DEOTEXIS INC, 10-K, 1999-03-31

DEOTEXIS INC
10-K, 1999-03-31
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

-------

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

FORM 10-K

(Mark One)

|X| ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 1998
-----------------

|_| 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
--------------

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
N/A N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.001
-----------------------------
(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
----- -----

<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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-K, or any
amendment to this Form 10-K.|_|

On March 26, 1999, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
$1,646,815. NOTE: The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on March 26, 1999 was determined
by reference to the latest sale of the registrant's Common Stock as of that
date, which occurred in the context of a sale of securities exempt from the
registration requirements of the Securities Act of 1933, pursuant to the
provisions of Regulation S promulgated by the Securities and Exchange Commission
thereunder, at a price per share of approximately $.96. The registrant's Common
Stock was not traded on the NASD OTC Electronic Bulletin Board, the principal
exchange on which the Company's Common Stock is quoted, during the time period
covered by this Form 10-K. As of March 26, 1999, prior to the Regulation S
transaction referred to above, the next most recent sale of the registrant's
Common Stock, which occurred on the NASD OTC Electronic Bulletin Board, was on
February 15, 1996, at $2.4375 per share.

As of March 26, 1999, there were 4,546,875 shares of the registrant's
Common Stock outstanding.

STATEMENT ON INTERPRETATION OF FORWARD-LOOKING STATEMENTS

This Annual 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,
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 such forward-looking statements
contained herein.

[Cover Page - Continued]

<PAGE>

DEOTEXIS, INC.
FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 1998

INDEX

PAGE
----

Part I ......................................................................1
ITEM 1. BUSINESS..................................................1
ITEM 2. PROPERTIES................................................8
ITEM 3. LEGAL PROCEEDINGS.........................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS..........................................8

Part II ......................................................................9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER
MATTERS...................................................9
ITEM 6. SELECTED FINANCIAL DATA..................................10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION OR PLAN OF
OPERATIONS...............................................11

ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS...........................16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.....................................16

Part III .....................................................................17
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT...............................................17
ITEM 11. EXECUTIVE COMPENSATION...................................20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.........................23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.............................................24

Part IV .....................................................................26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K..................................26

SIGNATURES....................................................................27

(i)

<PAGE>

PART I

ITEM 1. BUSINESS.

GENERAL OVERVIEW

Deotexis, Inc. (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 creative and technical expertise behind the Company's business is
provided by Mr. Gerold Tebbe, who is a qualified textile designer with over
twenty-five years of experience in the German and international textile
industries. In 1970, Mr. Tebbe took over the management of his family's
privately-held textile company, and refocused its activities on providing
technical services to manufacturers of production machinery for woven and
knitted materials. In the 1980s, reacting to the competitive threat to the
European textile industry from low-cost imports from Asia and other low labor
cost regions, Mr. Tebbe began to seek an alternative to his existing business.
After experimenting with textile-based controlled-release delivery systems, he
developed the technology the Company currently intends to commercialize and
started to test-market it on a preliminary basis in the late 1980s.

Initially, the Company plans to generate revenues by executing
licensing agreements with corporations in the personal care products markets
and later, in other industries. The Company anticipates that the licensees
will have the resources required to manufacture and sell products which
integrate the Company's controlled-release delivery systems. The licensees
will pay the Company a licensing fee based on sales of products which utilize
the Deotexis technology. Cooperation between the Company and its licensees
may involve the formation of joint ventures, the acquisition by the Company
of an equity interest in the licensee corporation, or other forms of
financing arrangements. While the Company has had preliminary discussions
with several potential licensees, there can be no assurance that licensing
agreements will be reached with those entities, or any others, on terms
advantageous to the Company, if at all. In addition, though the Company has
had preliminary discussions with a few companies that may be potential joint
venture partners, or may be interested in cooperating with the Company in
some other type of business venture to market the Company's
controlled-release delivery systems in return for an investment by the
Company, there can be no assurance that the Company will be able to identify
a suitable company as a joint venture partner or

1
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business in which to invest in the United States, Europe, or any other
location or, if such entity is identified, that the Company will be able to
complete such a transaction on favorable terms. In the event the Company does
not succeed in entering into licensing agreements within its first three
years of operations, the Company's ability to introduce its delivery systems
into the market in any significant way will be extremely limited.

The Company plans to engage in the business of developing and
commercializing patented controlled-release delivery systems for
pharmaceutical applications and for consumer products in sectors of the
toiletries, cosmetics, apparel, household products, personal care products,
and other markets. The Company's goal is to build on its patented "know-how"
by identifying strategic partners with manufacturing and marketing resources
to help the Company become a profitable developer and supplier of products
integrating controlled-release delivery systems with applications in a wide
range of industry sectors. The Company believes that its patents give it the
opportunity to market controlled-release delivery systems which are unique in
the way they combine microencapsulation technology with flexible fleece-type
fabrics. 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. In late 1996, the
European Patent Office dismissed Procter & Gamble's challenge in favor of Mr.
Tebbe's patent claims.

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
manufacture, and are seeking new ideas for innovative products that the
Company's delivery system technology may help to provide.

The Company believes that its controlled-release delivery systems
offer an attractive alternative to existing, conventional delivery systems.
The Company's technology can function effectively to deliver perfumes,
toiletries, cosmetics, deodorants, emollients, decongestants and other
personal

2
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care substances which currently utilize traditional delivery systems. The
Company believes its technology has potential applications in the
pharmaceutical industry, where new delivery systems for active substances are
in increasing demand. Products employing traditional delivery systems
(powders, roll-ons, creams, sprays, etc.), in the Company's view, can be
inconvenient to use and, after application, rapidly deteriorate and lose
their efficacy. The Company's delivery systems are intended to provide for
the controlled-release of active substances in desired quantities over an
extended period of time, thereby providing a superior delivery system that
avoids the "peak and valley" effect resulting from use of traditional
delivery systems currently on the market. The Company intends to market its
systems as an alternative to traditional delivery systems, with the advantage
of extended active substance effectiveness, and the convenience of a no-mess,
no-spill solution to consumers' personal care and prescription and
non-prescription pharmaceutical needs.

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 the licensee a unique opportunity to
diversify and expand its sales.

STRATEGY

The Company is engaged in the development and commercialization of
certain patented controlled-release delivery systems. The Company's strategic
objective is to expand and build on its patented technology, 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.

LICENSING

Consumer markets for apparel, cosmetics, toiletries, pharmaceutical
products, household products and personal care products, although very large,
are also highly competitive. Establishing and increasing brand recognition
for a product typically requires a significant expenditure on advertising.
Therefore, to avoid bearing the majority of this advertising outlay, the
Company intends to market its patents and patent rights, especially in the
early stages of its operations, primarily through licensing agreements.

The Company believes that many of its customers will enter into
license agreements in return for a royalty payment to the Company. It is the
Company's intention to grant licenses to corporations in the apparel,
cosmetics, toiletries, household products, personal care products and other
industries. The Company will receive royalty payments in exchange for a
license to use the Company's patents, patent applications, and related
intellectual property necessary to manufacture and distribute products which
integrate the Company's delivery systems. During the early phase of licensing
activities, the Company may contribute to the promotion and advertising of
the products to be sold by the licensees. Thereafter, the licensees will be
responsible for the continued marketing of the products, including product
promotions and advertisements. There can be no assurance that the Company
will be able to enter into licensing agreements with any potential customers
on terms advantageous to the Company, if at all. Furthermore, the Company
lacks the resources and

3
<PAGE>

organizational support structure to mass market products which integrate its
systems, assuming that there is a demand for them. Therefore, the Company is
dependent either on forming joint ventures with or concluding the acquisition of
an operating company, or on securing other licensee corporations to manufacture
and distribute its products.

The Company has identified, and in some cases has had preliminary
meetings with, a number of European and United States corporations that may
be interested in licensing the Company's technology to exploit its delivery
systems. The Company hopes to enter into licensing agreements with
corporations in a number of market sectors, including: men's clothing,
women's clothing, sports clothes, shoes, women's perfumes, men's cosmetics,
personal hygiene and pharmaceutical products. It cannot be assumed, however,
that any preliminary discussions with corporations in these market sectors
will result in a definitive licensing agreement being consummated between the
parties.

The Company has also identified potential markets for licensees in
North America, Japan and Southeast Asia; however, the Company plans to
license its delivery systems in one or more of these countries after it has
found licensees in Europe. There can be no assurance, however, that the
Company's systems will ever be licensed in the European, North American,
Japanese or Southeast Asian markets.

Finally, the Company has entered into an agreement with the law
firm of Drs. Axel Meyer-Wolden, Unger, Duvinage ("Meyer-Wolden") in Munich,
Germany, one of Germany's leading firms in the areas of entertainment and
intellectual property. The agreement relates only to the worldwide patent for
the Company's deodorant patch product, and provides that Meyer-Wolden will
introduce the Company and its products to certain potential customers and
will be responsible for negotiation and administration of license agreements
arising from those introductions, in return for a fee equal to 10% of all
income generated by the licensing agreements resulting therefrom. Unless
renewed by the parties thereto, this agreement expires in January 2002. Any
fees to be paid to Meyer-Wolden are payable regardless of whether the Company
is profitable. The Company hopes this agreement with Meyer-Wolden will
provide significant potential marketing opportunities for the Company's
products.

