<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1998
--------------------
OR
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______________ to _______________
Commission file number 2844975-1
DEOTEXIS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 13-3666344
- ------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
885 Third Ave., Suite 2900
New York, New York 10022-4834
- ------------------------------- -------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (212) 829-5698
-N/A-
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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
----- -----
As of November 11, 1998, there were 4,546,875 shares of the
registrant's Common Stock, par value $.001, outstanding.
<PAGE>
STATEMENT ON INTERPRETATION OF FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements relating to
future events or the projected future financial performance of the Company.
Such forward-looking statements are within the meaning of that term in
Section 27A of the Securities Act and Section 21E of the Exchange Act. When
used herein, the words "anticipate," "intend," "plan," "believe," "in our
opinion," "hope," "estimate" and "expect," and any similar words or phrases
as they relate to the Company or its operations, are intended to identify
such forward-looking statements. Such statements may include, but not be
limited to, projections of revenues, income or loss, capital expenditures,
acquisitions, plans for growth and future operations, financing needs,
sources or potential sources or capital, or plans or intentions relating to
acquisitions by the Company, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those assumptions and
projections set forth in, contemplated by or underlying the forward-looking
statements. Investors are cautioned not to place undue reliance upon such
forward-looking statements contained herein.
-2-
<PAGE>
DEOTEXIS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE
PART I
FINANCIAL INFORMATION.......................... 4
ITEM 1. FINANCIAL STATEMENTS............................................ 4
INDEX TO FINANCIAL STATEMENTS...................................F-1
CONDENSED BALANCE SHEETS AT DECEMBER 31, 1997 AND
SEPTEMBER 30, 1998 (UNAUDITED)..................................F-2
CONDENSED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) AND CUMULATIVE
SINCE MARCH 6, 1992 (INCEPTION) TO SEPTEMBER 30, 1998
(UNAUDITED).....................................................F-3
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 (UNAUDITED).........................F-4
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD
MARCH 6, 1992 (INCEPTION) TO DECEMBER 31, 1994, AND
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED).....................................................F-5
CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) AND CUMULATIVE SINCE
MARCH 6, 1992 (INCEPTION) TO SEPTEMBER 30, 1998
(UNAUDITED).....................................................F-6
NOTES TO CONDENSED FINANCIAL STATEMENTS.........................F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 5
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 5
PART II
OTHER INFORMATION............................ 6
ITEM 1. LEGAL PROCEEDINGS............................................... 6
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................... 6
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 6
ITEM 5. OTHER INFORMATION............................................... 6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 11
SIGNATURES................................................................... 12
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
4
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Balance Sheets at December 31, 1997 and September 30, 1998 (unaudited) ............... F-2
Condensed Statements of Operations for the nine months ended September 30, 1997
and 1998 (unaudited) and cumulative since March 6, 1992 (inception)
to September 30, 1998 (unaudited) ........................................................... F-3
Condensed Statements of Operations for the three months ended
September 30, 1997 and 1998 (unaudited) ..................................................... F-4
Statement of Stockholders' Equity for the period March 6, 1992 (inception) to
December 31, 1994, and for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1998 (unaudited) ................................ F-5
Condensed Statements of Cash Flows for the nine months ended September 30, 1997
and 1998 (unaudited) and cumulative since March 6, 1992 (inception)
to September 30, 1998 (unaudited) ........................................................... F-6
Notes to Condensed Financial Statements ........................................................ F-8
</TABLE>
F-1
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
----------------- ------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $4,034,700 $1,274,118
Treasury bills ............................................. 1,937,268
Prepaid taxes .............................................. 1,561 2,097
Prepaid insurance .......................................... 35,268
