene Baynes are the directors with the power to revoke
Mr. Peeper's power of attorney.
(3) Eur-Am, B.V., is a corporation organized under the laws of the Netherlands.
Mr. Peeper and Mr. Evert Eggink are the directors with the power to revoke
Mr. Peeper's power of attorney.
<PAGE>
Security Ownership of Management
The following table sets forth information as to the beneficial ownership of the
Registrant's common stock as of March 31, 2000, by each Director, nominee;
Executive Officer named in the Summary Compensation Table and by all Directors
and Executive Officers as a group.
Name of Shares Percent
Beneficial Owner Beneficially Owned of Class
Dennis Brovarone 1,000,000 4.2%
Dennis P. Nielsen 1,000,000 4.2%
Directors, nominees, and
Executive Officers as a group 2,000,000 8.4%
(2 persons)
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant did not enter into any reportable relationships or transactions
with its officers, directors or control persons during the fiscal year ended
December 31, 1999, except for the granting of shares and options to the
directors as set forth above.
<PAGE>
ITEM 13 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report under Part II, Item 8:
Financial Statements
Reference is made to the Index to Financial Statements included in Item 8 of
Part II hereof, where such documents are listed.
(a) Exhibits as Required by Item 601 of Regulation S-B:
Exhibit
Number Description Incorporation by Reference to
(3)(a)(1) Articles of Incorporation as Registrant's Annual Report on
Amended and restated Form 10-K for the year ended
December 31, 1985. Exhibit (3a)
(3)(a)(2) Articles of Amendment to the Registrant's Annual Report of
Articles of Incorporation of Form 10-K for the year ended
Dixie National Corporation December 31, 1994. Exhibit
Dated May 23, 1986 (3)(a)(2).
3)(a)(3) Articles of Amendment to the Registrant's Annual Report on
Articles of Incorporation of Form 10-K for the year ended
Dixie National Corporation December 31, 1994. Exhibit
Dated January 24, 1995 (3)(a)(2).
(3)(b) Bylaws, as amended Registrant's Annual Report on
Form 10-K for the year ended
December, 31, 1990. Ex. (3(b).
(3)(b)(1) Amendment to Article III Registrants Annual Report on
of Bylaws Effective Form 10-K for the year ended
Jan. 24, 1996 December 31, 1995. Ex.(3)(b)(1)
(3)(b)(2) Amendment to Article IV of Registrants Annual Report on
Bylaws Effective March 24, 1996 Form 10-K for the year ended
December 31, 1995. Ex.(3)(b)(2)
(3)(b)(3) Amended Bylaws at Article III Registrants Annual Report on
Effective September 26, 1996 Form 10-K for the year ended
December 31, 1996. Ex.(3)(b)(3)
(2)(1) Agreement and Plan of Reorganization Registrant's Annual Report of
for Ethika Corporation to acquire Form 10-K for the year ended
North American Digicom Corporation Dec 31, 97 Ex( 2)(1)(4)
(2)(7) Purchase Agreement between Ethika Registrant's Annual Report of Form
Corporation and TRS Acquisition Corp. 10-K for the year ended
Dec 31, 1997 Ex(2)(7)
<PAGE>
(2)(8) Stock Purchase Agreement between Registrant's Annual Report of Form
Ethika Corporation and Ben Ezra 10-K for the year ended
Weinstein & Company for the sale of December 31, 1997 Exhibit (2)(8)
Compass Data Systems, Inc. to Ben
Ezra Weinstein & Company
(10)(1) Agreement to restructure Fry Guy Equipment Leases
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the last quarter of
the year ended December 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ETHIKA CORPORATION
(Registrant)
Date: March 28, 2000 By: /s/Dennis Brovarone
-------------------
Dennis Brovarone
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/Dennis Brovarone March 28, 2000
- ---------------------
Dennis Brovarone
Chairman of the Board & Chief Executive Officer
(Principal Executive Officer)
/s/ Dennis Nielsen March 28, 2000
- ---------------------
Dennis Nielsen, Director
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,922
<SECURITIES> 48,523
<RECEIVABLES> 69,515
<ALLOWANCES> 0
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<PP&E> 0
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<TOTAL-ASSETS> 139,960
<CURRENT-LIABILITIES> 30,793
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<COMMON> 109,167
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