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, 1998                                 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:  $510,767

AS OF MARCH 31 1999, 23,360,346 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 APRIL 2,  1999) OF
ETHIKA CORPORATION HELD BY NON-AFFILIATES  (10,429,918 shares) WAS APPROXIMATELY
$208,598.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                Certain Exhibits



<PAGE>



PART I

ITEM 1 - BUSINESS

General

Ethika Corporation ("Ethika" or the "Corporation"),  for the previous two fiscal
years had been primarily engaged in publishing  electronic  reference libraries.
During the past  fiscal year the Company  sold two of its  subsidiaries  and the
third ceased  operations.  Also during the past fiscal year, the Corporation had
entered into a plan of  reorganization  with North American Digicom  Corporation
("NADC"),  a Colorado  corporation which was engaged in the  tele-communications
industry.  In July 1998 NADC terminated the plan of  reorganization.  Since that
time the  Corporation has focused  primarily on reducing its operating  expenses
and paying its liabilities.


Recent Developments

The discussion  that follows  includes  forward-looking  statements that involve
risks  and  uncertainties.   The  Corporation'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  Corporation  entered into a Settlement  Agreement with the
Plaintiffs  of  the  legal  action  filed  in  U.S.   District   Court  for  the
SouthernDistrict 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 Corporation'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 Corporation's directors,
and the  appointment  of  three  directors  designated  by the  Plaintiffs.  The
resignation of the Corporation's President was requested and received and Dennis
Brovarone,  one of the newly  appointed  directors was made  President.  The new
management of the Corporation then embarked on the actions described below.


Agreement and Plan of Reorganization and Termination Thereof

On  January  26,  1998,  the  Corporation  entered  into an  Agreement  and Plan
ofReorganization  (the  Reorganization  Agreement)  with North American  Digicom
Corporation  ("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 Corporation extended loans to NADC in the amount
of $450,000.

Closing of the  Reorganization  Agreement was  conditioned  upon the Corporation
holding a  Shareholders  meeting to approve  the  Reorganization  Agreement  and
effect certain amendments to the Corporation's Articles of Incorporation as well
as other conditions. The Corporation 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

<PAGE>

Corporation's  board  of  directors.  NADC  defaulted  upon the  payment  of its
indebtedness  and the  Corporation  has filed  claim  against  NADC.  (see Legal
Proceedings).

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 Corporation  experienced  since its entry
into this industry, the Board of Directors and management determined it to be in
the  best  interest  of the  Corporation  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  Corporation  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  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. In the fourth quarter of 1996, management
determined that earnings targets would not be met. 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.

As a result of the continued  losses in TRS and its  extensive  capital needs to
achieve  profitability  the Corporation  negotiated an agreement to sell TRS. 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
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 Corporation 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,

<PAGE>

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.


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 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  stock of BNEZ.  In September  1998,  the  Corporation  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  Corporation  acquired  Legislative  Information  Systems
Corporation  ("LIS").  LIS became a wholly owned  subsidiary of the  Corporation
through the exchange of 1,123,433 shares of the  Corporation'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,  the  Corporation's  Board  of  Directors  acting  as the  sole
shareholder of LIS elected  Dennis  Brovarone as the sole President and Director
of LIS and  resolved  to close the  business  of LIS.  The  closing of LIS was a
result of the resignation of its president,  Donald Withrow on or before May 22,
1998. The Corporation  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.


Employees

At December 31, 1998, the Corporation had one employee, its President.

ITEM 2 -  PROPERTIES

The Corporation's  office space is provided by its President without cost to the
Corporation.


ITEM 3 - LEGAL PROCEEDINGS

         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

<PAGE>

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.

     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. While it is not possible at this
time to estimate the potential  liability of the  allegations,  any liability in
excess of $10,000 would have a materially adverse effect upon the Registrant.

     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 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  believes that it has  substantial  defenses to
all  allegations  made  against  it.  While it is not  possible  at this time to
estimate the potential liability of the allegations,  any liability in excess of
$10,000 would have a materially adverse effect upon the Registrant.


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  Corporation'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.