---------- ----------
Total assets (all current) ...................... $4,036,261 $3,248,751
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................... $ 73,097 $ 61,800
Due to officer/director .................................... 150,787 326,655
---------- ----------
Total current liabilities ....................... 223,884 388,455
---------- ----------
Commitments and other matters
Stockholders' equity:
Preferred stock, par value $.001; authorized
15,000,000 shares, none issued and outstanding
Common stock, par value $.001; authorized
75,000,000 shares, issued and outstanding
4,546,875 shares ......................................... 4,547 4,547
Additional paid-in capital ................................. 4,155,485 4,156,685
Deficit accumulated during the development stage ........... (347,655) (1,300,936)
---------- ----------
Total stockholders' equity ...................... 3,812,377 2,860,296
---------- ----------
Total liabilities and stockholders' equity ...... $4,036,261 $ 3,248,751
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
F-2
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months March 6, 1992
Ended September 30, (Date of Inception) to
--------------------------- ----------------------
1997 1998 September 30, 1998
-------- ---------- ------------------
<S> <C> <C> <C>
Interest and other income .................... $ 16,230 $ 132,719 $ 224,117
-------- ---------- -----------
Expenses:
Directors fees 105,000 105,000
Consulting ................................ 7,500 38,125
Rent ...................................... 7,500 2,761 40,886
Corporation franchise taxes ............... 300 16,846 24,382
Filing fees ............................... 2,642 77,725 99,008
Amortization .............................. 17 500
Bank charges .............................. 268 2,310
Insurance ................................. 105,802 105,802
Office .................................... 12 43,925 62,077
Professional fees ......................... 11,953 733,941 1,046,963
-------- ---------- -----------
Total expenses ...................... 30,192 1,086,000 1,525,053
-------- ---------- -----------
Net loss ..................................... $(13,962) $ (953,281) $(1,300,936)
-------- ---------- -----------
-------- ---------- -----------
Basic loss per share ......................... $(.05) $(.21)
-------- ----------
-------- ----------
Weighted average number of
shares outstanding ........................ 278,750 4,546,875
-------- ----------
-------- ----------
</TABLE>
See accompanying notes
F-3
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
-------------------
1997 1998
---- ----
<S> <C> <C>
Interest and other income ....................... $ 3,299 $ 48,426
-------- ---------
Expenses:
Directors fees ............................... 35,000
Rent ......................................... 2,761
Corporation franchise taxes .................. (195) 7,646
Filing fees .................................. 425 4,317
Bank charges ................................. 38
Insurance .................................... 35,266
Office ....................................... 19,762
Professional fees ............................ 10,253 191,722
-------- ---------
Total expenses ......................... 10,521 296,474
-------- --------
Net loss ........................................ $ (7,222) $(248,048)
-------- ---------
-------- ---------
Basic loss per share ............................ $ (.03) $ .05)
-------- ---------
-------- ---------
Weighted average number of
shares outstanding ........................... 278,750 4,546,875
-------- ---------
-------- ---------
</TABLE>
See accompanying notes
F-4
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Common Accumulated
Stock Additional During the Total
------------------- Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
-------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of 160,000 common shares on September 4, 1992
at par value ($.001 per share) for cash
($.01 per share) ....................................... 160,000 $ 160 $ 1,440 $ 1,600
Sale of 18,750 shares for cash in July 1992
($1.60 per share) ...................................... 18,750 19 29,981 30,000
Net loss inception to December 31, 1992 ................... $ (62) (62)
Net loss--December 31, 1993 ............................... (1,766) (1,766)
Sale of 100,000 shares--January 31, 1994
($6.25 per share) ...................................... 100,000 100 624,900 625,000
Deferred offering costs charged to paid-in capital ........ (31,461) (31,461)
Net loss--December 31, 1994 ............................... (27,184) (27,184)
------ ---------- ----------- ----------
Net loss .................................................. (35,005) (35,005)
----- --------- ----------- ----------
Balance--December 31, 1995 ................................ 279 624,860 (64,017) 561,122
Net loss .................................................. (43,737) (43,737)
------ ---------- ----------- ----------
Balance--December 31, 1996 ................................ 279 624,860 (107,754) 517,385
Distributions ............................................. (475,750) (475,750)