MANUFACTURING AND DISTRIBUTION

MANUFACTURING

The Company's main objective is to license its delivery systems to
corporations with in-house resources to handle all aspects of product
manufacture. However, the Company anticipates that some licensees will not be
able to manufacture in-house, and will require products developed and
manufactured by the Company or a Company sub-contractor. Mr. Gerold Tebbe,
President and CEO of the Company, has developed a number of Deotexis products
which integrate the Company's controlled-release delivery systems. These
include the "Deotexis Cold Scarf," a disposable scarf impregnated with herbal
substances for use by people seeking relief from the symptoms of colds and
congestion. The Cold Scarf has been successfully test-marketed, and, the
Company believes, could be put into production expeditiously to meet market
demand. The Company is considering sub-contracting production of this product
to a licensee or alternatively acquiring a company with experienced
management and manufacturing capability, which could take

4
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over the responsibility. The Company has had discussions with potential
acquisition targets in Europe and the United States, in anticipation of future
demand and before the Company has received substantial purchase orders from
customers for this product. If possible, the Company plans to seek acquisition
candidates in countries which provide favorable tax and financing structures for
such transactions. Though the Company has had preliminary discussions with a few
operating companies that may be potential acquisition targets, the Company has
not entered into any acquisition agreements with any potential companies, it
currently has made no agreement or commitment to enter into such a transaction,
and the Company currently has no commitments to finance such an acquisition.
Ultimately, the Company's failure to consummate such an acquisition will
significantly limit the Company's ability to fully implement its current sales
and marketing plan.

DISTRIBUTION

The Company believes it can best affect the distribution of its
products by licensing the technology and the processes required to
manufacture them to consumer products manufacturing and distribution
companies, in return for a licensing fee, which companies would, in turn,
manufacture and distribute the Company's products. While the Company has had
preliminary discussions with several potential licensees, there can be no
assurance that such contemplated agreements will be reached on terms
advantageous to the Company, if at all. In the event the Company does not
succeed in entering into these licensing and distribution agreements within
its first three (3) years of operations, the Company's ability to distribute
its products in the market in any significant way will be extremely limited.

INTERNATIONAL DISTRIBUTION AND LICENSING

The Company may in the future enter into distribution or licensing
agreements with one or more United States, Japanese or Southeast Asian
distributors for distribution of its products outside of Europe. Such agreements
will not be entered into unless the Company believes that one or more of its
products can be sold profitably in such markets, or that such distribution or
licensing positions the Company for future sales in those markets. The Company
has no present plans with respect to these markets, and there is no assurance
that the Company will develop or pursue any such plans in the future.

AGREEMENT WITH LICENSEE

In April 1998, the Company entered into a License Agreement with KuW
Hummel Vertriebs GmbH, a small manufacturing and distribution company in
Germany. The original purpose of this agreement was to secure for the Company a
supply of certain products in development, to be used for promotional and
test-marketing activities, and to provide a manufacturer for these products in
the event that the Company received larger orders. The Company has now decided
to pursue licensees with access to larger markets and with greater financial
resources. As a result, and as the License Agreement permits, the Company
intends to terminate this agreement in the next six (6) months.

5
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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 licensing
agreements, primarily into the European (and potentially American, Japanese
and Southeast Asian) 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 revenues 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 revenues as a result of such commercial exploitation. 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.

INDUSTRY OVERVIEW

Controlled-release microencapsulation has been a known technology for
a number of years in the pharmaceutical, biomedical, chemical, carbonless paper,
agricultural, pesticide and food industries, with estimated annual sales of $3-4
billion. In the textile-based form invented by Mr. Tebbe in the late 1980s,
however, it was fairly novel.

In recent years, products incorporating textile-based
controlled-release delivery systems have become a very large, international
market. The market now includes female hygiene products and baby's diapers,
which make increasing use of micro-encapsulated anti-bacterial substances
impregnated into textiles. In the pharmaceutical industry, controlled-release
delivery systems were the basis of the successful nicotine patch.

An emerging future market has been identified by independent market
researchers in the area of enhanced textiles. In order to remain viable, the
declining textile industry in Europe and the United States is experimenting with
new areas of fabric enhancement, and one of the most promising technologies is
controlled-release delivery of compounds through microencapsulation. The
Company's systems seek to take advantage of this growing trend to textile-based
controlled-release systems.

COMPETITION

The Company believes that its delivery systems compete with
conventional delivery systems (including sprays, creams, powders and roll-on
mechanisms), and that many products employing these varied delivery systems
compete for selection and purchase by consumers who are making largely
non-discretionary expenditures. The Company further believes that products
purchased on a largely non-discretionary basis can differentiate themselves with
respect to, and produce sales as a result of, novelty, brand image, convenience
of use, effectiveness of the distribution channel utilized, and price
considerations. Products utilizing the Company's

6
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controlled-release delivery systems, in the Company's opinion, will have a
strong consumer attraction in each of these categories, primarily due to
these products' novelty and convenience.

Textile-based controlled-release delivery systems are being
integrated into personal hygiene and other products manufactured by a wide
range of European, United States and Far Eastern corporations. These
corporations include competitors that are very large and have substantial
financial resources. Due to the Company's relative lack of experience in the
business, its limited financial and other resources, and other factors
relating to competition that may develop from well-established companies and
delivery system alternatives, the Company may not be able to compete
successfully, if at all, with existing or new competitors in the
controlled-release technology field.

EMPLOYEES

As of March 26, 1999, the Company had no paid employees. Mr. Gerold
Tebbe is serving as President, Chief Executive Officer, Secretary and Treasurer
of the Company, and providing his services and expertise to the Company, without
compensation. Mr. Kirk, who was appointed Acting Chief Financial Officer of the
Company on March 23, 1999, is also providing his services to the Company in this
capacity without compensation.

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.

7
<PAGE>

ITEM 2. PROPERTIES.

The Company maintains temporary offices in New York, New York, as
its corporate headquarters, at an annual cost of approximately $3,300. A
search for suitable office space, to serve as the Company's United States
headquarters, to be located in Westchester County, New York, New Jersey or
Connecticut is currently underway. The Company does not own or lease any
other real property.

ITEM 3. LEGAL PROCEEDINGS.

There are no legal proceedings to which the Company is a party.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

8
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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The Common Stock of the Company was initially registered and began
trading on the close of the Company's initial public offering on January 31,
1994.

The Common Stock is traded on the NASD OTC Electronic Board. The high
and low bid quotations for the Common Stock for the fiscal quarters of the
Company ended March 31, 1998, June 30, 1998, September 30, 1998 and December 31,
1998, are listed below:

Common Stock*
------------
Quoted Bid Price
----------------
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
March 31, 1998 N/A(1) N/A

June 30, 1998 N/A N/A

September 30, 1998 N/A N/A

December 31, 1998 N/A N/A

</TABLE>

- ------------------------------

* Source: The Nasdaq Stock Market. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.

(1) There was no trading or quotation activity with respect to the
Company's Common Stock on the NASD OTC Electronic Bulletin Board for the
periods indicated.

- ------------------------------

The Company's Common Stock also trades on the Bermuda Stock Exchange
("BMX") on a "restricted" basis, which means that only trades of $100,000 or
more in the aggregate are reflected in the BMX's quotation records, and shown on
its quotation screen.

On March 26, 1999, there were approximately 520 holders of record and
beneficial owners of Common Stock.

No cash dividends have been paid by the Company on its Common Stock
and management does not anticipate paying cash dividends any time in the
foreseeable future.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The Company is currently in the development stage. The selected
financial data presented below as of and for the years ended December 31,
1997 and December 31, 1998 is derived from the financial statements audited
by M.R. Weiser & Co. LLP and the December 31, 1996 data is derived from the
financial statements audited by Mayer Rispler & Company, P.C. The selected
financial data for the period from inception (March 6, 1992) to December 31,
1992 and for the years ended December 31, 1993, 1994 and 1995 are derived
from the financial statements audited by Nachum Blumenfrucht, CPA. The
selected financial data should be read in conjunction with "Plan of
Operations" and the financial statements of the Company for the years 1996,
1997 and 1998, and for the period from inception, March 6, 1992, to December
31, 1998, including the notes thereto, appearing elsewhere in this Annual
Report.

