<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 MARCH 31, 1999
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 Incorporation or (I.R.S. Employer
Organization) Identification No.)
855 Third Avenue, 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 May 13, 1999, 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 these forward-looking
statements. These statements may include, but not be limited to, projections of
revenues, income or loss, capital expenditures, plans for growth and future
operations, financing needs, sources or potential sources of 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 the
forward-looking statements contained herein.
<PAGE>
DEOTEXIS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION...................................................................................1
ITEM 1. FINANCIAL STATEMENTS.................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...........................................................................1
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................1
PART II. OTHER INFORMATION......................................................................................1
ITEM 1. LEGAL PROCEEDINGS....................................................................1
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................1
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................................1
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................1
ITEM 5. OTHER INFORMATION....................................................................1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................................7
(a) Exhibits..................................................................................7
(b) Reports on Form 8-K.......................................................................7
SIGNATURES......................................................................................................8
</TABLE>
i
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See the Index to Financial Statements, and the Financial
Statements and Notes thereto appearing at the end of this Quarterly Report.
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.
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 at the end of this Quarterly Report.
1
<PAGE>
RESULTS OF OPERATIONS
Deotexis, Inc. (the "Company") has not generated any
revenue from operations and is in the development stage. At March 31,
1999, the Company had current assets of $2,368,730, and current
liabilities of $214,529.
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, until September 1997, its existence had 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, 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 Company is engaged in the business of developing and
commercializing certain patented controlled-release delivery systems for
consumer products in certain sectors of the toiletries, cosmetics, apparel,
household products, personal care products, pharmaceutical, and other markets.
The Company's goal is to expand and build on its patented "know-how," and to
acquire access to manufacturing and marketing resources to become a profitable
developer and supplier of controlled-release delivery systems to a wide range of
industry sectors. Ultimately, the Company plans to become a business owning or
holding the rights to a wide range of products in the area of controlled-release
technology.
The Company's first controlled-release delivery system was
developed by Mr. Tebbe in 1987, and he filed a patent application for the
technology relating thereto in that same year. The application was opposed in
the European patent courts by The Procter & Gamble Company, one of the world's
largest manufacturers and distributors of household and consumer products. In
late 1996, the European Patent Office dismissed Procter & Gamble's challenge in
favor of Mr. Tebbe's patent claims. Following the patent ruling in his favor,
Mr. Tebbe has commenced taking steps to capitalize on his patented processes and
technology.
Over the course of the next three (3) years, the Company
anticipates that it will (a) enter into licensing agreements providing for
the use by licensees of the Company's patents and manufacturing technology in
exchange for sales-based royalty payments to the Company, (b) enter into one
or more distribution agreements with one or more major drug and
pharmaceutical wholesale distributors, (c) either hire additional senior
management necessary to operate the Company, or acquire an operating company
with an existing management team, or pursue a
2
<PAGE>
combination of these strategies, (d) acquire an operating company in Europe
or the United States to manufacture or to oversee the sub-contracted
manufacture and the distribution of its products, and (e) commence an image
building advertising and public relations campaign in the pharmaceutical and
personal care products industries. There can be no assurance that any or all
of these goals will be achieved by the Company.
PRODUCTS
The Company's core patent covers rate-controlled delivery
systems for chemicals which are microencapsulated and bonded onto flexible
textiles. In these systems, the active substances or compounds, including
anti-bacterial compounds, perfumes and emollients, are enclosed in
micro-capsules and bonded onto textiles. Depending on the thickness of their
walls and the material used to make them, the tiny capsules can be engineered to
rupture and release their contents at pre-programmed intervals, or in response
to changes in specific conditions (such as heat, humidity, pressure, etc.),
enabling the user to benefit from timely, correctly-dosed applications of
personal care, pharmaceutical or other compounds. Textile-based
"controlled-release delivery systems" have recently come into widespread use in
certain female hygiene products (sanitary pads) and in baby's diapers, where the
use of microencapsulated anti-bacterial compounds has permitted the
manufacturers to reduce the volume and thickness of the material and, most
importantly, increase the flexibility and therefore the comfort and convenience
of these products without reducing their effectiveness.
Based on its textile-based controlled-release delivery system,
the Company has developed and patented a number of consumer products, including
the "Cold Scarf," a disposable scarf impregnated with herbal substances for use
by people seeking relief from the symptoms of colds and congestion. In addition,
the Company has developed and patented controlled-release systems which can be
integrated with adhesive plasters, latex gloves and other "carriers" to deliver
micro-encapsulated substances in new ways. The Company's business plan envisions
business ventures with other companies which have know-how in mature basic
technologies such as adhesive plaster manufacturing, and are seeking new ideas
for innovative products that the Company's delivery system technology may help
to provide.