Sale of 4,183,125 shares for cash
($.96 per share) ....................................... 4,183,125 4,183 3,995,817 4,000,000
Issuance of 85,000 shares for services rendered
($.48 per share) ....................................... 85,000 85 (85) --
Capital contributed by principal stockholder .............. 10,643 10,643
Net loss .................................................. (239,901) (239,901)
--------- ------ ---------- ----------- ----------
Balance--December 31, 1997 ................................ 4,546,875 4,547 4,155,485 (347,655) 3,812,377
Capital contributed by principal stockholder
(unaudited) ............................................ 1,200 1,200
Net loss (unaudited) ...................................... (953,281) (953,281)
--------- ------ ---------- ----------- ----------
Balance--September 30, 1998 (unaudited) ................... 4,546,875 $4,547 $4,156,685 $(1,300,936) $2,860,296
--------- ------ ---------- ----------- ----------
--------- ------ ---------- ----------- ----------
</TABLE>
See accompanying notes
F-5
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Caption
Nine Months
Ended September 30, March 6, 1992
------------------------------- (Inception) through
1997 1998 September 30, 1998
------------ ------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $ (13,962) $ (953,281) $(1,300,936)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization ................................. 17 500
Services paid for by principal stockholder 1,200 1,200
Changes in operating assets and liabilities:
Interest receivable ............................. (25,514) (25,514)
Escrow .......................................... (50,000) (2,597)
Prepaid taxes ................................... (1,561) (536)
Prepaid insurance ............................... (35,268) (35,268)
Accounts payable and accrued expenses ........... 12,200 (11,297) 61,800
Due to officer, net ............................. 175,868 326,655
--------- ----------- ----------
Cash used in operations .............................. (53,306) (848,828) (974,160)
Cash flows from investing activities:
Purchase of treasury bills ........................ (1,911,754) (1,911,754)
Cash flows from financing activities:
Issuance of common stock--net of costs ............ 4,625,139
Capital contributed by principal stockholder ...... 10,643
Distributions ..................................... (475,750) (475,750)
--------- ----------- ----------
Net increase (decrease) in cash
and cash equivalents ............................. (529,056) (2,760,582) 1,274,118
Cash and cash equivalents--
beginning of year/period ......................... 530,337 4,034,700 --
--------- ----------- ----------
Cash and cash equivalents--
end of period .................................... $ 1,281 $ 1,274,118 $1,274,118
--------- ----------- ----------
--------- ----------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $17,382 $ 17,382
----------- ----------
----------- ----------
Noncash financing activities:
The Company issued 85,000 shares to a consultant
for services rendered. The Company recorded
the fair market value of those securities
at $.48 per share. $ 40,800
----------
----------
</TABLE>
(Continued)
F-6
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Concluded)
<TABLE>
Caption
Nine Months
Ended September 30, March 6, 1992
------------------------------- (Inception) through
1997 1998 September 30, 1998
------------ ------------ -------------------
<S> <C> <C> <C>
The principal stockholder of the Company
transferred 2,500 shares of common stock owned
by him to two consultants for services rendered.
The Company recorded the fair market value of
those securities at $.48 per share $1,200 $1,200
------ ------
------ ------
</TABLE>
See accompanying notes
F-7
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY AND STOCKHOLDERS' EQUITY:
Background:
Deotexis, Inc. (the "Company") was organized under the laws of the State
of Nevada on March 6, 1992. Its purpose is the development of a consumer
products company focusing on the marketing of personal care consumer
products. Since the Company has not yet begun operations, it is
considered to be in the development stage.
On October 10, 1997, the Stock Purchase Agreement dated September 30,
1997 among Overton Holdings Limited, a corporation formed under the laws
of the Turks & Caicos Islands, British West Indies ("OHL"), Gary Takata,
Shigeru Masuda and Gerold Tebbe, closed. Pursuant to the terms of the
Stock Purchase Agreement, the Company issued 4,183,125 newly issued and
nonregistered shares of common stock, $.001 par value (the "New Shares")
to OHL, in return for a cash payment to the Company of $4 million from
OHL, and the transfer to the Company for nominal consideration, plus
future royalties tied to the income recognized by the Company from the
commercial exploitation thereof, of certain patents, patent applications
and related intellectual property owned by Gerold Tebbe or entities
owned and controlled by him. OHL is 100% beneficially owned by Gerold
Tebbe. The Company intends to develop and market these patents and the
products produced utilizing this intellectual property.