<TABLE>
<CAPTION>
March 6,
1992 March 6,
(inception) Year Ended December 31, 1992
to ----------------------------------------------------------------------------- (inception)
December to December
31, 1992 1993 1994 1995 1996 1997 1998 31, 1998
----------- ------- -------- -------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Revenue-interest
income $ 190 $ 147 $ 12,614 $ 16,268 $ 23,426 $ 38,753 $ 166,695 $ 258,093
Expenses:
General and
administrative 252 1,913 39,798 51,273 67,163 278,654 1,533,856 1,972,909
----- ------- -------- -------- -------- ---------- ----------- -----------
Net Loss $ (62) $(1,766) $(27,184) $(35,005) $(43,737) $ (239,901) $(1,367,161) $(1,714,816)
===== ======= ======== ======== ======== ========== =========== ===========
Basic Loss per
common share $(.35) $ (9.87) $ (.10) $ (.13) $ (.16) $ (.19) $ (.30)
===== ======= ======== ======== ======== ========== ===========
Weighted average
number of shares
outstanding 179 179 278,750 278,750 278,750 1,237,618 4,546,875
===== ======= ======== ======== ======== ========== ===========

</TABLE>

As of December 31,
1997 1998
---- ----
<S> <C> <C>
BALANCE SHEET DATA:

Current Assets.............................. $4,036,261 $2,956,090
Working Capital ............................ 3,812,377 2,446,416
Total Assets ............................... 4,036,261 2,956,090
Total Liabilities........................... 223,884 509,674
Stockholders' Equity........................ 3,812,377 2,446,416

</TABLE>

10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATIONS.

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 Annual Report.

RESULTS OF OPERATIONS

The Company has not generated any revenue from operations and is in
the development stage.

PLAN OF OPERATIONS

GENERAL OVERVIEW

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, 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 a sales-based royalty payment 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 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.

11
<PAGE>

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.

TARGET MARKETS; MANUFACTURING AND DISTRIBUTION STRATEGY

RETENTION OF SENIOR MANAGEMENT

Seven directors have been elected to the Company's Board of Directors
by the Company's stockholders. 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.

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.

12
<PAGE>

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 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 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
a sales-based royalty payment 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 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.

13
<PAGE>

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 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 main 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 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 developments
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 the 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.

RESULTS OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES

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, and activities

14
<PAGE>

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. On December 31, 1998, the Company had $2,956,090
of liquid assets, working capital of $2,446,416 and shareholders' equity of
$2,446,416. The Company has not manufactured or licensed any of its delivery
systems since inception. The Company currently maintains temporary offices in
New York City, the annual cost of which is approximately $3,300. With the
exception of the foregoing, the Company has paid no rent since its inception and
has paid no salaries. Within the next twelve (12) months, the Company expects to
have secured permanent office space in New Jersey, Connecticut or Westchester
County, New York State to serve as its United States headquarters. The annual
cost of such office space is not expected to be material.

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.

15
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See financial statements following Item 14 of this Annual Report on
Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

(a) On January 21, 1998, the Company formally dismissed Mayer Rispler
& Company, P.C., Certified Public Accountants (the "Former Accountants"), as the
Company's certified public accountants and auditors. The Former Accountants'
report on the financial statements of the Company for the fiscal year ending
December 31, 1996 did not contain an adverse opinion or disclaimer of opinion,
nor was such report qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the Former Accountants' audit of the
Company for the fiscal year ending December 31, 1996, and for the interim period
through January 21, 1998, there were no disagreements between the Company and
the Former Accountants with respect to any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. The
decision to dismiss the Former Accountants was approved by the Company's Board
of Directors on January 19, 1998.

(b) On January 21, 1998, the Company engaged M.R. Weiser & Co., LLP,
Certified Public Accountants ("M.R. Weiser"), as the Company's certified public
accountants and auditors. Prior to its engagement, the Company had not consulted
M.R. Weiser regarding the application of accounting principles to any
transaction in which the Company was engaged or proposed to engage, or the type
of audit opinion that might be rendered on the Company's financial statements.
The decision to engage M.R. Weiser was approved by the Company's Board of
Directors on January 19, 1998.

16
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The names and ages of the Company's directors and executive officers
are set forth below.

Name Age Position Held
- ---- --- -------------
<S> <C> <C>
Robert F. Wright 73 Chairman of the Board;
Chairman, Executive Committee;
Member, Nominating Committee
Member, Compensation Committee

Gerold Tebbe 49 Vice Chairman of the Board;
Chief Executive Officer,
President, Secretary and Treasurer;
Member, Executive Committee;
Member, Nominating Committee;

David F. Bolger 66 Director;
Member, Audit and Governance Committee;
Member; Compensation Committee

Aubrey L. Cole 75 Director;
Chairman, Audit and Governance Committee

Michael J. Rosenberg 70 Director;
Member, Audit and Governance Committee

Ira T. Wender 72 Director;
Chairman, Compensation Committee

Tony Kirk 55 Director;
Acting Chief Financial Officer;
Chairman, Nominating Committee;
Member, Executive Committee;

</TABLE>

17
<PAGE>

There are currently two executive officers of the Company, Mr.
Tebbe, who is President and Chief Executive Officer, and Mr. Kirk, who is
Acting Chief Financial Officer. Mr. Tebbe is also serving as the Company's
Secretary and Treasurer until such time as suitable personnel can be retained
to serve in those positions. Mr. Kirk is serving as the Acting Chief
Financial Officer of the Company, until such time as the Company's level of
operations warrants the retention of a permanent Chief Financial Officer.

BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS

ROBERT F. WRIGHT. Mr. Wright has been Chairman of the Company since
January 1998. Mr. Wright is currently a Director or Chairman of several
national and international financial and industrial companies, including
Hanover Direct, Inc., The Navigators Group, Inc., Quadlogic Controls Corp.,
Reliance Standard Life Insurance Co., Rose Technology Group Limited, U.S.
Timberlands Company, L.P., Universal American Financial Corp. and GVA
Williams. Mr. Wright is also a member of several charitable Boards, including
New York University, Town Hall Foundation, Greenwich House Settlement, and
the Council of Governing Boards. Since 1988, Mr. Wright has managed his own
investment and consulting firm, Robert F. Wright Associates, Inc. From 1948
to 1988, Mr. Wright was employed by Arthur Andersen LLP, with the position of
Partner when he retired. He was educated at Michigan State University and New
York University.

GEROLD TEBBE. Mr. Tebbe has been a Director, President, Treasurer and
Secretary of the Company since October 1997, and has been Chief Executive
Officer of the Company since January 1998. Mr. Tebbe was born in
Langenenslingen, Germany, and has been self-employed as an inventor for the past
ten years, specializing in inventing, patenting and developing products
combining his controlled-release technology with textiles and other
applications. From 1970 to the late-1980s, Mr. Tebbe was President of Textil
Atelier K. Tebbe in Germany, a textile concern owned by his family specializing
in textile design for woven and knitted materials, and the servicing of certain
textile production equipment. Mr. Tebbe studied tailoring and passed the
examinations of the Chamber of Industry and Commerce (IHK) in Reutlingen,
Germany; subsequently, he qualified as master craftsman in textile design while
employed in Albstadt-Tailfingen, Germany.

DAVID F. BOLGER. Mr. Bolger has been a Director of the Company since
January 1998. Mr. Bolger is the President of Bolger & Co., Inc. Mr. Bolger
received his B.B.A. degree from the University of Pittsburgh in 1954. After
serving as a Contracting Officer in the U.S. Air Force, Mr. Bolger relocated to
New York, where he was employed as Executive Assistant to Thomas Mellon Evans
(H.K. Porter Co., Crane Co. and Evans & Company) from 1956 to 1961. From 1961 to
1963, Mr. Bolger served as Vice President and Director of Broadstone Realty
Corporation (a wholly-owned subsidiary of Stone & Webster Securities, Inc.) in
New York City. From 1963 to 1966, he was employed by New York Securities Co. and
its affiliate, New York Securities Co., Inc., serving as director, officer and
partner. In 1966, Mr. Bolger founded Bolger & Co., Inc., which for the past 33
years has been active in the financing of fixed assets for major corporations
and in various corporate activities, including leveraged buy-outs, Employee
Stock Option Plans, and investing in under-valued industrial corporations,
financial institutions and retail enterprises. He is a Director of Universal
Holdings Corp. (its affiliates include American Progressive Life and Health
Insurance Company of New York and American Pioneer Life Insurance Company of
Florida), and Chairman and Chief Executive Officer of FMB Holding Co., Inc.
(Farmers & Merchant State Bank, Boise, Idaho). In addition to his business
activities, Mr. Bolger is active in numerous charitable, philanthropic and
professional organizations.

18
<PAGE>

AUBREY L. COLE. Mr. Cole has been a Director of the Company since
January 1998. Since 1989, Mr. Cole has been a consultant for Aubrey Cole
Associates, a management consulting services and investment concern, and he is
currently a director of U.S. Timberlands Company, L.P. From 1986 to 1989, Mr.
Cole was the Vice Chairman of the Board of Directors of Champion International
Corporation (a publicly-traded forest products company), and from 1983 to 1993,
Mr. Cole was Chairman of Champion Realty Corporation (the land sales subsidiary
of Champion International). Mr. Cole holds a B.B.A. from the University of Texas
and serves on the Advisory Board of the University of Texas Business School.