TARGET MARKETS; MANUFACTURING AND DISTRIBUTION STRATEGY
Potential end-users of the Company's systems are consumers
worldwide. In order to reach these end-users, the Company intends to license its
systems to corporations which manufacture, sell and distribute consumer products
to the personal care, pharmaceutical and household products markets. The ability
to use the Company's technology by virtue of a license, in the Company's
opinion, should offer licensees a unique opportunity to diversify and expand
their sales.
RETENTION OF SENIOR MANAGEMENT
The Company's seven member Board of Directors has extensive
experience in a wide array of business sectors. 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 the time is appropriate to hire suitable
personnel to serve in those positions.
3
<PAGE>
In addition, Tony Kirk, a Director of, and consultant to, the
Company, has been elected Acting Chief Financial Officer, to execute the duties
of Chief Financial Officer until such time as the Company's level of operations
warrants the retention of a full-time permanent Chief Financial Officer.
COMPANY STRUCTURE AND SUBSIDIARIES
The Company formed a wholly-owned subsidiary in Germany in the
early part of 1999 to establish a local presence and serve as a holding company
for any joint venture or equity interests which may materialize through
cooperation agreements with licensees. The German holding company will initially
have an independent professional manager who will serve as interim CEO of that
subsidiary on a part-time basis while licenses are negotiated and joint ventures
formed. Once the Company's operations have progressed to the joint venture
stage, the Company expects to engage full-time management to monitor its German
relationships and investments, and to identify and negotiate new business
opportunities. Assuming that this approach is successful, the Company intends to
set up additional "technology holding companies" in other countries (including
the United States) and to follow the same strategy. As the volume of the
Company's business activity increases, to support Mr. Tebbe, the Company expects
to appoint a seasoned financial executive at the parent company level, who will
be responsible for accounting, consolidations, finance, cash management,
regulatory and securities law compliance, and other parent company functions.
As stated above, the Company may acquire an operating company
with manufacturing capabilities in Europe or the United States within the next
one to three (1-3) years, and thereafter use products based on the Company's
technology to diversify and expand the acquired company's existing product
offerings and revenue base. In addition, the Company hopes that, if it is able
to consummate an acquisition, officers and employees of the acquired company
will be able to assist in licensing activities and new product development,
thereby increasing the Company's management depth and strengthening its product
management and marketing skills.
LICENSING
To avoid the typically large costs of advertising and
promoting new consumer products (currently estimated at $15-20 million for a
single new product in Germany alone), the Company plans to primarily follow a
licensing strategy to market and distribute its delivery systems.
The Company anticipates that a large majority of its potential
customers will enter into license agreements with the Company, in return for
sales-based royalty payments to the Company. It is the Company's intention to
grant extendable, multi-year licenses to corporations in the apparel, cosmetics,
toiletries, household products, personal care products and pharmaceutical
industries. In return for the 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 products
employing the Company's delivery systems.
With respect to any products which it is required to
manufacture, the Company anticipates that it will enter into agreements with
wholesale distributors to distribute such
4
<PAGE>
products through those companies' distribution networks, specifically to
retailers that purchase their products from wholesale distributors. The
Company anticipates that it will pay these distributors a fee for the use of
their distribution structure, either in the form of a flat fee per unit of
the Company's products sold, or a fee based on a percentage of the product's
wholesale price.
There can be no assurance that any license or 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 license and distribute its products and delivery systems will
severely limit the Company's ability to produce and distribute its products and
introduce them into the market in any significant way.
PUBLIC RELATIONS; ADVERTISING
The Company has begun a public relations campaign to establish
the presence and build the image of the Company, initially in Germany, with the
intention to eventually expand this activity to all its primary target markets
in Europe and the United States. The public relations campaign has been designed
to present the Company as a technology-driven developer and supplier of quality,
innovative, economical controlled-release products. This campaign currently
utilizes the services of an independent public relations firm selected by the
Company.
The Company's anticipated advertising campaign, which is
scheduled to commence after the first licenses have been signed, will highlight
the convenience and economy of the Company's products. The Company intends to
place its print advertisements in periodicals and newspapers with readership
demographics consistent with the Company's core consumer target markets.