The New Shares account for 92% of the issued and outstanding common
stock of the Company and, accordingly, the Company is a subsidiary of
OHL. Prior to the closing of the Stock Purchase Agreement, Gary Takata,
then President, Secretary and a Director of the Company, and Shigeru
Masuda, then Chairman of the Board of Directors of the Company, together
beneficially owned 55.2% of the common stock of the Company and
controlled the Company. Upon the closing of the Stock Purchase Agreement
and in accordance with the provisions thereof, Mr. Masuda resigned as a
Director of the Company, and Mr. Takata resigned his officerships and
directorship with the Company and appointed Gerold Tebbe sole director,
who then appointed himself President, Treasurer and Secretary of the
Company.
F-8
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On October 13, 1997, by action by written consent without a meeting,
OHL, as majority stockholder and parent of the Company, acted to amend
the Company's Articles of Incorporation to change the Company's
corporate name to "Deotexis, Inc." An amendment to the Company's
Articles of Incorporation was prepared and filed with the Secretary of
State of Nevada on October 15, 1997.
Basis of Presentation:
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management of the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the condensed notes
thereto. In the opinion of management of the Company, the accompanying
unaudited condensed financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary to fairly
present the results for the interim periods to which these financial
statements relate.
These financial statements should be read in conjunction with the Annual
Report filed with the Securities and Exchange Commission on Form 10-K.
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash and Equivalents:
Cash and equivalents are stated at cost plus accrued interest. The
Company considers all highly liquid investments with a maturity date of
three months or less to be cash equivalents.
At September 30, 1998, Treasury Bills included on the balance sheet are
for terms in excess of three months and are stated at cost plus accrued
interest.
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 disclosure of contingent assets and 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.
F-9
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Earnings (Loss) Per Share:
Basic earnings (loss) per share excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted-
average number of common shares outstanding for the period. There were
no dilutive securities outstanding during any of the periods.
Patents:
In accordance with the Stock Purchase Agreement, the majority
shareholder sold certain patents, patent applications and associated
intellectual property to the Company for nominal consideration. The cost
of these acquired patents are not being amortized as the consideration
was nominal. These patents involve textile-based controlled-release
delivery systems, with product applications in the toiletries,
cosmetics, apparel, household products and personal care products
markets as well as applications in the pharmaceutical industry.
3. STOCKHOLDERS' EQUITY:
The Company is authorized to issue 75,000,000 common shares with a par
value of $.001, and 15,000,000 blank check preferred shares with a par
value of $.001. On September 4, 1992, the Company issued a total of
160,000 shares of its common stock to its officers for a total
consideration of $1,600 ($.01 per share).
On June 4, 1992, the Board of Directors authorized the sale, through a
self-underwritten initial public offering of a minimum of 100,000 common
shares and a maximum of 200,000 common shares at $6.25 per share.
During the period of July 1, 1992 through July 15, 1992, the Company
issued a total of 18,750 shares of its common stock ($.001 par value) to
various individuals for a total consideration of $30,000 ($1.60 per
share).
On January 14, 1994, the Company closed on the minimum of 100,000 shares
in its initial public offering for a total consideration of $625,000.
In October 1997, the Company distributed $475,750, of which $454,000 or
$4.54 per share was distributed to the holders of 100,000 common shares
issued in connection with the initial public offering, and $21,750 or
$1.16 per share, was distributed to holders of 18,750 common shares
issued prior to the initial public offering.
F-10
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On October 10, 1997, pursuant to the Stock Purchase Agreement dated
September 30, 1997, the Company issued 4,183,125 newly issued and
nonregistered shares of common stock, $.001 par value to OHL in exchange
for a cash payment of $4 million and the transfer to the Company for
nominal consideration, plus future royalties tied to the income
generated by products sold that employ certain patents, patent
applications and related intellectual property contributed to the
Company by the Company's principal stockholder. In addition, the
principal stockholder contributed capital in the amount of $10,643.
On October 10, 1997, the Company issued 85,000 shares of common stock to
a consultant in connection with his work on behalf of the Company in
arranging and facilitating the consummation of the Stock Purchase
Agreement. The Company recorded the estimated fair market value of those
securities at $.48 per share by a charge to additional paid-in capital.