MICHAEL J. ROSENBERG. Mr. Rosenberg has been a Director of the Company
since January 1998. From 1961 to 1996, Mr. Rosenberg was employed in various
capacities by Rosenthal & Rosenthal, Inc., New York City, where he ultimately
became Executive Vice President. Prior to this, from 1959 to 1961, Mr. Rosenberg
was employed by Sterling National Bank, New York, and, from 1958 to 1959, he
worked for A.J. Armstrong & Co., New York. From 1953 to 1958, Mr. Rosenberg was
employed by Meinhard & Co., New York. He is a member of the Board of Directors
of DVL, Inc. and Magna-Labs, Inc., both NASDAQ-listed public companies. He has
been, and continues to be, active in numerous charitable, philanthropic and
professional organizations, including serving on the Boards of New York
University and the Town Hall Foundation. From 1951 to 1953, Mr. Rosenberg served
as a First Lieutenant in the U.S. Army in Korea, where he was decorated with the
Silver Star and the Bronze Star. He received his B.S. from Upsala College in
1951 and his MBA from New York University in 1955.

IRA T. WENDER. Mr. Wender has been a Director of the Company since
January 1998. Mr. Wender has been of counsel to, or a partner with, the New York
law firm of Patterson, Belknap, Webb and Tyler from 1986 to date. From 1971 to
1986, he was a partner with the law firm of Wender, Murasc and White, New York,
and from 1959 to 1971, he was a partner with the law firm of Baker & McKenzie,
New York. From 1949 to 1952, and from 1954 to 1959, he was an associate at the
law firm of Lord Day & Lord, New York. In the years 1952 to 1954, he was
Assistant Director of the Harvard Law School International Program in Taxation.
During the years 1954 to 1958, Mr. Wender was a Lecturer in Taxation at the NYU
School of Law and co-authored "Foreign Investment and Taxation," which was
published in 1955 by Prentice Hall. Mr. Wender received a B.A. degree from
Swathmore College in 1945, a J.D. degree from the University of Chicago Law
School in 1948, and an L.L.M. in Taxation from the New York University School of
Law in 1951. From 1969 to 1974, Mr. Wender was Chairman of C. Brewer & Company
Ltd., Honolulu, Hawaii (sugar production and international agriculture) and from
1978 to 1982, he was President and Chief Executive Officer of A.G. Becker -
Warburg Paribas Becker, Inc. (investment banking). From 1982 to 1986, he was
Chairman of The Sussex Organization, Inc. (investment banking), and from January
1994 to September 1994, he was Chairman of Perry Ellis, Inc. Mr. Wender is
currently a Director of The Dime Savings Bank, New York, Refac Technology, Inc.
and United Investors Realty Trust.

TONY KIRK. Mr. Kirk has been a Director of the Company since
January 1998, and Acting Chief Financial Officer since March 1999. Since
August 1990, Mr. Kirk has been a partner in Kirk & Maeder, a management
consulting firm in Switzerland, providing advice on management buy-outs,
turn-arounds, acquisitions, divestitures, public offerings of stock and other
forms of venture capital primarily to family-owned industrial and financial
corporations. From 1987 to August 1990, Mr. Kirk was managing director of
Societe Financiere de Geneve, Geneva, Switzerland ("Sofigen"), a listed
finance company investing in

19
<PAGE>

privately-owned, medium-sized businesses in Europe and the United States. From
1982 to 1987, Mr. Kirk served in several positions for Thyssen Bornemisza N.V.,
a diversified family-owned industrial group of companies based in Monaco and
Amsterdam, including, from 1983, head of Corporate Development, and from 1985,
Senior Vice President and head of Mergers and Acquisitions. In these capacities,
Mr. Kirk was responsible for numerous transactions with industrial companies.
From 1978 to 1981, Mr. Kirk was a manager of the Boston Consulting Group, an
international consulting firm based in Munich, Germany, where Mr. Kirk served as
a management consultant to several large German public corporations and
privately-owned companies. Mr. Kirk received a Ph.D. from Oxford University in
1973. He has been a Director or advisory board member of companies in Germany,
Switzerland, Austria, Holland and the United States. Mr. Kirk speaks fluent
German, French and English.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

The Company's directors and executive officers are required under the
Securities Exchange Act of 1934 to file reports of ownership and changes in
beneficial ownership of the Company's equity securities with the SEC. Copies of
those reports must also be furnished to the Company. Based solely on a review of
the copies of reports furnished to the Company, and written representations that
no Forms 5 were required, the Company believes that during the fiscal year ended
December 31, 1998, all filing requirements applicable to directors and executive
officers were complied with, except that Forms 3 for all the Directors of the
Company were filed in May 1998.

ITEM 11. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

From its incorporation on March 6, 1992 until the present, except for
(1) certain payments to a former officer and director of the Company for the use
of office space provided to the Company by that former officer and director, (2)
certain payments to another former officer and director of the Company for
consulting services rendered to the Company by a firm affiliated with that
former officer and director, both of which agreements were terminated in October
1997 and (3) certain consulting fees paid to a current Director of the Company
(see Item 13, "Certain Relationships and Related Transactions -Related Party
Transactions--Consulting Fees Paid To Tony Kirk,") the Company has not paid any
salary or other compensation to Mr. Tebbe, Mr. Kirk, as Acting Chief Financial
Officer, any other officer or Director or any other person. Currently, other
than as described below, involving contingent compensation to be paid to Mr.
Tebbe in connection with his contribution to the Company of patents, patent
applications, and related intellectual property, there is no agreement between
the Company and Mr. Tebbe to compensate Mr. Tebbe for his services to the
Company.

CONTINGENT COMPENSATION

The Company has an agreement with Gerold Tebbe, the President, Chief
Executive Officer, Secretary, Treasurer and a Director of the Company, to pay
Mr. Tebbe 1% per annum of all net revenues recognized by the Company in
connection with the commercial exploitation of the Company's patents and patent
rights. The Company entered into this agreement with Mr. Tebbe when

20
<PAGE>

Mr. Tebbe, prior to becoming a director and officer of the Company, agreed to
contribute his patents, patent rights and related intellectual property to
the Company in connection with the sale of 4,183,125 shares of the Company's
common stock to Overton Holdings Limited, a Turks and Caicos Islands
corporation ("OHL"), of which Mr. Tebbe is the 100% beneficial owner. The
Company has agreed with Mr. Tebbe that royalty payments under this agreement
will not accrue and be payable to Mr. Tebbe unless and until the Company has
recognized net income from that patent or patent right during such year, as
determined in accordance with generally accepted accounting principles, as
applied in the United States. The Company expects to formalize this royalty
agreement with Mr. Tebbe in the next twelve (12) months. The Company has
agreed further that Mr. Tebbe may renegotiate the terms of such royalty
compensation, in the event the current stockholders of the Company (other
than OHL and other than those stockholders of the Company that received their
shares of stock by gift from OHL), transfer a majority of their shares of the
Company's Common Stock to persons other than the current shareholders. There
can be no assurances that, in the event such transfers of the Common Stock of
the Company occur, the Company will be able to renegotiate the payment of the
royalty compensation to Mr. Tebbe on terms that are favorable to the Company.
Currently, the Company's agreement with Mr. Tebbe is independent of his
remaining in any of his positions as a Director, President, Chief Executive
Officer, Secretary and Treasurer of the Company.

DIRECTORS COMPENSATION

CASH COMPENSATION. Each member of the Board of Directors will receive
$20,000 annually in cash compensation for his services to the Company as a
Director. In addition, the Company will reimburse its directors for reasonable
out-of-pocket expenses incurred in connection with attendance by the directors
at meetings of the Board or any committee thereof.

STOCK COMPENSATION. Pursuant to the 1998 Director Stock Option Plan,
options to purchase an aggregate of 200,000 shares of Company Common Stock may
be granted from time to time to persons who are now or shall become incumbent
directors and who are not, at the respective times of the grant of stock options
under the 1998 Director Stock Option Plan, employees of the Company or any
subsidiary ("Eligible Directors"). Each Eligible Director shall be granted under
the 1998 Director Stock Option Plan, on May 20, 1999, and on May 20 of each year
thereafter, an option to purchase $20,000 worth of Common Stock. Each option
granted pursuant to the 1998 Director Stock Option Plan shall be fully vested
upon the granting thereof and, subject to the payment of the exercise price with
respect thereto, shall be immediately exercisable. The per share price of a
share of Common Stock, for determining how many shares will be subject to each
option grant under the 1998 Director Stock Option Plan, shall be the fair market
value of a share of Common Stock on the date of grant. No fractional shares
shall be issued upon exercise of any option granted under the 1998 Director
Stock Option Plan, and any resulting fraction of a share shall be rounded up to
the next nearest whole share. Six incumbent directors and nominees are eligible
to participate in the 1998 Director Stock Option Plan.