                                         1998                   1997
                                    ---------------       ---------------
                                    High       Low        High        Low
                                    ----       ---        ----        ---

           Quarter
           First                    0.4375     0.25       0.625    0.40625
           Second                   0.22       0.07       0.5625   0.25
           Third                    0.07       0.03       0.5625   0.140625
           Fourth                   0.06       0.00       0.140625 0.09375

No  dividends  were paid on the  Corporation's  common stock during the last two

<PAGE>

years,  and the Corporation  does not intend to pay dividends in the foreseeable
future.  The number of holders of record of common stock of the  Corporation  on
March 31, 1999 was approximately 2,400.


ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

The following  should be read in  conjunction  with the  Consolidated  Financial
Statements and notes thereto appearing elsewhere in this report.

Liquidity and Capital Resources

     Following  the sales of Compass  Data  Systems,  Inc.,  and Text  Retrieval
Systems,  Inc., and the closing of Legislative  Information  Systems,  Inc., the
Corporation's  only sources of liquidity  during the fiscal year ended  December
31, 1998 were the sale proceeds from the sale of Alanco Environmental  Resources
Corporation  common stock and the Fry Guy equipment lease  payments.  During the
fiscal year, the Corporation sold all of the Alanco shares ending this source of
liquidity.  In March,  1999 the  Corporation  agreed to restructure  the Fry Guy
leases in order to  maintain a  sufficient  level of  liquidity  to conduct  the
Corporation's  business plan for the current fiscal year. The Corporation's only
other  capital  resources  and possible  sources of  liquidity,  are its royalty
interest from the sale of Text Retrieval Systems, Inc., and the 1,687,000 shares
of Ben Ezra Weinstein and Company,  Inc. (BNEZ) common stock. No royalty payment
is expected  for the fiscal year ended 1998.  The BNEZ common  stock is eligible
for sale and has a present  market value of  approximately  $135,000  though the
Company has no present intention to sell the BNEZ shares.

     The Corporation has reduced its overhead  expenses to approximately  $5,500
per month and expects to have  sufficient  cash resources for its operations and
to continue paying off the Corporation's outstanding liabilities.


Results of Operations

     During the fiscal year ended December 31, 1998, the  Corporation  completed
the  discontinuation  of its  electronic  publishing  subsidiaries,  closed  its
headquarters  in  Hilton  Head,  South  Carolina  and  took  other  measures  to
substantially reduce its administrative  expenses.  Administrative  expenses for
the second half of the fiscal year (when all of the above were  completed)  were
$413,614 as compared to $1,123,195 for the comparable period for the fiscal year
ended December 31, 1997.  The fiscal year ended  December 31, 1998,  generated a
net loss of $1,599,461 ($.079 per share) compared to a loss of $1,993,977 ($.151
per share) for the fiscal year ended  December 31, 1997. The loss for the fiscal
year ended  December 31, 1998 is primarily  from  establishing a Reserve for the
potential  uncollectability of the $450,000 notes receivable from NADC and loses
from investment securities of $668,262.


Plan of Operations for the Current Fiscal Year

     The Corporation's plan of operations for the current fiscal year is to hold
a  shareholder's  meeting for the purposes of electing  directors,  amending the
Articles of  Incorporation  to  eliminate  the par value of the common stock and

<PAGE>

authorizing a reverse stock split of the  outstanding  common stock.  Management
considers the  elimination of the par value to be advisable  because  Management
believes that par value is an antiquated concept of share value that provides no
realistic  measure  of  value  and  causes a  misleading  indication  of  value.
Management  also  believes  that a reverse  split of the  outstanding  shares is
advisable for the purpose of restructuring the  Corporation's  capitalization so
as to be more attractive to a potential reorganization candidate. Thereafter the
Corporation  shall  seek a  privately  held  business,  which  seeks to become a
publicly  held  corporation  through a change in control  reorganization  with a
publicly held  corporation  with little or no  operations.  As of this date, the
Corporation  has no  agreement  for such a  reorganization  and has not held any
discussions or negotiations with any party for such a reorganization.


Year 2000 Computer Problems

     Many existing  computer  programs use only two digits to identify a year in
the date field.  These programs were designed and developed without  considering
the  impact  of the  upcoming  change in the  century.  If not  corrected,  many
computer  applications  could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations.