On April 16, 1998, the principal stockholder of the Company transferred
2,500 shares of his common stock to two companies for professional
services rendered in connection with the Company being listed on the
Bermuda Stock Exchange. This was recorded as an increase in additional
paid-in capital and professional services. The Company recorded the
estimated fair market value of those securities at $.48 per share.
4. STOCK OPTION PLAN:
Effective May 20, 1998, the Company adopted the 1998 Director Stock
Option Plan ("the Plan"). All non employee Directors are eligible to
participate in the Plan. The Plan shall terminate on May 19, 2008. The
Company has reserved 200,000 shares of common stock for issuance of
shares under the Plan. Under the Plan, eligible Directors shall be
granted on May 20, 1999 and each year thereafter, an option to purchase
$20,000 worth of common stock. Each option granted shall be fully vested
on the date of grant and shall be immediately exercisable. The price per
share shall be the fair market value on the date of grant. The life of
the option is ten years from grant date; or three years following
retirement, non-reelection or death or disability; or six months
following resignation. No options have been granted under the Plan.
F-11
<PAGE>
DEOTEXIS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5. COMMITMENTS AND OTHER MATTERS:
On April 9, 1998, the Company entered into a nonexclusive licensing
agreement with Kuw Hummel Vertriebs GmbH ("Hummel"), to manufacture and
sell certain products in Germany. The agreement is for a term of one
year and shall be automatically renewed. Hummel is owned 49.2% by Gerold
Tebbes' wife.
Due to officer/director relates to expenses paid by Gerold Tebbe on
behalf of the Company to another director of the Company for services.
F-12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See Part II, Item 5 -- Other Information, below.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
-5-
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Quarterly Report.
RESULTS OF OPERATIONS
Deotexis, Inc. (the "Company") has not generated any revenue from
operations and is in the development stage. At September 30, 1998, the
Company had current assets of $3,248,751, and current liabilities of
$388,455.
PLAN OF OPERATIONS
GENERAL OVERVIEW
The Company was incorporated in Nevada on March 6, 1992, has no
operating history, has not generated or recognized any revenues, and is in
the development stage. The Company was originally organized with the sole
purpose of identifying a suitable candidate to acquire or with which to
merge, and its existence had, until October, 1997, been maintained since its
formation with that objective in mind. On September 30, 1997, the Company,
then known by its former name, Zeron Acquisitions II,
6
<PAGE>
Inc. ("Zeron"), and Zeron's two controlling stockholders at the time, entered
into a Stock Purchase Agreement (the "Stock Purchase Agreement") with Mr.
Gerold Tebbe and Overton Holdings Limited, a Turks & Caicos Islands
corporation wholly beneficially owned and controlled by Mr. Tebbe ("OHL"),
pursuant to which OHL agreed to buy 4,183,125 newly-issued and non-registered
shares of Common Stock, $.001 par value per share, of the Company, in
exchange for (i) $4,000,000 in cash from OHL, and (ii) the contribution to
the Company by Mr. Tebbe, or entities owned or controlled by him, of certain
patents, patent applications and associated intellectual property, in return
for nominal consideration and a reservation of a 1% royalty by Mr. Tebbe on
all net income recognized by the Company from the commercial exploitation of
such rights. The Stock Purchase Agreement closed on October 10, 1997.
The Company develops and plans to commercialize delivery systems for
the controlled-release and administration of drugs, cosmetics, toiletries and
other substances. These systems are based on textiles permeated with
microencapsulated active substances. These microencapsulated substances are
released at a controlled rate over an extended period of time. The Company's
goal is to become a profitable licensor of a broad array of textile-based
controlled release delivery systems for a wide range of applications.
The Company's original controlled-release delivery system was
developed by Gerold Tebbe, who filed a patent application for it in 1987. The
application was opposed in the European patent courts by The Procter & Gamble
Company, a leading international producer of household products. The European
Patent Office dismissed Procter & Gamble's challenge in favor of Mr. Tebbe's
patent claims. Following this decision, Mr. Tebbe contributed his patent to
the Company, together with several other related patents and patent
applications.