On an ongoing basis, the Company is also considering ways to
cement its ties to its investors and ensure that information on important
Company developments and opportunities continues to reach them on a timely
basis.
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 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 constitute all of the technology necessary to
manufacture the Company's textile-based controlled-release delivery systems. It
is the Company's intention to commercially exploit the patents for its
controlled-release delivery systems technology through the introduction and
licensing of the Company's systems, initially 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 these patents and patent rights. There are no
assurances that the Company will ever achieve net income as a result of the
commercial exploitation of these intellectual property rights. Furthermore, if
the occasion arises, the Company will have to defend against and/or 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.
5
<PAGE>
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,
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 Company's products and develop its delivery
systems. On March 31, 1999, the Company had $2,260,607 of liquid assets, working
capital of $2,154,201 and shareholders' equity of $2,154,201. The Company has
not manufactured or licensed any of its delivery systems since inception.
CAPITAL RESOURCES
Following commencement of its operations, the Company's cash
requirements will be significant. While the Company currently has cash on hand
sufficient to finance its proposed business during the first one to three (1-3)
years of its operations, excluding the costs of any potential acquisitions, the
Company is dependent on internally generated cash flow and upon securing a
working capital line of credit to implement its business plan thereafter. There
can be no assurance that the Company will be able to maintain its business and
operations without additional financing after the first one to three (1-3) years
of operations or that, thereafter, it will be able to generate sufficient cash
flow and/or secure sufficient borrowings to meet the Company's working capital
requirements.
YEAR 2000 DISCLOSURE
The Company has assessed its exposure to the so-called "Year
2000" problem, the difficulty or inability of computers to correctly identify
the date after December 31, 1999.
The Company has not yet purchased or implemented any
manufacturing systems, computer systems, accounting, payroll, procurement,
inventory control or distribution systems or infrastructure. At such time as the
Company purchases or implements any of the foregoing, it intends to ensure that
such systems are fully Year 2000 compliant.
Based on the foregoing, the Company has concluded that the
potential consequences of Year 2000 issues will not have a material effect on
the Company's business, results of operations, or financial condition.
6
<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.
7
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Condensed Consolidated Balance Sheets at March 31, 1999 (unaudited)
and December 31, 1998 F-2
Condensed Consolidated Statements of Operations for the three months ended March
31, 1999 and 1998 (unaudited) and cumulative since
March 6, 1992 (inception) to March 31, 1999 (unaudited) F-3
Consolidated Statement of Stockholders' Equity for the period March 6, 1992
(inception) to December 31, 1995, and for the years ended December 31, 1996,
1997 and 1998 and for the three
months ended March 31, 1999 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 1999 and 1998 (unaudited) and cumulative since
March 6, 1992 (inception) to March 31, 1999 (unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6
</TABLE>
F-1
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,956,090 $ 2,260,607
Prepaid taxes -- 4,008
Prepaid insurance 104,115
----------- -----------
Total current assets 2,956,090 2,368,730
----------- -----------
Total assets $ 2,956,090 $ 2,368,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 80,015 $ 160,939
Due to officer 429,659 53,590
----------- -----------
Total current liabilities 509,674 214,529
----------- -----------
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 4,156,685 4,156,685
Deficit accumulated during the development
stage (1,714,816) (2,007,031)
----------- -----------
Total stockholders' equity 2,446,416 2,154,201
----------- -----------
Total liabilities and stockholders'
equity $ 2,956,090 $ 2,368,730
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-2
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, MARCH 6, 1992
----------------------------- (DATE OF INCEPTION) TO
1998 1999 MARCH 31, 1999
---------- -------------- ---------------------
<S> <C> <C> <C>
Interest and other income $ 21,971 $ 28,448 $ 286,541
-------- -------- -----------
Expenses:
Directors fees 35,000 175,000
Interest 6,400 28,400
Consulting - 38,125
Rent 970 42,817
Corporation franchise taxes 9,200 2,034 28,663
Filing fees 70,301 15,969 132,253
Amortization - 500
Bank charges - 2,310
Insurance 35,268 34,705 175,775
Office 10,610 11,295 159,988
Professional fees 312,751 214,290 1,509,741
--------- --------- -----------
Total expenses 438,130 320,663 2,293,572
--------- --------- -----------
Net loss $(416,159) $(292,215) $(2,007,031)
========= ========== ===========
Basic loss per share $(.09) $(.06)
===== ======
Weighted average number of
shares outstanding 4,546,875 4,546,875
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
F-3
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