     Although many companies  undertake  major projects to address the Year 2000
issue, Management does not believe that its operations are highly dependent upon
computer  programs.  However,  the Corporation has undertaken to ensure that its
associated  computer  fields  were  designed  and  constructed  to  receive  and
manipulate four digit integers instead of only two. The  Corporation=s  computer
system has been  evaluated and found to adequately  address the Year 2000 Issue.
As a result,  no additional  costs are expected to be incurred.  The Corporation
does not  anticipate  any material risk  resulting from Year 2000 issues in that
its computer  programs are  relatively  simple word  processing  and  accounting
programs  which  have  been  certified  as Year 2000  ready.  In  addition,  the
Corporation maintains physical files of all essential documents and data.



<PAGE>




ITEM 7 - FINANCIAL STATEMENTS

                              MILLER AND McCOLLOM
                          Certified Public Accountants



                          Independent Auditors' Report


Board of Directors
Ethika Corporation


     We have  audited  the  accompanying  consolidated  balance  sheet of Ethika
Corporation as of December 31, 1998, and the related consolidated  statements of
operations,  stockholders'  equity,  and cash flows for each of the two years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Compan'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, 1998, and the results of its operations and its cash flows for each
of the two years in the period  ended  December  31, 1998,  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 $1,599,461  for 1998 and it
has  incurred  substantial  net  losses  for each of the past two  years.  As of
December  31,  1998,  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 31, 1999


   2170 South Parker Road Suite 270 * Denver, Colorado 80231 *303 745-2217 *
                                Fax 303 745-2265

<PAGE>

                       ETHIKA CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheet
                                December 31, 1998

                                                      ASSETS
Current assets
    Cash and cash equivalents                      $   43,019
    Accounts receivable                                 7,457
    Cash - escrow                                       5,299
    Note receivable                                    74,683
    Investment securities - Trading                   135,000
                                        -----------------------

Total current assets                                  265,458

Note receivable                                        69,515
                                        -----------------------

Total assets                                        $ 334,973
                                        =======================


                      LIABILITIES AND STOCKHOLDER' EQUITY


Current liabilities
    Accounts payable and accrued expenses                             $ 233,343
                                                             -------------------

Total current liabilities                                               233,343


Common stock, $1 par value authorized 50,000,000 shares;
issued 20,387,658 shares: outstanding 20,360,346 shares             20,361,458
Discount on common stock                                            (8,123,528)
Accumulated deficit                                                (12,135,188)
                                                         -----------------------
                                                                       102,742
Less:  27,312 shares of treasury stock at cost                          (1,112)
                                                         -----------------------

Total stockholders' equity                                              101,630
                                                         -----------------------

Total liabilities and stockholder'  equity                            $ 334,973
                                                         =======================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                        2
<PAGE>


<TABLE>
<CAPTION>


                       ETHIKA CORPORATION AND SUBSIDIARIES
                      Consolidated Statement of Operations

                                               For the Years Ended December 31,
                                             -----------------------------------
                                              1998                         1997
                                   ---------------------------    -------------------------

<S>                                       <C>                       <C>           
General and administrative expenses       $ (413,614)               $  (1,123,195)
Allowance for bad debts                     (477,292)                           -


Interest income                               41,651                      134,381
Gain (loss) on disposal of fixed assets      (35,397)                     341,849
Gain (loss) from investment securities      (668,262)                     (55,719)

Interest expense                                    -                     (18,868)
                                     -------------------------    -------------------------
                                          (1,572,914)                    (721,552)

Income tax benefit                             3,158                       45,500
                                     -------------------------    -------------------------

Loss from continuing operations           (1,549,756)                    (676,052)

Discontinued operations:
Loss from operations                          (6,974)                  (1,237,925)
Loss on disposals                            (42,731)                     (80,000)
                                     -------------------------    -------------------------

Net loss                                $ (1,599,461)                $ (1,993,977)
                                     =========================    =========================

Basic and diluted earnings per share:
Loss from continuing operations         $      (.076)                $      (.051)
                                     =========================    =========================

Loss from discontinued operations       $      (.003)                $      (.100)
                                     =========================    =========================

Basic and diluted net loss per share    $      (.079)                $      (.151)
                                     =========================    =========================
</TABLE>



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                        3
<PAGE>


<TABLE>
<CAPTION>

                       ETHIKA CORPORATION AND SUBSIDIARIES
                             Statement of Cash Flows