STOCK OPTIONS

To provide additional compensation to senior executives upon their
retention, and possibly at specific times, or at regular intervals, thereafter,
the Company anticipates adopting, at

21
<PAGE>

the appropriate time and subject to shareholder approval, an Incentive Stock
Option Plan. The exact terms of the Incentive Stock Option Plan have yet to be
determined, but the Company expects the plan to provide for the grant of some or
all of the following: incentive stock options, nonstatutory stock options,
performance shares, stock appreciation rights, and restricted stock awards. The
vesting provisions of the equity compensation granted pursuant to the plan will
be governed by separate Option Agreements to be executed by the Company and the
optionee at the time of grant. The amount of Common Stock of the Company to be
reserved for issuance pursuant to the Incentive Stock Option Plan has yet to be
determined.

MANAGEMENT EMPLOYMENT AGREEMENTS

The Company expects to offer employment agreements to members of
senior management at the time such members are recruited. The terms of such
employment agreements will be subject of negotiation at the time senior
management is retained.

22
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The management of the Company has been informed that, as of March 26,
1999, the persons identified in the table below, including all directors,
nominees for director, executive officers and all owners known to the Company of
more than 5% of any class of the Company's voting securities, owned
beneficially, within the meaning of Securities and Exchange Commission ("SEC")
Rule 13d-3, the securities of the Company reflected in such table. Except as
otherwise specified, the named beneficial owner claims sole investment and
voting power as to the securities reflected in the table.

BENEFICIAL OWNERSHIP OF COMPANY STOCK

- ------------------------------------------------------------------------------------------
Number of Shares
Beneficial Owner(1) of Common Stock Percent of Class
- ----------------- ---------------- ----------------
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Overton Holdings Limited, a Turks and
Caicos Islands corporation, 100%
beneficially owned by Gerold Tebbe(2) . . . .. 2,731,443 60.07%
- ------------------------------------------------------------------------------------------
Address:
c/o The Chartered Trust Company Towne
Centre Mall
Butterfield Square
Providenciales
Turks & Caicos Islands
British West Indies
- ------------------------------------------------------------------------------------------
Deotexis AG, a Swiss
corporation 100% beneficially owned by
Gerold Tebbe(2). . . . 50,000 1.01%

Address:

Poststrasse 9
CH-6300
Zug, Switzerland
- ------------------------------------------------------------------------------------------

</TABLE>

- --------------------
1 Currently, other than Gerold Tebbe and Tony Kirk, none of the
Company's directors or executive officers is the beneficial owner of any Company
Common Stock.

2 The aggregate beneficial ownership of Company Common Stock by
Gerold Tebbe, President, Chief Executive Officer, Secretary, Treasurer and a
Director of the Company, through Overton Holdings Limited and Deotexis AG, is
as follows: (a) shares beneficially owned: 2,781,443; (b) percentage
beneficially owned: 61.17%.

23
<PAGE>

</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

STOCK PURCHASE AGREEMENT

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 has agreed with Mr. Tebbe that royalty
payments under this agreement will not accrue and be payable to Mr. Tebbe unless
and until the Company has recognized net income from that patent or patent right
during such year, as determined in accordance with generally accepted accounting
principles, as applied in the United States. The Company expects to formalize
this royalty agreement with Mr. Tebbe in the next twelve (12) months. The
Company has agreed further that Mr. Tebbe may renegotiate the terms of such
royalty compensation, in the event the current shareholders of the Company
(other than OHL and other than those stockholders of the Company that received
their shares of stock by gift from OHL) transfer a majority of their shares of
the Company's Common Stock to persons other than the current shareholders. There
can be no assurance that, in the event such transfers of the Common Stock of the
Company occur, the Company will be able to renegotiate the payment of the
royalty compensation to Mr. Tebbe on terms that are favorable to the Company.

RELATED PARTY TRANSACTIONS

TEBBE ROYALTY. As discussed above, the Company has an agreement in
principle with Gerold Tebbe, President, Chief Executive Officer, Secretary,
Treasurer and a Director of the Company, to pay Mr. Tebbe one percent (1%) per
annum of all net revenues recognized by the Company in connection with the
commercial exploitation of the Company's patents, patent rights and related
intellectual property. The Company entered into this arrangement with Mr. Tebbe
in connection with his contribution of those patents, patent rights and related
intellectual property pursuant to the closing of the Stock Purchase Agreement,
whereby OHL, wholly beneficially owned and controlled by Mr. Tebbe, purchased
4,183,125 shares of the Company's Common Stock. The

24
<PAGE>

Company has agreed that Mr. Tebbe may renegotiate the terms of such royalty
compensation, in the event the current shareholders of the Company (other than
OHL and other than the shareholders receiving their shares by gift from OHL)
transfer a majority of their shares of the Company's Common Stock to persons
other than the current shareholders. Because Mr. Tebbe is the President and
Chief Executive Officer of the Company, and because he beneficially owns and
controls OHL, the majority shareholder of the Company, he effectively controls
and can dictate the affairs of the Company, and it should be recognized that any
renegotiation of Mr. Tebbe's royalty arrangement with the Company will not be on
an arms-length basis and may be more or less favorable to the Company than the
agreement the Company could have negotiated had Mr. Tebbe not been the Company's
beneficial majority shareholder.

The royalty compensation arrangement between the Company and Mr. Tebbe
provides that no payments shall accrue and be payable to Mr. Tebbe unless and
until the Company has recognized net income from that specific patent or patent
right during a given fiscal year, as determined in accordance with generally
accepted accounting principles, as applied in the United States. To date, the
Company has not recognized any net income from any patent, patent right or
related intellectual property contributed to the Company by Mr. Tebbe, and Mr.
Tebbe has not received any royalty payments from the Company.

CONSULTING AGREEMENT WITH TONY KIRK. Within the next twelve (12)
months, the Company expects to enter into a consulting agreement with Tony Kirk,
a Director and the Acting Chief Financial Officer of the Company, pursuant to
which Mr. Kirk will consult with and advise the Company with respect to the
potential acquisition of an operating company in the United States or Europe,
and also with respect to the formation of joint ventures with, or investments
in, potential technology partners. The exact provisions of this agreement have
yet to be negotiated, but the Company anticipates that Mr. Kirk will be paid a
fee for his consulting services, the majority of which would be payable upon the
successful consummation of such an acquisition. Because of Mr. Kirk's
relationship to the Company, the terms of his consulting agreement to be
negotiated with the Company may be more or less favorable to the Company than
the agreement the Company could have negotiated with a consultant who is not a
Director of the Company.

CONSULTING FEES PAID TO TONY KIRK. During the period from January 1,
1998 to December 31, 1998, Tony Kirk, who became a Director of the Company
on January 19, 1998, and Acting Chief Financial Officer of the Company on
March 23, 1999, performed consulting and other services for the Company, for
which the Company paid him $398,000. In addition, Mr. Kirk continues to
perform such services for the Company and may be paid additional amounts for
consulting and other services rendered to the Company for periods subsequent
to the 1998 fiscal year, until the negotiation and execution of the
Consulting Agreement referred to above, at which time the Consulting
Agreement will control the relationship between Mr. Kirk and the Company.

25
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A) EXHIBITS.

3.1 Articles of Incorporation, as amended.
3.2 By-Laws of the Company, as amended.
4. Specimen certificate for shares of Common Stock.
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.

(B) REPORTS ON FORM 8-K

The Company filed the following reports on Form 8-K during the last
quarter of the period covered by this Annual Report on Form 10-K.

None.

26
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant 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

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert F. Wright Chairman of the Board March 29, 1999
- ------------------------
Robert F. Wright

/s/ Gerold Tebbe President, Chief Executive March 29, 1999
- ------------------------ Officer, Secretary, Treasurer
Gerold Tebbe (principal executive officer);
Vice Chairman of the Board

/s/ David F. Bolger Director March 29, 1999
- ------------------------
David F. Bolger

/s/ Aubrey L. Cole Director March 29, 1999
- ------------------------
Aubrey L. Cole

/s/ Tony Kirk Acting Chief Financial March 29, 1999
- ------------------------ Officer; Director (principal
Tony Kirk financial and accounting
officer)

/s/ Michael J. Rosenberg Director March 29, 1999
- ------------------------
Michael J. Rosenberg

/s/ Ira T. Wender Director March 29, 1999
- ------------------------
Ira T. Wender

</TABLE>

27
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)

INDEX TO FINANCIAL STATEMENTS

PAGE
----
<S> <C>
Independent Auditors' Reports ...................................................................F-2

Balance Sheets at December 31, 1997 and 1998.....................................................F-4

Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and
cumulative since March 6, 1992 (inception) to December 31, 1998..................................F-5

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 ..................................F-6

Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and
cumulative since March 6, 1992 (inception) to December 31, 1998..................................F-7

Notes to Financial Statements ...................................................................F-9

</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Deotexis, Inc.
New York, New York

We have audited the accompanying balance sheets of Deotexis, Inc. as of
December 31, 1997 and 1998 and the related statements of operations,
stockholders' equity and cash flows for the years then ended and the 1997 and
1998 amounts included in the cumulative period March 6, 1992 (inception)
through December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. The related statements of
operations, stockholders' equity and cash flows of Deotexis, Inc. for the
years ended December 31, 1996 and the March 6, 1992 (inception) through
December 31, 1996 amounts included in the cumulative period March 6, 1992
(inception) through December 31, 1998 were audited by another auditor whose
report dated March 18, 1997 expressed an unqualified opinion on those
statements.