COMMON ACCUMULATED
STOCK ADDITIONAL DURING THE TOTAL
----------------- PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
------- -------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of 160,000 common shares on June
4, 1992 at par value ($.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
($6.25 per share) 100,000 100 624,900 625,000
Deferred offering costs charged to
paid-in capital (31,461) (31,461)
Net loss - December 31, 1994 (27,184) (27,184)
Net loss - December 31, 1995 (35,005) (35,005)
------- ------------ ---------- ----------
Balance - December 31, 1995 279 624,860 (64,017) 561,122
Net loss (43,737) (43,737)
------- ------------ ---------- ----------
Balance - December 31, 1996 279 624,860 (107,754) 517,385
Distributions (475,750) (475,750)
Sale of 4,183,125 shares for cash
($.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
Expenses of the Company paid by
principal stockholder 1,200 1,200
Net loss (1,367,161) (1,367,161)
--------- ------- ------------ ---------- ----------
Balance - December 31, 1998 4,546,875 4,547 4,156,685 (1,714,816) 2,446,416
Net loss (unaudited) (292,215) (292,215)
--------- ------- ------------ ---------- ----------
Balance - March 31, 1999 (unaudited) 4,546,875 $4,547 $4,156,685 $(2,007,031) $ 2,154,201
========== ====== ========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-4
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, MARCH 6, 1992
----------------------------- (DATE OF INCEPTION) TO
1998 1999 MARCH 31, 1999
---------- -------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(416,159) $ (292,215) $(2,007,031)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Services paid by stockholder 1,200
Amortization 500
Changes in operating assets and liabilities:
Prepaid taxes (4,008) (4,008)
Prepaid insurance (105,802) (104,115) (104,115)
Accounts payable and accrued
expenses 201,149 80,924 160,439
Due to officer (376,069) 53,590
-------------- ----------- -------------
Cash used in operations (320,812) (695,483) (1,899,425)
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)
-------------- ----------- -------------
Net (decrease) increase in cash
and cash equivalents (320,812) (695,483) 2,260,607
Cash and cash equivalents -
beginning of year/period 4,034,700 2,956,090 -
----------- ---------- ---------------
Cash and cash equivalents -
end of period $3,713,888 $2,260,607 $2,260,607
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $9,200
======
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
=======
The principal stockholder of the Company
transferred 2,500 shares of common stock
owned by him to two consultants for services
rendered to the Company. The Company recorded
the fair market value of those securities at $.48 per share $1,200
======
SEE ACCOMPANYING NOTES
</TABLE>
F-5
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED 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 revenues 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 Company organized a wholly-owned subsidiary, D-Tex Gmbh, under the
laws of Germany, in March 1999.
Basis of Presentation:
The condensed consolidated 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 consolidated financial statements should be
read in conjunction with the condensed notes thereto. In the opinion of
management of the Company, the accompanying unaudited condensed
consolidated 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.
F-6
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions
have been eliminated.
Foreign Currency Translation:
Assets and liabilities of the foreign subsidiary are translated into U.S.
dollars at current exchange rates, and income statement items are
translated at average exchange rates for the period.
Cash and Equivalents:
Cash and equivalents are stated at cost plus accrued interest. Cash
equivalents consist of short-term treasury bills. The Company considers
all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
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.
Earnings (loss) per common 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.
Diluted earnings (loss) per share is computed by dividing earnings (loss)
available to common shareholders by the weighted average number of common
shares outstanding for the period, adjusted to reflect potentially
dilutive securities. There were no dilutive securities outstanding during
any of the periods.
F-7
<PAGE>
DEOTEXIS, INC. AND SUBISIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. RELATED PARTY TRANSACTIONS:
The Company engages the services of a professional consulting firm; a
director of the Company is a partner in the consulting firm. During 1999,
the Company incurred expenses of approximately $55,000. As of March 31,
1999, approximately $32,000 was owed to this related party.
F-8
<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: May 13,1999
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER
<S> <C>
27. Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DEOTEXIS
INC. FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,260,607
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,368,730
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,368,730
<CURRENT-LIABILITIES> 214,529
<BONDS> 0
0
0
<COMMON> 4,547
<OTHER-SE> 2,149,654
<TOTAL-LIABILITY-AND-EQUITY> 2,368,730
<SALES> 0
<TOTAL-REVENUES> 28,448
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 320,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (292,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (292,215)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