                                                      For the Years Ended December 31,
                                                    --------------------------------------------
                                                       1998               1997
                                                    -------------------- -------------------
<S>                                                  <C>               <C>          
Cash flows from operating activities:
Net loss                                             $ (1,599,461)     $ (1,993,977)
Adjustments to reconcile net (loss)
to net cash provided by operating activities
Depreciation and amortization                                   -           672,634
Loss on disposal discontinued operations                   42,730            80,000
(Gain) loss on disposal of fixed assets                    35,987          (341,849)
Other                                                     (13,168)                -
Realized and unrealized (gain) loss on
investment securities                                     668,262            55,719
Provision for bad debts                                   450,000                 -
Changes in balance sheet accounts:
(Increase) decrease in goodwill and other assets                -            (2,646)
Decrease in assets held for sale                          739,545                 -
(Increase) decrease in accounts receivable                 (7,457)          (16,173)
Decrease in income taxes                                        -            90,317
Decrease in inventory                                           -            21,672
Increase in accrued investment income                           -           (13,737)
Increase (decrease) in accounts payable
and other liabilities                                    (214,469)          (63,395)
Decrease in deferred revenue                                    -              (166)
Sales of investment securities - trading                  217,792                 -
                                                    ---------------- -----------------
Net cash provided by (used from)
Operating activities:                                     319,761        (1,511,601)
                                                    ---------------- -----------------

Cash flows from investing activities:
Note to InfoDynamics                                            -          (250,000)
Issuance of notes receivable                             (450,000)                -
Proceeds from sale of building                                  -           644,370
Proceeds from sale of fixed assets                          9,109                 -
Purchases of equipment                                          -           (43,878)
Payments received from leases                             108,020           103,626
Proceeds from sale of discontinued operations, net       (479,522)               -
                                                    ---------------- -----------------
Net cash (used from) provided by
Investing activities                                     (812,393)          454,118
                                                    ---------------- -----------------

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                        4
<PAGE>


<TABLE>
<CAPTION>

                       ETHIKA CORPORATION AND SUBSIDIARIES
                       Statement of Cash Flows, Continued

                                                  For the Years Ended December 31,
                                                --------------------------------------------
                                                    1998                           1997
                                                -------------------- ------------------
<S>                                                       <C>             <C>      
Cash flows from financing activities:
Net (payments) on debt                                          -          (340,008)
Proceeds from issuance of stock                                 -            25,000
                                                -------------------- ------------------
Net cash used from financing activities                         -          (315,008)
                                                -------------------- ------------------

Net increase (decrease) in cash and cash
equivalents                                              (492,632)       (1,372,491)
Cash and cash equivalents - beginning of period           535,651         1,908,142
                                                -------------------- ------------------

Cash and cash equivalents - end of period            $     43,019        $  535,651
                                                ==================== ==================

Supplemental cash flow information:
Cash payments for interest                           $         89        $   18,868
                                                ==================== ==================
Supplemental schedule of non-cash
Investing and financing activities:

Common stock issued for equity
securities of nonaffiliated company                 $           -        $  605,000
                                                ==================== ==================

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 Shareholder' Equity
                For the Years Ending December 31, 1998, and 1997

<TABLE>
<CAPTION>

                                                                                                      Retained 
                                                                   Discount on      Unrealized        Earnings/           Total 
                                    Common                           Common          Realized        Accumulated       Shareholders
                                 Stock Shares          Amount        Stock            Losses           Deficit            Equity
                               -----------------  --------------- --------------  ---------------  ----------------    -------------
<S>                                 <C>            <C>             <C>             <C>             <C>                    <C>      
Balance at December 31, 1996        12,447,706     $ 12,448,818    (1,123,709)      $         -     $ (8,541,750)      $ 2,783,359

Net loss                                                                                              (1,993,977)       (1,993,977)
Shares issued for AMA product          180,000          180,000       (78,750)                                             101,250
Shares issued for consideration      7,000,000        7,000,000    (6,370,000)                                             630,000
Shares issued for TRS business
combination                            732,640          732,640      (551,069)                -                 -          181,571
                               -----------------  --------------- --------------  ---------------  ----------------    -------------


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
                               ================== =============== =============== ================ =================  ==============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                        6
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Ethika  Corporation (the  "Corporation")  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.
The negotiations on or about July 1, 1998, management closed the business of LIS
and have taken appropriate action to dissolve the LIS Corporation.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements include the financial  statements of the
Corporation  and its wholly owned  subsidiaries.  All  significant  intercompany
accounts and transactions have been eliminated.