We conducted our audits 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 presentation. 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 Deotexis, Inc. as of
December 31, 1997 and 1998, and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

M.R. Weiser & Co. LLP
Certified Public Accountants

New York, New York
February 3, 1999

F-2
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Deotexis, Inc.
(formerly Zeron Acquisitions II, Inc.)
New York, New York

We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Deotexis, Inc. (formerly Zeron Acquisitions II,
Inc.) for the year ended December 31, 1996 and the 1996 amounts included in
the cumulative period March 6, 1992 (inception) through December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The March 6, 1992 (inception) through December
31, 1995 amounts included in the cumulative period March 6, 1992 (inception)
through December 31, 1996 of Deotexis, Inc. (formerly Zeron Acquisitions II,
Inc.) were audited by another auditor whose report dated February 27, 1996
expressed an unqualified opinion on those statements.

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 presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and cash flows of
Deotexis, Inc. (formerly Zeron Acquisitions II, Inc.) for the year ended
December 31, 1996, in conformity with generally accepted accounting
principles.

Mayer Rispler & Company, P.C.
Certified Public Accountants

Brooklyn, New York
March 18, 1997

F-3
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
----------- ----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 4,034,700 $ 2,956,090
Prepaid taxes 1,561 --
----------- -----------

Total assets (all current) $ 4,036,261 $ 2,956,090
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 73,097 $ 80,015
Due to officer 150,787 429,659
----------- -----------

Total current liabilities 223,884 509,674
----------- -----------

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) (1,714,816)
----------- -----------
Total stockholders' equity 3,812,377 2,446,416
----------- -----------

Total liabilities and stockholders' equity $ 4,036,261 $ 2,956,090
=========== ===========

</TABLE>

SEE ACCOMPANYING NOTES

F-4
<PAGE>

DEOTEXIS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

Years Ended December 31, March 6, 1992
--------------------------------------------- (Date of Inception) to
1996 1997 1998 December 31, 1998
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Interest and other income $ 23,426 $ 38,753 $ 166,695 $ 258,093
----------- ----------- ----------- -----------
Expenses:
Directors' fees 140,000 140,000
Interest expense 22,000 22,000
Consulting 15,000 (6,250) 38,125
Rent 15,000 (6,250) 3,722 41,847
Corporation franchise taxes 2,467 300 19,093 26,629
Filing fees 4,244 10,164 95,001 116,284
Amortization 100 17 500
Bank charges 447 375 2,310
Insurance 141,070 141,070
Office 16,312 130,541 148,693
Professional fees 29,905 263,986 982,429 1,295,451
----------- ----------- ----------- -----------
Total expenses 67,163 278,654 1,533,856 1,972,909
----------- ----------- ----------- -----------

Net loss $ (43,737) $ (239,901) $(1,367,161) $(1,714,816)
=========== =========== =========== ===========

Basic loss per share $ (.16) $ (.19) $ (.30)
=========== =========== ===========

Weighted average number of
shares outstanding 278,750 1,237,618 4,546,875
======= ========= =========
</TABLE>

SEE ACCOMPANYING NOTES

F-5
<PAGE>

DEOTEXIS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY

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
========= ====== ========== =========== ===========
</TABLE>

SEE ACCOMPANYING NOTES

F-6
<PAGE>

DEOTEXIS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31, March 6, 1992
--------------------------------------------- (Inception) through
1996 1997 1998 December 31, 1998
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (43,737) $ (239,901) $(1,367,161) $(1,714,816)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Services paid by stockholder 1,200 1,200
Amortization 100 17 500

Changes in operating assets and liabilities:
Loan receivable (2,331) 2,331
Prepaid taxes (1,561) 1,561 --
Accounts payable and
accrued expenses 8,200 57,797 6,918 79,515
Due to officer 150,787 278,872 429,659
----------- ----------- ----------- -----------
Cash used in operations (37,768) (30,530) (1,078,610) (1,203,942)
----------- ----------- ----------- -----------

Cash flows from financing activities:
Issuance of common stock -
net of costs 4,000,000 4,625,139
Capital contributed by principal
stockholder 10,643 10,643
Distributions (475,750) (475,750)
----------- ----------- ----------- -----------

Cash provided by financing activities -- 3,534,893 -- 4,160,032
----------- ----------- ----------- -----------

Net (decrease) increase in cash
and cash equivalents (37,768) 3,504,363 (1,078,610) 2,956,090

Cash and cash equivalents -
beginning of year / period 568,105 530,337 4,034,700
----------- ----------- ----------- -----------

Cash and cash equivalents -
end of year / period $ 530,337 $ 4,034,700 $ 2,956,090 $ 2,956,090
=========== =========== =========== ===========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 2,467 $ 1,861 $ 17,382
=========== =========== ===========
</TABLE>

(CONTINUED)

F-7
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS

(CONCLUDED)

Non-cash 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 $ 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 $ 1,200
=========== ===========
</TABLE>

SEE ACCOMPANYING NOTES

F-8
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

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.

2. SIGNIFICANT ACCOUNTING POLICIES:

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 date of three months or
less to be cash equivalents.

Concentration of Credit Risk:

At December 31, 1998, the Company maintained all its cash in one
commercial bank. The institution is insured by the Federal Deposit
Insurance Corporation up to $100,000. The uninsured balance amounted to
approximately $19,000 at December 31, 1998.

F-9
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

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.

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 patents
acquired are not being amortized as the consideration was nominal. These
patents are for the textile-based controlled-release delivery systems for
consumer products in certain sectors of the toiletries, cosmetics,
apparel, household products and personal care products markets, and
applications in the pharmaceutical industry.

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.

Start Up Costs:

Effective for financial statements for the year ended December 31, 1998,
the Company adopted Statement of Position ("SOP") 98-5 "Reporting on the
Costs of Start-up Activities." Start-up activities include (i) one-time
activities relating to the introduction of a new product or service,
conducting business in a new territory, conducting business with a new
class of customer or commencing a new operation and (ii) organization
costs. Start-up activities are expensed as incurred. The adoption of SOP
98-5 does not have a cumulative effect on the amount of retained earnings
at December 31, 1998.

F-10
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

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 June 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 underwriting, a minimum of 100,000 common shares and a maximum of
200,000 common shares at of $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 completed the sale of 100,000 shares at
an aggregate of $625,000.

In October 1997, the Company distributed $475,750 of which $454,000 or
$4.54 per share would be 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 would be distributed to holders of 18,750 common
shares issued prior to the initial public offering.

On October 10, 1997, the Company issued 4,183,125 newly-issued and
nonregistered shares of common stock, $.001 par value in exchange for a
cash payment of $4 million and the transfer of certain patents, patent
applications and related intellectual property to the Company for nominal
consideration, plus future royalties tied to the revenues produced by the
intellectual property assets. In addition, the principal stockholder
contributed capital in the amount of $10,643.

F-11
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

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 unrelated 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.

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.

4. DUE TO OFFICER:

Due to officer consist of approximately $150,000 and $430,000 for 1997
and 1998, respectively, for professional fees and travel expenses, which
have been expended by an officer of the Company, on behalf of the
Company, and have been recorded as expenses and amounts due to officer.
The amounts due to officer are short-term and bear interest at 8% per
annum. Included in due to officer at December 31, 1998 is approximately
$22,000 relating to interest expense on the debt.

F-12
<PAGE>

DEOTEXIS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

5. INCOME TAXES:

The Company has available at December 31, 1998 approximately $1,545,000
of unused operating loss carryforwards that may be applied against future
taxable income, if any, and that expire in various years from 2012 to
2018. Since the "more likely than not" criteria of FAS 109 was not met at
December 31, 1998, the valuation allowance was equal to the deferred
income tax asset.

6. COMMITMENTS AND OTHER MATTERS:

On April 9, 1998, the Company entered into a nonexclusive licensing
agreement with Kuw Hummel Vertribs GmbH ("Hummel"), to manufacture and
sell certain products in Germany. Hummel is owned 49.2% by Mrs. Gerold
Tebbe.

7. RELATED PARTY TRANSACTIONS:

During 1998, the Company engaged the services of a professional
consulting firm; a director of the Company is a partner in the consulting
firm. During 1998, the Company incurred expenses of approximately
$398,000. As of December 31, 1998, approximately $26,000 was owed to this
related party.

The 1996 amounts of rent and consulting expenses reflected in the
statement of operations were paid to parties which were related to the
Company at that time.

F-13
<PAGE>

EXHIBIT INDEX

EXHIBIT PAGE NUMBER
- ------- -----------

3.1 Articles of Incorporation, as amended. __

3.2 By-Laws of the Company, as amended. __

4. Specimen certificate for shares of Common Stock __

21. Subsidiaries of Registrant. __

27. Financial Data Schedule __

<PAGE>

EXHIBIT 3.1

ARTICLES OF INCORPORATION

ZERON ACQUISITIONS II, INC.