To capitalize on these patents and patent applications, the Company
is seeking to establish relationships with leading companies in each of its
target markets. Over the next two (2) years, the Company anticipates it will
conclude licensing agreements with a number of concerns in a wide range of
industries, leading to profitable commercialization of its controlled-release
delivery systems. There can be no guarantee that this goal will be achieved
by the Company, or if achieved, will be realized in the time frame discussed
above.
DEOTEXIS TECHNOLOGIES AND PRODUCTS
The Company's controlled-release delivery technology may be used in
the form of adhesive patches, plasters, or cloths suffused with
microencapsulated active substances. The Company intends to license its
technology to corporations which are seeking new systems to deliver their
existing products, including drugs, cosmetics, toiletries and other household
and consumer products.
During the past 5 years the Company has successfully developed the
manufacturing technology required to produce, for test-marketing purposes,
limited quantities of the "Deotexis Cold Scarf" and other proprietary
textile-based controlled-release delivery systems. In the course of
commercializing its patents and patent applications in the related area of
patch and plaster technology, which has seen rapid change in recent years,
the Company may decide it needs to license other technology from third
parties and undertake an acquisition program to expand its manufacturing
capabilities and stay abreast of the competition.
TARGET MARKETS AND COMPETITION
The Company's systems have applications in a wide range of
industries. Potential licensees of the Company's systems are corporations
with operations in the healthcare, drug, household products,
toiletries/cosmetics, apparel, textile, footwear and other areas. These
companies sell their products to consumers domestically and internationally,
in large, diverse and highly competitive markets.
Consumers generally differentiate between controlled-release
delivery systems on the basis of performance characteristics and price. All
of the Company's current and future systems will face competition from
traditional forms of delivery systems and from advanced delivery systems
being developed by other companies. A large number of companies are involved
in the development and commercialization of products incorporating advanced
or new delivery systems. The field is highly competitive and the Company
believes that competition will substantially increase in the future.
7
<PAGE>
LICENSING
To avoid the typically large costs of product development,
manufacturing, obtaining regulatory approvals, marketing and distributing its
products, the Company plans to follow a licensing strategy to bring its
systems to market. Target licensees are corporations in the healthcare, drug,
household products, toiletries/cosmetics, apparel, textile, footwear and
other industries.
The Company anticipates that the large majority of its potential
customers will enter into license agreements with the Company. The Company
anticipiates that, in return for a sales-based licensing fee paid to the
Company, licensees will be granted the right to use the Company's patents,
patent applications and the related intellectual property necessary to
manufacture and distribute the Company's systems. There can be no assurance
that any license agreements with the type of companies described above will
be consummated on terms favorable to the Company, if at all. The Company's
failure to effect such arrangements to license its systems will severely
limit the Company's ability to introduce them into the market in any
significant way.
MANUFACTURING
It is anticipated that the majority of the Company's future
customers will license manufacturing rights from the Company and will
manufacture their product requirements in their own manufacturing facilities.
However, the Company further anticipates that a minority of potential
licensees, while willing to enter into marketing, development and
distribution agreements with the Company, may be unwilling or unable to
manufacture the Company's systems themselves. To supply the requirements of
this latter category of licensees, the Company may consider setting up or
acquiring the facilities needed for manufacturing the Company's systems
itself. Alternatively, the Company may sub-contract production to third party
manufacturers. Depending on a licensee's specific requirements for
manufactured product, the Company may seek to obtain supplies by entering
into cooperation agreements, supply contracts, joint ventures or other
strategic alliances with third party manufacturers. The Company has had
preliminary discussions with several companies fitting the above
descriptions, but there can be no assurance that any contracts or agreements
will be consummated.
MARKETING, SALES AND DISTRIBUTION
The Company's primary marketing, sales and distribution channel
will be its licensees, who are expected to be large and mid-sized
corporations in the healthcare, drug, household products,
toiletries/cosmetics, apparel, textile, footwear and other industries.
However, should it appear to be in the Company's best interests to
do so, the Company may decide to manufacture certain of the products
utilizing its proprietary controlled-release delivery systems itself, and
distribute them through independent wholesale and retail distributors,
pursuant to distribution agreements. If the Company decides to pursue this
strategy, there can be no assurance that any distribution agreements with the
types of companies described above will be consummated on terms favorable to
the Company, if at all. The Company's failure to effect such arrangements to
distribute its systems will severely limit the Company's ability to introduce
them into the market in any significant way.