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 Consolidated Financial Statements
                                December 31, 1998

NOTE 2 BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

INVESTMENTS

At December 31, 1998, and 1997 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,  1998, and
1997,  the  reported  unrealized  losses of  $648,888  and  $55,719  and $19,296
realized losses in 1998.

REVENUE RECOGNITION

The Corporation recognized revenue for software sales ratably over the period of
each  product's  subscription  life.  The  Corporation's  various  products were
updated annually,  quarterly and monthly based on content,  availability  and/or
specific customer  agreements.  The  Corporation's  various products are updated
annually,  quarterly and monthly based on content  availability  and/or specific
customer  agreements.  Revenue associated with sales of TRS' primary product are
not recognized until cash is collected due to the customer' right of return and
limited  history of returns for the product.  Revenue  associated  with customer
programming was recorded, when completed and billed.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful  lives of these assets  which are thirty  years for the  building;  three
years for computer hardware and software;  and five to seven years for furniture
and fixtures.

INVENTORY

Inventory  consists  primarily  of  software  product  manuals  and  promotional
materials. Inventory is valued based on an average cost method.

INTANGIBLE ASSETS

Intangible  assets consist primarily of assets acquired through the acquisitions
of TRS and CDS. Acquired goodwill and software products are amortized over three
years.  Non-compete  agreements  are  amortized  over  the  life of the  related
agreement (2-3 years). The Corporation  regularly reviews its ability to realize
future  economic  benefit from  software  products  and goodwill  based upon the
expected future cash flows of the related subsidiary or product.


                                        8
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 2 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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.

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.

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. The Corporation has restated its net loss per share for
all  periods  presented  to give  effect  to SFAS  No.  128 and to  reflect  the
acquisition  of LIS.  Basic  and  diluted  earnings  per  share are based on the
weighted  average  number  of  common  shares   outstanding  of  20,360,346  and
13,161,467, and for the years ended December 31, 1998, and 1997, respectively.



                                        9
<PAGE>
                              ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 2 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

RESTATEMENT AND RECLASSIFICATIONS

Certain 1997 amounts have been retroactively restated to reflect the merger with
LIS, which has been accounted for as a pooling-of-interests.  Certain amounts in
the prior year' statements have been  reclassified to conform with the current
year financial statements.

NOTE 3 - PROPERTY AND EQUIPMENT

The Corporatio's former headquarters in Jackson,  Mississippi,  was sold in July
1997 for a gain of $341,849.  The Corporation had operating lease agreements for
office space, and certain office equipment.  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,  1998,  and
payments on all operating leases were $11,994 and $161,515.

NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

A summary of  accounts  payable  and accrued  expenses  at  December 31, 1998,
follows:

                                             1998
                                    ----------------------

Accrued expenses                               $ 179,573
Accounts payable                                  53,760
                                    ----------------------

                                               $ 233,333
                                    ======================

At December  31,  1996,  the  Corporation  had a Note  Payable to a bank bearing
interest  at prime plus 3/4% (9.25% at December  31,  1996),  payable in monthly
installments of $11,846,  secured by the land and building. The Corporation sold
these  assets  (See  Note  3) in  1997  repaid  the  entire  note  balance.  The
Corporation  had no debt  obligations  other than  normal  accounts  payable and
accruals at December 31, 1998.



                                       10
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 5 - 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.  Additional  consideration of $181,571
was  recorded as goodwill in the fourth  quarter of 1997.  Related  amortization
expenses of $67,829  have been  recorded in the  December  31,  1997,  financial
statements.

During 1995 and the first  quarter of 1996,  the  Corporation  accounted for its
initial  investment  in TRS by the equity  method under which the  Corporation's
share of the net  loss of the  affiliate  was  recognized  in the  Corporation's
operations and included as an adjustment to the investment  balance.  The losses
recorded by the  Corporation  were  $265,643  and $48,687 for the quarter  ended
March 31, 1996, and the year ended December 31, 1995, respectively.

Amortization  expense of approximately  $503,000  recorded during the year ended
December  31, 1996,  relating to TRS  intangible  assets  include a write-off of
$171,000  for one of the two  products  being  developed  by TRS at the  time of
acquisition (a real estate library product).  During the fourth quarter of 1996,
the Corporation elected to abandon this product because management  subsequently
determined the product had limited marketability.