The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Nevada, do hereby set forth as
follows:

FIRST: The name of the corporation is

ZERON ACQUISITIONS II, INC.

SECOND: The address of the initial registered and principal office of
this corporation in this state is c/o United Corporate Services, Inc., 841 East
2nd Street, in the City of Carson City, County of Carson City, State of Nevada
89702 and the name of the registered agent at said address is United Corporate
Services, Inc.

THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the corporation laws
of the State of Nevada.

FOURTH: (a) The corporation shall be authorized to issue the
following shares:

Class Number of Shares Par Value
- ------------------ ---------------- -----------------
COMMON 75,000,000 $.001
PREFERRED 15,000,000 $.001

<PAGE>

(b) The designations, powers, preferences, rights, and the
qualifications or restrictions thereof are as follows:

1. The holders of the Common shares shall be entitled to vote in all
matters requiring shareholder approval including the election of directors and
the holders of the Preferred shares shall have no voting rights whatsoever
except as are expressly required by law.

2. The Preferred shares shall be convertible into Common Shares
subject to the terms and conditions fixed by the Board of Directors.

3. The holders of the Preferred shares shall be entitled to receive
dividends, distributed ratably, before any dividends are declared and paid to
the holders of the Common shares.

4. The holders of the Preferred shares shall be entitled, upon
dissolution or liquidation of the corporation, to share in the assets of the
corporation, ratably, before any such distribution is made to the holders of the
Common shares.

FIFTH: The number of directors constituting the initial Board of
Directors is one (1); and the name and address of the person constituting the
initial Board of Directors, to serve until the first annual meeting of
shareholders, or until his successors are elected and qualify, is as follows:

NAME ADDRESS
- -------------------------- -----------------------------
Gary Takata 370 Lexington Avenue
New York, New York 10017

(This corporation has only one Shareholder.)

SIXTH: The names and addresses of the incorporators are as follows:

<PAGE>

NAME ADDRESS
- -------------------------- -----------------------------

Ray A. Barr 10 Bank Street
White Plains, New York 10606

Mark Skubicki 10 Bank Street
White Plains, New York 10606

SEVENTH: The period of duration of the corporation shall be
perpetual.

EIGHTH: The corporation may, to the fullest extent permitted by
Section 78.751 of the Nevada General Corporation Law, indemnify any and all
directors and officers whom it shall have power to indemnify under said section
from and against any and all of the expenses, liabilities or other matter
referred to in or covered by such section, and the indemnification provided for
herein shall not be deemed exclusive of any other rights to which the persons so
indemnified may be entitled under any By-Law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity by holding office, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefits of the heirs, executors and administrators of such a person.

IN WITNESS WHEREOF, the undersigned hereby execute this document and
affirm that the facts set forth herein are

<PAGE>

true under the penalties of perjury this fifth day of March, 1992.

/s/ RAY A. BARR
---------------------------------
Ray A. Barr, Incorporator

/s/ MARK SKUBICKI
---------------------------------
Mark Skubicki, Incorporator

STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )

Be it remembered that on this fifth day of March, 1992, personally
came before me, a Notary Public in and for the County and State aforesaid, Ray
A. Barr, Mark Skubicki, parties to the foregoing document, known to me
personally to be such, and who, being by me first duly sworn, acknowledged the
said document to be their act and deed and that the facts therein stated are
true.

Given under my hand and seal of office the day and year aforesaid.

/s/ MARIA R. FISCHETTI
---------------------------------
Maria R. Fischetti, Notary Public

<PAGE>

ACCEPTANCE AS REGISTERED AGENT

ZERON ACQUISITIONS II, INC.

Having been named to accept service of process for the above stated
corporation, at the place designated in this certificate, I hereby agree to act
in this capacity, and I further agree to comply with the provisions of all
status relative to the proper and complete performance of my duties.

Dated: March 5, 1992

UNITED CORPORATE SERVICES, INC.

/s/ RAY A. BARR
---------------------------------
Ray A. Barr, President

Registered Office Address:

841 East 2nd Street
Carson City, Nevada 89702

<PAGE>

Filing Fee: Receipt #

CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock) Filed by:

ZERON ACQUISITIONS II, INC.
--------------------------------------------------------

I, Gerold Tebbe, the President and Secretary of Zeron Acquisitions II, Inc.
(the "Corporation") do hereby certify:

That the Board of Directors of the Corporation at a meeting duly convened,
held on the 13th day of October, 1997, adopted a resolution to amend the
original Articles of Incorporation as follows:

Article First is hereby amended to read as follows:

"FIRST: The name of the corporation is Deotexis, Inc."

The number of shares of the Corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 4,546,875; that the said change
and amendment have been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.

/s/ Gerold Tebbe
----------------------------
Gerold Tebbe
President and Secretary

<PAGE>

Exhibit 3.2

BY-LAWS

DEOTEXIS, INC.

(LAST AMENDED MARCH 23, 1999)

(F/K/A ZERON ACQUISITIONS II, INC.)

- --------------------------------------------------------------------------------

ARTICLE I -- OFFICES

The office of the Corporation shall be located in any City and State designated
by the Board of Directors. The Corporation may also maintain other offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.

ARTICLE II -- STOCKHOLDERS

1. ANNUAL MEETING.

The annual meeting of the stockholders shall be held if called by the
Board of Directors within five months after the close of the fiscal year of the
Corporation, for the purpose of electing Directors, and transacting such other
business as may properly come before the meeting.

2. SPECIAL MEETINGS.

Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the President or by the
Directors, and shall be called by the President at the request of the holders of
not less than 10 per cent of all the outstanding shares of the Corporation
entitled to vote at the meeting.

3. PLACE OF MEETING.

The Directors may designate any place, either within or without the
State unless otherwise prescribed by statute, as the place of meeting for any
annual meeting or for any special meeting called by the Directors. A waiver of
notice signed by all stockholders entitled to vote at a meeting may designate
any place, either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation.

4. NOTICE OF MEETING.

Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than 10 nor more than 50 days
before the date of the meeting, either personally or by mail, by or at the
direction of the President, or the Secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice

1
<PAGE>

shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid.

5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.

For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the Directors of the Corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, 30 days. If the stock transfer books shall be
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders, such books shall be closed for at least 15
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than 45 days
and, in case of a meeting of stockholders, not less than 15 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders entitled to notice of or to vote at
a meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.

6. QUORUM.

At any meeting of stockholders 50% of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than said number of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.

7. PROXIES.

At all meetings of stockholders, a stockholder may vote by proxy
executed in the writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the Corporation before or
at the time of the meeting.

8. VOTING.

Each stockholder entitled to vote in accordance with the terms and
provisions of the Articles of Incorporation and these bylaws shall be entitled
to one vote, in person or by proxy, for each share of stock entitled to vote
held by such stockholders. Upon the demand of any

2
<PAGE>

stockholder, the vote for Directors and upon any question before the meeting
shall be by ballot. All elections for Directors shall be decided by majority
vote; all other questions shall be decided by majority vote except as otherwise
provided by the Articles of Incorporation or the laws of this State.

ARTICLE III -- BOARD OF DIRECTORS

1. GENERAL POWERS.

The business and affairs of the Corporation shall be managed by its
Board of Directors. The Directors shall in all cases act as a Board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation, as they may deem proper, not inconsistent with
these bylaws and the laws of this State.

2. NUMBER, TENURE AND QUALIFICATIONS.

The number of Directors shall not be less than one (1) nor more than
seven (7). All actions taken by the Corporation requiring approval of the Board
of Directors, when the Board of Directors consists of only one Director, shall
be valid. The Directors shall be elected at the annual meeting of the
stockholders and each Director shall be elected to serve until his successor
shall be elected and shall qualify. When the Board of Directors consists of only
one Director, such Director may accept his own resignation and appoint his
successor. A Director need not be a stockholder.

3. REGULAR MEETINGS.

A regular meeting of the Directors, shall be held without other notice
than this bylaw immediately after, and at the same place as, the annual meeting
of stockholders. The Directors may provide, by resolution, the time and place
for the holding of additional regular meetings without other notice than such
resolution.

4. SPECIAL MEETINGS.

Special meetings of the Directors may be called by or at the request of
the President or any two Directors. The person or persons authorized to call
special meetings of the Directors may fix the place for holding any special
meeting of the Directors called by them.

5. NOTICE.

Notice of any special meeting shall be given at least 3 days previously
thereto by written notice delivered personally, by telegram, telecopier or
mailed to each Director at his business or home address. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed delivered when the telegram is delivered to the telegraph
company. If notice be given by telecopier, such notice shall be deemed delivered
upon completion of the telecopier transmission. The attendance of a Director at
a meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of

3
<PAGE>

objecting to the transaction of any business because the meeting is not lawfully
called or convened.