8
<PAGE>
MANAGEMENT
The Company's stockholders have elected a seven-member Board of
Directors with considerable business experience in a variety of fields. Mr.
Gerold Tebbe will serve as the President, Chief Executive Officer and a
director of the Company, with overall responsibility for operations. Mr.
Tebbe will also serve as the Company's Secretary and Treasurer until such
time as suitable personnel are retained to serve in those positions.
Additional management and employees are to be recruited as the Company
finalizes its corporate organization and structure, and begins to license its
technology.
PATENTS
The Company currently owns the patents and patent rights that were
previously owned by Mr. Tebbe, and/or entities owned and controlled by him,
and which were transferred to the Company in connection with the consummation
of the transactions contemplated by the Stock Purchase Agreement. Such
patents and related intellectual property are believed to constitute all of
the technology required to mass produce the Company's proprietary
textile-based controlled-release delivery systems, including the "Deotexis
Cold Scarf."
It is the Company's intention to commercially exploit its patents
through the licensing of the Company's systems, primarily in the European
market. In exchange for the transfer to the Company of the patents, patent
rights and related intellectual property, the Company has agreed to pay
Mr. Tebbe a 1% royalty per annum of all net income recognized by the Company in
connection with the commercial exploitation of the patents and patent rights.
There are no assurances that the Company will ever achieve net
income as a result of the exploitation of these intellectual property rights.
Furthermore, if the occasion arises, the Company will have to defend against
and/or
9
<PAGE>
institute patent infringement suits in order to protect its proprietary
rights to the patents. Prosecution of any type of patent litigation or
dispute may result in significant expenses for the Company.
LIQUIDITY
Since its incorporation on March 6, 1992, the Company has had no
business activity other than its capital raising activities, activities
relating to its corporate organization, negotiations with potential
licensees, partners and distributors, and activities relating to the transfer
to the Company by Mr. Tebbe and/or entities owned and controlled by him of
the patents and other intellectual property necessary to produce the
textile-based controlled-release delivery systems. On September 30, 1998, the
Company had $3,248,751 of liquid assets, working capital of $2,860,296 and
shareholders' equity of $2,860,296. The Company has not manufactured or
licensed any of its products since inception. The Company signed an agreement
with KuW Hummel Vertriebs GmbH, Germany, in mid-1998 that provides for Hummel
to produce, for test-marketing in Germany, small quantities of the "Deotexis
Cold Scarf." Hummel has yet to produce any products for the Company under
this Agreement, as the Company continues to evaluate and assess proper
positioning and entrance into its target markets.
CAPITAL RESOURCES
The Company currently has cash on hand sufficient to finance the
operation of its proposed textile-based delivery systems business, based on
the Company's current business plan and excluding the costs of any planned
joint venture or acquisition, for the next one to three (1-3) years.
Thereafter, the Company anticipates meeting its working capital needs through
internally-generated cash flow and a working capital line of credit to
finance its operations. There can be no assurance that the Company will be
able to maintain its business and operations without additional financing
during the next one to three (1-3) years of operations, or that, thereafter,
the Company will be able to generate sufficient cash flow, or secure a
working capital line of credit in an amount sufficient to finance its
anticipated needs or on acceptable terms.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the period covered by
this Quarterly Report on Form 10-Q.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
DEOTEXIS, INC.
By: /s/ Gerold Tebbe
------------------------------
President, Chief Executive Officer,
Secretary and Treasurer
Dated: November 13, 1998
12
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NUMBER
- ------- -----------
27. Financial Data Schedule __
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DEOTEXIS
INC. FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,274,118
<SECURITIES> 1,937,268
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,248,751
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,248,751
<CURRENT-LIABILITIES> 388,455
<BONDS> 0
0
0
<COMMON> 4,547
<OTHER-SE> 2,855,749
<TOTAL-LIABILITY-AND-EQUITY> 2,860,296
<SALES> 0
<TOTAL-REVENUES> 132,719
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,086,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (953,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (953,281)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