                                       11
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 5- 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.
The transaction has been accounted for as a purchase, accordingly the results of
operations of CDS since August 17, 1996, have been included in the  accompanying
financial statements.

Effective October 1, 1996, the Corporation revised estimates used in determining
the lives of intangible  assets acquired  through its acquisition of TRS and CDS
from five years to three years.

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. The effect of the LIS acquisition for the
years ended  December 31, 1996,  and 1995 was to include  $633,814 and $634,804,
respectively, of additional revenues and $153,601 and $25,679,  respectively, of
additional net loss.  These amounts are included in the amount reported for loss
from discontinued operations.



                                       12
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 6 - INCOME TAXES

The Corporation files a consolidated  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:

                                                      1998             1997
                                              ----------------   ---------------

Deferred tax assets:
    Amortization of non-compete               $            -      $      12,445
    Deferred revenue                                       -             97,165
    Unrealized loss on equity investment             357,410            357,410
    Allowance for bad debts                          153,000              5,199
    Net operating loss carry-forward               1,258,003            953,882
    Unrealized loss in marketable securities         220,622             18,944
                                              ----------------   ---------------
                                                   1,989,053          1,445,045
Valuation allowance                               (1,989,035)        (1,445,045)
                                              ----------------   ---------------
Deferred tax asset                                         -                  -
                                              ----------------   ---------------
Net deferred tax liability                     $           -      $           -
                                              ----------------   ---------------

The Corporation  recorded a valuation  allowance of $1,989,053 and $1,445,045 as
of December 31,  1998,  and 1997  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.

The (provision  for) benefit from income taxes for the year ended December 31 is
summarized as follows:

                                      1998                     1997
                              ---------------     --------------------

Current                           $ 402,503                $ 429,138
Deferred                           (399,345)                (383,638)
                              ---------------     --------------------

                                $     3,158               $   45,500
                              ===============     ====================


                                       13
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 6 INCOME TAXES, CONTINUED

The Corporation has net operating loss  carry-forwards  at December 31, 1998, of
approximately $3,700,000 which expire through 2018.

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:

                                         1998                     1997
                                 --------------         ----------------

Expected tax benefit                $ 543,817                $ 662,482
Non-deductible goodwill                     -                 (201,966)
Valuation allowance                  (543,990)                (471,895)
Other                                   4,331                   56,879
                                 --------------        -----------------

Total income tax benefit          $     3,158                 $ 45,500
                                 ==============        =================

NOTE 7 - 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.

Revenues  for the Segment  approximated  $510,767 and  $1,641,000  for the years
ended December 31, 1998, and 1997, respectively.




                                       14
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 7 - DISCONTINUED OPERATIONS, CONTINUED

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, 1998, $42,731 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.  In
March 1998, the Corporation also initiated  negotiations  with BNEZ to sell LIS.
The  selling  price  for  this  transaction  is  expected  to  also  be  paid in
convertible  preferred  stock of BNEZ.  No  provision  for loss on sale of these
subsidiaries  has been provided as the management  expects that the value of the
securities received will exceed the net book value of the Segment.  However, the
preferred  stock  will not be  convertible  to common  stock for a period of one
year.

NOTE 8 - 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 and 1997.
As of December 31, 1998,  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.  Due to involuntary  terminations  subsequent to December
31, 1997,  290,000 options granted to purchase common stock, will be exercisable
on or before April 30, 1998.  If not  exercised at that time these  options will
expire.



                                       15
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 8- 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:

                                       1998                        1997
                                 --------------------    -----------------------

Net loss          As reported         $ (1,599,461)               $ (1,993,977)
                  Proforma            $ (1,608,557)               $ (2,040,597)

Loss per share    As reported         $      (.076)               $     (0.151)
                  Proforma            $      (.079)               $     (0.155)


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 1998 and 1997:

                   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 1998, and 1997 was $9,096 and $46,620
respectively.