6. QUORUM.

At any meeting of the Directors a majority of the Directors shall
constitute a quorum for the transaction of business, but if less than said
number is present at a meeting, a majority of the Directors present may adjourn
the meeting from time to time without further notice. In the event the
Corporation has only two Directors, then one Director will constitute a quorum.

7. MANNER OF ACTING.

The act of the majority of the Directors present at a meeting at which
a quorum is present shall be the act of the Directors.

8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.

Newly created directorships resulting from an increase in the number of
Directors authorized by the Board of Directors or shareholders and vacancies
occurring in the Board for any reason except the removal of Directors without
cause may be filled by a vote of a majority of the Directors then in office,
although less than a quorum exists. Vacancies occurring by reason of the removal
of Directors without cause shall be filled by vote of the stockholders. A
Director elected to fill a vacancy caused by resignation, increase in the number
of Directors, death or removal shall be elected to hold office for the unexpired
term of his predecessor.

9. REMOVAL OF DIRECTORS.

Any or all of the Directors may be removed for cause by vote of the
stockholders or by action of the Board. Directors may be removed without cause
only by vote of the stockholders.

10. RESIGNATION.

A Director may resign at any time by giving written notice to the
Board, the President or the Secretary of the Corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the Board of such officer, and the acceptance of the resignation shall not be
necessary to make it effective. With the consent of a majority of the other
members of the Board of Directors, or without such consent if there are no other
Directors, any Director tendering his resignation to the Board of Directors may
accept such resignation and appoint a successor to complete the term of the
resigning Director.

11. COMPENSATION.

No compensation shall be paid to Directors, as such, for their
services, but by resolution of the Board a fixed sum and expenses for actual
attendance at each regular or special meeting of the Board may be authorized.
Nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefore.

4
<PAGE>

12. PRESUMPTION OF ASSENT.

A Director of the Corporation who is present at a meeting of the
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.

13. EXECUTIVE AND OTHER COMMITTEES.

The Board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of three or more
Directors. Each such committee shall serve at the pleasure of the Board.

ARTICLE IV -- OFFICERS

1. NUMBERS.

The officers of the Corporation shall be a President, a Vice-President,
a Secretary and a Treasurer, each of whom shall be elected by the Directors.
Such other officers and assistant officers as may be deemed necessary may be
elected or appointed by the Directors. Any two or more offices may be held by
the same person.

2. ELECTION AND TERM OF OFFICE.

The officers of the Corporation to be elected by the Directors shall be
elected at a meeting of the Directors held when determined by the Directors.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided.

3. REMOVAL.

Any officer or agent elected or appointed by the Directors may be
removed by the Directors whenever in their judgment the best interests of the
Corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.

4. VACANCIES.

A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Directors for the unexpired
portion of the term.

5
<PAGE>

5. SALARIES.

The salaries of the officers shall be fixed from time to time by the
Directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a Director of the Corporation.

ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS

1. CONTRACTS.

The Directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances.

2. LOANS.

No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Directors. Such authority may be general or confined to
specific instances.

3. CHECKS, DRAFTS, ETC.

All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall from time to time be determined by resolution of the
Directors.

4. DEPOSITS.

All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Directors may select.

ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER

1. CERTIFICATES FOR SHARES.

Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Directors. Such certificates shall be signed
by the President and by the Secretary or by such other officers authorized by
law and by the Directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the Corporation. All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefore upon such terms and indemnity to the Corporation
as the Directors may prescribe.

6
<PAGE>

2. TRANSFERS OF SHARES

(a) Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office.

(b) The Corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.

ARTICLE VII - FISCAL YEAR

The fiscal year of the Corporation shall end on the 31st day of
December in each year.

ARTICLE VIII - DIVIDENDS

The Directors may from time to time declare, and the Corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.

ARTICLE IX - SEAL

The Directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the Corporation and the words,
"Corporate Seal."

ARTICLE X - WAIVER OF NOTICE

Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or Director of the Corporation under the provisions of
these bylaws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.

ARTICLE XI - AMENDMENTS

These bylaws may be altered, amended or repealed and new bylaws may be
adopted by a vote of the stockholders representing a majority of all the shares
issued and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting when the proposed amendment has been set out in the notice
of such meeting, or by a unanimous vote of the Board of Directors provided that
the amendment is not inconsistent with the powers provided the Board of
Directors by the Articles of Incorporation.

7
<PAGE>

ARTICLE XII - ANTI-TAKEOVER STATUTES

Pursuant to the authority granted in Section 78.378 of the Nevada
Revised Statutes, the so-called "anti-takeover" statutes found in NRS Sections
78.378(2) through 78.3793 inclusive shall not be applicable to the Corporation.

ARTICLE XIII - INDEMNIFICATION

1. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS.

The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the Corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (the "Indemnitee"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding to the
fullest extent and in the manner set forth in and permitted by the Nevada
General Corporation Law, and any other applicable law, as from time to time in
effect. Such right of indemnification shall not be deemed exclusive of any other
rights to which the Indemnitee may be entitled apart from the provisions of this
Article XIII. The foregoing provisions of this Section shall be deemed to be a
contract between the Corporation and each Indemnitee who serves in any such
capacity at any time while this Article XIII and the relevant provisions of the
Nevada General Corporation Law and other applicable law, if any, are in effect,
and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. The
indemnification and advancement of expenses provided by or granted pursuant to
this Article XIII shall, unless otherwise provided when authorized or ratified,
continue as to an Indemnitee who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.

2. ADVANCEMENT OF EXPENSES.

Expenses incurred by an officer, director, employee, or agent in
defending a civil or criminal action, suit or proceeding will be paid by the
Corporation as they are incurred and in advance of the final disposition of such
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation as authorized in this Article.

3. INSURANCE.

The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another

8
<PAGE>

corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under this Article XIII or under
Section 78.7502 of the Nevada General Corporation Law or any other applicable
provision of law.

4. DEFINITIONS.

For purposes of this Article XIII:

a. References to "the Corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this Article with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.

b. References to "other enterprises" shall include employee
benefit plans.

c. References to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan.

d. References to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries.

<PAGE>

Exhibit 4

[LOGO] [LOGO] [LOGO]
COMMON STOCK COMMON STOCK
PAR VALUE $.001 PAR VALUE $.001
<S> <C> <C>

INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF NEVADA DEOTEXIS, INC. DEFINITIONS
AUTHORIZED STOCK 75,000,000 SHARES CUSIP 249507 10 4

</TABLE>

This certifies that ____________________________________________
is the owner of:

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

Deotexis, Inc. transferable on the books of the corporation by the holder
hereof, in person or by duly authorized attorney upon surrender of this
certificate properly endorsed.

This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.

In Witness Whereof, the corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the corporation.

Dated:

Countersign and Registered
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR [DEOTEXIS, INC.
SEAL]
By [SIGNATURE] [SIGNATURE]
<S> <S> <S> <S>
AUTHORIZED SIGNATURE CHAIRMAN VICE CHAIRMAN
</TABLE>

<PAGE>

DEOTEXIS, INC.

Explanation of Abbreviations

The following abbreviations when used in the form of ownership on the
face of this Certificate shall be construed as though they were written out
in full according to applicable laws or regulations. Abbreviations in addition
to those appearing below may be used.

<TABLE>
<CAPTION>
Phase Abbreviation Equivalent Phase Abbreviation Equivalent
<S> <C> <C> <C>

JT TEN As joint tenants, with right of TEN BY ENT As tenants by the entireties
survivorship and not as tenants
in common

TEN IN COM As tenants in common UNIF GIFT MIN ACT Uniform Gifts to Minors Act
</TABLE>

<TABLE>
<CAPTION>
Word Word Word
Abbreviation Equivalent Abbreviation Equivalent Abbreviation Equivalent
- ------------ ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>

ADM Administrator(s) EST Estate, Of estate of PAR Paragraph
Administratrix EX Executor(s), Executrix PL Public Law
AGMT Agreement FBO For the benefit of TR (As) trustee(s). for, of
ART Article FDN Foundation U Under
CH Chapter GDN Guardian(s) UA Under agreement
CUST Custodian for GDNSHP Guardianship UW Under will of, Of will of,
DEC Declaration MIN Minor(s) Under last will & testament
</TABLE>

For value received, ______________________ hereby sell, assign and transfer unto

________________________________________________________________________________
Please print or typewrite name and address of assignee

________________________________________________________________________________

________________________________________________________________________________
Please insert Social Security or other identifying number of assignee

________________________________________________________________________________

_________________________________________________________________________ Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint

_____________________________________________________________________, Attorney.
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.

Dated _____________________________

X ______________________________________
(Sign here exactly as name(s) shown
on the face of this Certificate
without any change or alteration
whatever.)

Signature(s) Guaranteed:

By ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad.-15.

<PAGE>
EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

D-Tex, Inc. GmbH, incorporated in Germany in March 1999, wholly-owned
by Deotexis, Inc.

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DEOTEXIS, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
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