                                       16
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 8 - STOCK OPTIONS AND STOCK-BASED COMPENSATION, CONTINUED

The following  table  summarized  the changes in the number of options  included
under the Plan:

                                                                       Weighted-
                                                       Exercise        Average
                                      Shares          Price Range      Exercise 
                                                                       Price
                                   -------------  ----------------  ------------

Outstanding at December 31, 1995       140,000      $ .50 - $.91           $.80
Granted                                130,000       $.59 - $.68           $.62
Canceled                               (20,000)             $.91           $.91
                                   -------------
Outstanding at December 31, 1996       250,000       $.50 - $.91           $.70
Granted                                125,000       $.32 - $.42           $.41
Canceled                               (20,000)             $.68           $.68
                                   -------------
Outstanding at December 31, 1997       355,000       $.35 - $.91           $.60
Granted                                500,000              $.02           $.02
Canceled                              (355,000)      $.35 - $.91           $.60
                                   -------------
Outstanding at December 31, 1998     1,500,000              $.02           $.02
                                   =============                     

As of December 31,  1997,  the total number of  exercisable  stock  options were
88,000.

In addition to 1,500,000  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 in one year from date of issuance or on
the date of closing of any reorganization or merger.

NOTE 9 - 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.


                                       17
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 10 - 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.

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.


                                       18
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 10 - CONTINGENCIES, CONTINUED

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.  While it is not  possible  at this time to
estimate the potential liability of the allegations,  any liability in excess of
$10,000 would have a materially adverse effect upon the Registrant.

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.

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.

NOTE 11 - SALE OF COMMON STOCK - LAWSUIT SETTLEMENT

On September 16, 1996, a lawsuit was filed in the United States  District  Court
for the Southern District of Mississippi,  Jackson Division,  styled EURAM B.V.,
Peeper,  et al. vs.  Ethika by certain  plaintiffs  against  Ethika and its then
Chairman,  S.L. Reed, Jr. This suit alleged breach of fiduciary  duties,  fraud,
and conspiracy to breach fiduciary duty of loyalty and care, breach of contract,
misrepresentation, and conversion. These allegations arose from the transactions
surrounding  the  Corporation's  issuance  of  2,000,000  shares of its stock in
exchange for 16% interest in PMM and the sale by the  Corporation  of $2,000,000
of its stock in exchange  for shares of Alanco  stock with an  aggregate  market
value of $2,000,000.  On October 30, 1996,  Ethika filed answers to the suit and
instituted a counterclaim  against the  individuals  named in the above suit and
other defendants not named in the original suit.

On December 12, 1997,  Ethika  entered into a settlement by mutual  agreement of
all parties to this lawsuit. Terms of the settlement includes (1) withdrawal and
dismissal  of any  present or future  lawsuits  among the  parties;  (2) sale of
7,000,000  shares of Ethika  unregistered  common stock to La Salle  Investment,
Ltd., a party to the lawsuit for $0.09 per share (see below); (3) Ethika calling
a Meeting of  Shareholders  for the purpose of electing  Directors and voting on
such



                                       19
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 11 - SALE OF COMMON STOCK - LAWSUIT SETTLEMENT, CONTINUED

other  matters as  necessary.  Such meeting to take place at the  earliest  date
permitted  subject  to  Security  and  Exchange  Commission   regulations;   (4)
Resignation  of three  (3)  members  of the  current  Board of  Directors  to be
replaced  by  three  (3)  members  designated  by the  Peeper  Group to serve as
directors until the Meeting of Shareholders (3) above is held.

The  Corporation,  in  conjunction  with the  above  settlement  entered  into a
Subscription  Agreement  for the sale of  7,000,000  shares of its  unregistered
common stock to LaSalle  Investment,  Ltd., a party to the lawsuit for $0.09 per
share. The Corporation  received total  consideration of $630,000  consisting of
$25,000 cash and $605,000 of Alanco stock  (891,500  shares).  The Schedule 13-D
filed  with  the SEC  indicates  that  beneficial  ownership  of the  "Reporting
Persons" increased to 51% as a result of this transaction,  and the cancellation
of the contingently issued shares to the TRS shareholders resulting in change of
control of Ethika Corporation.

NOTE 12 - 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, 1998, $450,000 with interest at 6% had been advanced against this line
of credit.

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.

Repayment of the $450,000 loaned by the Registrant to NADC is in default and the
Registrant has provided $450,000 allowance against the note.

 


                                       20
<PAGE>
                               ETHIKA CORPORATION
                   Notes to Consolidated Financial Statements
                                December 31, 1998

NOTE 13 - 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.

NOTE 14 - 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.


                                       21

<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 Corporation are:

                                       Director
           Name               Age        Since

Russell C. Burk                41        1997
Dennis Brovarone               43        1997
Dennis P. Nielsen              56        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 Corporation is:

                                                        Executive Officer
        Name                               Age                  Since

Dennis Brovarone                            43                   1997
Chairman and President,
Chief Executive Officer

The Corporation'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 Corporation 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  Corporation'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.

Russell C. Burk - Mr. Burk,  41, has been  practicing  corporate  securities law
since 1990 and as a sole practitioner since 1997. He was elected to the Board in
December 1997. From 1993 to 1997, Mr. Burk was Vice  President,  General Counsel
for RAF Financial Corporation, Denver, Co.

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.

<PAGE>

In 1992 the  Corporation 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  Corporation.  The  judgment was entered on the basis of a complaint
filed by the SEC. The  Corporation  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  Corporation  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 Corporation'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  Corporation  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  Corporation'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 Corporation's  Chief Executive Officer
for services rendered in all capacities to the Corporation and its subsidiaries.
      
                                                                      Number of
                                               Annual                Securities
Name and                                    Compensation             Underlying
Principal Position          Year          Salary      Bonus           Options

Dennis Brovarone            1998         $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)  Exerciseable
--------------------------------------------------------------------------------
Dennis Brovarone       12/30/98       500,000          $0.02     (2)
Russell Burk           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

<PAGE>

(2)  Exercisable  ninety days from the date of closing of any  reorganization or
     merger  agreement  which results in a change in control of the  Corporation
     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 Corporation 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  Corporation's  common  stock as of March 31,  1999 of persons
known by the Corporation to be holders of 5% or more of the  outstanding  common
stock.  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                    9,930,328 (1)              42.5%
        Calle Hamburg 22
        Benidorm, Spain ALC 03500

        Argere Holdings, S.A.              420,000 (1)(2)            1.8%
        18 Boulevard Royal
        L-2449 Luxembourg

        Eur-Am B.V.                        610,100 (1)(3)            2.6%
        Calle Hamburg 22
        Benidorm, Spain ALC 03500

        La Roche Holdings, S.A.            902,500 (1)(4)            3.9%
        18 Boulevard Royal
        L-2449 Luxembourg

        La Salle Investment, Ltd.          7,997,828 (1)(5)         34.2%
        35 Rue De Bains
        Geneva, Switzerland 1205    


(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 42.5% of the
total outstanding shares of Ethika common stock.

<PAGE>

(2)  Argere  Holdings,  S.A.  is a  corporation  organized  under  the  laws  of
     Luxembourg.  Mr. Jacque Benzeno,  Mr. Andre  Labranche and Ms.  Marie-Paule
     Mockel 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.

(4)  La Roche  Holdings,  S.A.  is a  corporation  organized  under  the laws of
     Luxembourg. Jacques Benzeno, Andre LaBranche and Marie-Paule Mockel are the
     directors with the power to revoke Mr. Peeper's power of attorney.

(5)  La Salle  Investment,  Ltd., is a corporation  organized  under the laws of
     Ireland.  Jean Claude Roder and Claude  Oberson are the directors  with the
     power to revoke Mr. Peeper's power of attorney.

Security Ownership of Management

The following table sets forth information as to the beneficial ownership of the
Corporation's  common stock as of March 31,  1999,  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%
       Russell C. Burk                     1,000,000                   4.2%
       Dennis P. Nielsen                   1,000,000                   4.2%
       Directors, nominees, and
       Executive  Officers  as a group     3,000,000                  12.6%
       (3 persons)

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Corporation did not enter into any reportable  relationships or transactions
with its  officers,  directors or control  persons  during the fiscal year ended
December  31,  1998,  except  for the  granting  of shares  and  options  to the
directors as set forth above.


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

<PAGE>

(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, 19965. 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)

(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  Corporation did not file any reports on Form 8-K during the last quarter of
the year ended December 31, 1998.



<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: April 14, 1999                                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                                           April 14, 1999
---------------------
Dennis Brovarone
Chairman of the Board & Chief Executive Officer
(Principal Executive Officer)


/s/ Russell Burk                                              April 14, 1999
---------------------  
    Russell Burk, Director

/s/ Dennis Nielsen                                            April 14, 1999
---------------------  
    Dennis Nielsen, Director


<PAGE>